We were promised a no deal Brexit Budget and Pascal Donoghue duly delivered. The Government delivered little or nothing to the average person on the street and it’s difficult to argue that many will be happy with the budget delivered. If the UK walk away from Europe on 31 October with no deal, it may dictate whether the prudency of the budget will be viewed as a success or not.
That being said, no one will have reason to be outraged, albeit increasing the commercial stamp duty rate from 6% to 7.5% won’t go down well with property purchasers. The Minister is banking on the increased stamp duty rate not having a negative effect on the commercial property market and I hope he is correct. Of course what the Minister is trying to do is to get more residential property and residential land on the market and that is understandable. The fact that he is allowing for the rate to continue to reduce to 2% for land used for residential purposes reaffirms this.
In my view there are some positive measures in the budget and they mainly revolve around the Irish SME sector. These include enhancing the KEEP share option scheme for employees of SME companies, increasing the R&D tax credit from 25% to 30% for small and micro entities and major improvements for investors into the Employment Investment Incentive (EII) scheme along with extending the 0% BIK on electric cars for employees. All in all, some very positive moves for SME owners who could be the hardest hit by the ever looming No Deal Brexit.
Minister Donoghue barely mentioned Capital Gains Tax and so there are very little changes to it. Entrepreneurs are still well behind the UK when it comes to the tax rate on selling their businesses. However, the Minister will look at the €1m threshold to see if the rate can be increased.
The increase in property values that we are seeing has been catered for when it comes to inheritances as the tax free threshold for a gift from a parent to a child increased by €15k from €320k to €335k. We are still well below the €500k+ limits which were seen pre-recession.
The Government is aiming to reform the current Dividend Withholding Tax (DWT) regime. This should allow for timely collection of tax from dividends through the PAYE modernisation system. It will be a two-step process commencing with increasing the DWT rate from 20% to 25% from 1 January 2020. The aim is that the PAYE modernisation system will be used to reform the DWT process from 2021 using real time data. It will be interesting to see how the integration is managed.
Summary of measures
Tax Cuts / Personal Tax
- There will be no change to PAYE, USC and PRSI rates and tax bands. However, there will be a 1 year extension to the reduced rate of USC for medical card holders.
- The self employed and small business owners will get an increase in the earned income tax credit of €150. This means the credit is now at €1,500, which is getting closer to the PAYE tax credit of €1,650.
- The home carers credit has increased from €1,500 to €1,600.
- The current Group A tax free threshold which applies primarily to gifts and inheritances from parents to their children is being increased from €320,000 to €335,000. This increase applies in respect of gifts or inheritances received on or after the 9th of October 2019.
- The rate of Dividend Withholding Tax (DWT) will increase from 20% to 25% from 1 January 2020. However, this will act as a transitional measure as Revenue aims to reform the process. From 1 January 2021, there will be a modified DWT regime utilising real-time data collected under the newly modernised PAYE system. It is intended that Revenue will apply a personalised rate of DWT to each individual taxpayer based on the rate of tax that they pay on their PAYE income. This will not impose any additional liability on taxpayers.
Property Related Measures
- Stamp duty on commercial property to go from 6% to 7.5% from midnight tonight. This will be subject to transitional arrangements whereby the existing 6% rate will apply to instruments executed before 1 January 2020 where a binding contract existed prior to Budget day. Consequential amendments will also be made to the legislation relating to the repayment of stamp duty where the land involved is subsequently used for residential development, to ensure that the rate of stamp duty chargeable after a full refund remains at 2%.
- Help to buy scheme is being retained - Extension in its present format until 31 December 2021.
- Living City Initiative - Extension in its present format until 31 December 2022
- There are no VAT changes in this year’s budget
- 0% BIK on electric vehicles extended for another year.
- KEEP Scheme – enhancements of the scheme to allow for group structures and part-time/family employees to qualify for the scheme. Existing shares may also qualify. Full details will be announced in the Finance Act.
- Employment Investment Incentive Scheme (EII) – enhancement of the scheme to allow investors claim 40% relief in the year of investment as opposed to the current system which allows for the 40% relief to be split between Year 1 (30%) and Year 4 (10%). Annual limits to be claimed by investors to increase from €150k to €250k and up to €500k if investing for 10 years or more.
- Research and Development Tax credit - The R&D tax credit is being amended for micro and small companies to increase the 25% R&D credit to 30% and to enhance the existing limits on the payable credit. A new provision is being introduced to allow micro and small companies conducting pre-trading R&D to claim the credit before trading commences, subject to a maximum reclaim of the company’s VAT and payroll tax liabilities. In respect of all claimants, the current limit on outsourcing to third level institutes of education will be increased from 5% to 15%.
- Special Assignee Relief Programme (SARP) – extension in its present format until 31 December 2022
- Foreign Earnings Deduction (FED) - Extension in its present format until 31 December 2022
- Betting Tax - Introduction of a relief from betting duty and betting intermediary duty up to a limit of €50,000 per calendar year. This relief only applies to single undertakings.
- Diesel Rebate Scheme - Relief for users of the scheme from increase in carbon tax
- Very little for farmers but extension of Capital Gains Tax (CGT) relief for farm restructuring. The relief provides for CGT relief where an individual dispose of and purchases land and/or exchanges land with another farmer in order to consolidate an existing farm. This relief was due to end on 31 December 2019 and has been extended to 31 December 2022.
- Cigarettes are again increased by 50 cents. A packet of 20 cigarettes is now roughly €13.50
- No increase in the price of a pint or a glass of wine
- Carbon tax increase of €6 per tonne to €26 per tonne – The increase will take effect for auto fuels tonight, with the other fuels from May 2020 after winter heating season. It is expected that it will cost an additional €1.25 to fill a car from tonight.
- The income threshold to qualify for a medical card for over 70s has increased by €50 per week for a single person and €150 per week for couples. For the second year in a row, the prescription charge payable by medical card holders aged over 70 is being cut incrementally by 50 cents.
- The monthly threshold for the drug payment scheme is being reduced by €10 per month, meaning no person or family should have to pay more than €124 per month for drugs and medical appliances.
This is the Government’s fourth and final budget and they duly delivered on their promise of a No Deal Brexit budget. The ordinary person on the street has not got much from this budget and should a No Deal Brexit occur at the end of the month, no one will complain too much. However, no one is particularly happy either.
The Government are banking on the 7.5% stamp duty rate on commercial properties financing the rainy-day funds and the small tax incentives. Let’s hope that a no deal Brexit does not bring down the commercial property sector.
The real winners here are the SME business owners, with many of our clients benefiting from improvements to the R&D tax credit regime, the KEEP scheme and the EII scheme. It will be interesting to see how these are enacted in the Finance Act in November.
Should you like to discuss the improvements to these reliefs or anything else contained in the budget, please contact either Dave O’Brien or Kevin Canning.
Senior Tax Manager