Budget 2017

Newsletter

Personal Taxes

Income TaxNo changes have been introduced to Income Tax rates and bands for 2017.

The Home Carer Tax Credit has been increased from €1,000 to €1,100 per annum. TheHome Carer’s income threshold has increased from €5,080 to €7,200 per annum.

The Earned Income Tax Credit has been increased from €550 to €950. The EarnedIncome Tax Credit is available to self-employed individuals and proprietary directorswho are not eligible for the PAYE tax credit. The purpose of the credit is to address thedisparity in take home pay between employees and self-employed individuals. Thecredit is expected to increase to €1,650 in the coming years.

A new tax credit of €1,270 has been introduced for fishermen who have fished for wildfish or wild shellfish for at least 80 days in a tax year. All other personal tax credits remainthe same as 2016.

USCMinor changes were made to USC bands in the Budget as follows:

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Budget 2017 made only minor changes in the area of personal taxes. We have set outbelow details of the changes to Income Tax and USC, to take effect from 1 January2017. The impact of the changes to individuals’ net income is set out in the attachedAppendices.

Pre-Budget 2017 PAYESelf-

EmployedPost-Budget 2017 PAYE

Self-Employed

Band Rate Rate Band Rate Rate

Income < €13,000 Exempt Exempt Income < €13,000 Exempt Exempt

First €12,012 1% 1% First €12,012 0.5% 0.5%

€12,013 - €18,668 3% 3% €12,013 - €18,772 2.5% 2.5%

€18,669 - €70,044 5.5% 5.5% €18,773 - €70,044 5% 5%

€70,045 - €100k 8% 8% €70,045 - €100k 8% 8%

Balance 8% 11% Balance 8% 11%

Medical card holders and individuals aged 70 years and

over whose aggregate income does not exceed €60,000

will now pay a maximum USC rate of 2.5%.

Personal Taxes

PRSI

No changes have been made to PRSI rates and bands for 2017. The PRSI rate remains at 4%.

DIRT

The rate of Deposit Interest RetentionTax (DIRT) has been reduced from 41%to 39% in 2017. The Government alsocommitted to reducing the rate of DIRTto 33% by 2020, at a rate of 2% eachyear, bringing the DIRT rate back to2013 levels. While this is to bewelcomed, with interest rates atcurrent lows, the benefit of thismeasure will be limited for most depositholders.

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Personal Taxes

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Foreign Earnings Deduction (FED)

The FED provides tax relief forindividuals working outside of Ireland incertain countries located in Africa, Asiaand South America up to a maximumdeduction of €35,000. For example, ifan individual earning €75,000 spends,say, 90 days working in a qualifyingcountry in 2017, the individual wouldqualify for a tax deduction of €18,493against their employment income.

For the purposes of the relief, a day willonly be regarded as a “qualifying day”where more than 3 consecutive daysare spent in a relevant state. Witheffect from 2015, days spent travellingto and from Ireland and betweenrelevant states will be included as aday spent in that relevant state.

Special Assignee Relief Programme (SARP)

SARP is a tax relief which wasintroduced in 2012 as a means ofattracting individuals to work in Ireland.The relief is available to individualsearning over €75,000 in Ireland. Therelief is available in the form of a taxdeduction at 30% of the excessincome over €75,000.

Budget 2017 has extended the SARPfor a further 3 years until the end of2020.

The minimum number of qualifyingdays spent outside of Ireland for thepurposes of the FED has been reducedin Budget 2017 from 40 days to 30 days.Colombia and Pakistan have alsobeen added to list of qualifyingcountries for the purposes of the relief.FED is being extended until the end of2020.

Business Taxes

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Corporation Tax

RateThe standard rate of corporation taxremains at 12.5%. The Minister outlinedthat the 12.5% rate remains at theheart of Irish corporation tax policy andis important in ensuring that Irelandremains an attractive destination forforeign direct investment. In light ofBrexit, the Minister expressed the viewthat the 12.5% rate may presentopportunities to attract businessesrelocating from the UK.

The Minister also published an updateon our International Tax Strategy,where he indicated that Ireland willcontinue to participate in all ongoingprojects such as BEPS and the EU Anti-Tax-Avoidance Directive.

An independent expert, Mr SeamusCoffey, has also been appointed bythe Government to undertake a reviewof the Irish corporation tax code in lightof recent developments in this area (inparticular the Apple EU State Aidcase), to ensure Ireland’s tax codecontinues to meet internationalstandards while also remainingcompetitive and transparent.

Start Your Own Business

Relief

This measure provides relief fromincome tax for long-term unemployedindividuals who start a new business.The scheme provides income tax reliefon business profits up to a maximum of€40,000 per annum for two years toindividuals setting up a qualifyingbusiness where they have beenunemployed for at least 12 monthsprior to starting the business.

This scheme was due to expire on 31December 2016 but has beenextended in Budget 2017 by two yearsto 31 December 2018.

Business Taxes

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Amendment to Section

110 TCAThe Minister announced measureswhich will be introduced in the FinanceBill to amend Section 110 of the TaxesConsolidation Act 1997. A Section 110company is a special purpose vehicleestablished in Ireland to securitiseassets. The use of Section 110companies was particularly prevalentin the IFSC.

A Section 110 company effectivelypays no tax in Ireland as the rulespermit the company to operate on atax neutral basis.

In recent media coverage, evidencebecame available to the effect that socalled “vulture funds” investing in Irishproperty and buying loans from banksand NAMA were using Section 110companies to reduce Irish tax on profitsfrom their Irish activities. In response tothat negative press coverage, it isproposed to exclude certain“Specified Property Business” from thebenefit of Section 110 status (detailsawaited in the Finance Bill). It isexpected that the changes will beeffective from 6 September 2016.

Share Based Incentive

Scheme

The Minister announced plans todevelop a new, SME-focussed, share-based incentive scheme in next year’sBudget. As such an incentive willrequire EU approval, the intention is toengage with the EuropeanCommission to ensure the Share BasedIncentive Scheme complies with StateAid rules before its announcement inBudget 2018.

Currently share based remunerationschemes are generally tax inefficient sochanges in this area of taxation will bewelcome.

Capital Taxes

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Capital Gains Tax

(“CGT”)

Entrepreneur Relief

A reduced rate of CGT for qualifyingentrepreneurs was introduced in lastyear’s Budget. Since 1 January 2016,the rate of CGT was reduced from 33%to 20% on the disposal of qualifyingbusiness assets or shares (in whole or inpart) by entrepreneurs up to a limit of€1 million in chargeable gains. Theexcess over €1 million remained liableto CGT at the standard rate of 33%.

Budget 2017 announced a reduction inthe rate of CGT for qualifying disposalsby entrepreneurs to 10% (the limitremains at €1 million).

The Minister also outlined plans toincrease the limit of €1 million in time.By way of comparison, there is a limit ofStg£10 million for chargeable gainsmade by entrepreneurs in the UK.

The enhancement of EntrepreneurRelief represents alternatives to

individuals when structuring businessesand is now a credible alternative to,say, Section 626B exemption forcompanies. However, given thepromise to further enhance the relief inthe future, one hopes that it will notresult in individuals postponing thedecision to sell businesses until 2018.

CGT Rate

No changes were made to the CGTrate in all other cases, which remains at33%.

Capital Acquisitions Tax

(“CAT”)

No significant changes were made toour CAT regime in Budget 2017.

There were some increases made tothe CAT-free group thresholds asfollows:

a) Group A Threshold (Parent to Child)has been increased from €280,000to €310,000.

b) Group B Threshold (benefit fromsibling, aunt/uncle, grandparent,child) has been increased from€30,150 to €32,500.

c) Group C Threshold (all otherbenefits) has been increased from€15,075 to €16,250.

The increase in the Group A thresholdwas in response to increasing propertyprices, particularly in Dublin. However,it was anticipated that the thresholdwould increase by more than €30,000,particularly given the commitment inelection manifestos to increase thethreshold to €500,000.

The CAT rate remains at 33% (onbenefits received in excess of the CAT-free thresholds, as outlined above).

Property Measures

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Help to Buy Scheme

A new “Help to Buy” scheme has been announced in Budget 2017 with a view toassisting first time buyers or those building new homes to fund the deposit required underthe Central Bank rules.

The scheme will provide a rebate of income tax paid over the previous four tax years byfirst time buyers of newly built homes or those building houses for their own occupation.The purchase of second hand properties will not qualify for this scheme.

The rebate will be capped at 5% of the purchase price of a new home up to a value of€400,000, i.e. maximum relief of €20,000. Relief on houses valued between €400,000 to€600,000 will be capped at €20,000 and there will be no rebate available on housepurchases over €600,000.

In order to qualify for the scheme, mortgage applicants must take out a mortgage of atleast 80% of the purchase price. The Minister confirmed that the Governor of the CentralBank has agreed that any rebate received under the scheme will be reckoned in full inthe calculation of the deposit required to be eligible for a mortgage under the CentralBank’s rules.

The scheme will apply to the purchase of newly built primary residences by first timebuyers where the contract was signed on or after 19 July 2016. In the case of a self-build,it will be available where applicants draw down the first tranche of their mortgage on orafter 19 July 2019. The scheme is scheduled to run until 31 December 2019.

The scheme is to be welcomed for individuals looking to get onto the property ladder forthe first time. However, while assisting the buyers in funding the deposit on the purchase,the danger is that the relief will benefit the developers indirectly through an increase inproperty prices.

Couple 1 Couple 2 Couple 3 Couple 4

Purchase Cost €200,000 €300,000 €400,000 €500,000

Deposit Required (under Central Bank Rules)

€20,000 €38,000 €58,000 €78,000

Maximum Rebate (Purchase cost up to €400,000 @ 5%)*

€10,000 €15,000 €20,000 €20,000

Example of relief under Help to Buy Scheme:

*Assuming sufficient income tax paid over previous 4 years.

Property Measures

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Interest Relief – Rented

Residential Property

The tax deduction available for landlordsagainst rental income for qualifyinginterest payments on borrowings for thepurchase, improvement or repair ofresidential property was reduced to 75%in Finance Act 2009 in respect of interestaccruing on or after 7 April 2009.

Budget 2017 has announced that this taxdeduction will now be increased to 80%in 2017 and will increase annually by afurther 5% until 100% deductibility isreached in 2021. This measure will applyto both new and existing mortgages.

The aim of the measure is to ease the taxburden for landlords, as the restrictionwas dis-incentivising landlords, withmany leaving the business and thenumber of rental properties availablereducing as a result. While the increasein this deduction is to be welcomed, theactual savings to landlords as a result areunlikely to be significant due to currentlow interest rates, particularly forlandlords on tracker mortgages.

Landlords should ensure the tenancy isregistered with the Private ResidentialTenancies Board in order to qualify forthe mortgage interest deduction.

Rent-a-room relief

Rent-a-room relief provides anexemption from income tax toindividuals in respect of the letting ofroom(s) in their principal privateresidence up to an annual limit.

Since 1 January 2015 the annual limit onexempt income is €12,000. Budget 2017provides that this limit will increase to€14,000 from 2017. Again, the aim of thismeasure seems to be to increase theavailability of rental residential property.

Home Renovation

Incentive

Originally introduced in Finance (No. 2)Act 2013 and extended to 31 December2016 last year, the Home RenovationIncentive (“HRI”) has now been furtherextended to 31 December 2018 for bothhomeowners and landlords.

The HRI provides an income tax credit for

home repair, renovation andimprovement works carried out byqualifying contractors on principalprivate residences or rental properties.

The relief is available at a rate of 13.5%of the renovation costs from a minimumthreshold of €4,405 (before VAT) up to alimit of €30,000 (before VAT).

Property Measures

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Living City Initiative

The Living City Initiative is a scheme of property tax incentives which applies to ‘specialregeneration areas’ in the centres of Dublin, Cork, Limerick, Galway, Waterford andKilkenny.

Tax relief is currently available for owner-occupiers who undertake residentialrefurbishments by way of a deduction from their total income. Tax relief is also availablein respect of certain commercial properties over a 7-year period by way of acceleratedcapital allowances.

The Living City Initiative is being amended to make the scheme available to residentiallandlords in addition to owner-occupiers. The requirement for residential applicants’ thatthe property was previously used as a dwelling has also been removed, together withthe restriction on the maximum floor size of the property. The minimum amount ofqualifying expenditure has also been reduced. Further details are awaited in theFinance Bill.

Farmer Taxation

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Income Averaging

The Income Averaging regime allows afarmer’s taxable profits to be averagedout over a 5-year period. The rules arebeing amended to allow a farmer totake a year out from income averagingin a year of unexpectedly poor income.

If the “opt out” option is selected, thefarmer would be liable to tax on profits inthe current year. Any deferred taxliability arising would be payable by thefarmer over subsequent years meaningthat the total taxable income in thelong-term will remain the same. Furtherdetails are awaited in the forthcomingFinance Bill.

The new “opt out” provisions will beavailable to farmers in 2016.

VAT

The farmer’s flat-rate addition willincrease from 5.2% to 5.4% with effectfrom 1 January 2017. The flat-ratescheme compensates farmers who arenot VAT-registered for VAT incurred onfarm expenditure.

The VAT rate for the sale of livestockremains at 4.8%.

Capital Allowances

The scheme of accelerated capitalallowances for energy efficientequipment is being made available tosole traders, including farmers, from 2017.The scheme was previously onlyavailable to companies.

Capital allowances are ordinarilyavailable at a rate of 12.5% over 8 years.However, where qualifying energyefficient equipment is acquired, 100% ofthe expenditure qualifies for capitalallowances in the year the equipment isacquired.

A register of eligible equipment is

available from the Sustainable EnergyAuthority of Ireland at www.seai.ie.

Farm Restructuring Relief

Farm Restructuring Relief, which was dueto expire in 2016, has been extended tothe end of 2019. Farm RestructuringRelief is a relief from Capital Gains Tax ondisposals of farm land for farmrestructuring purposes where the saleand purchase of farmland occurs within24 months of each other.

Revenue Powers

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The Minister outlined the difficult job facing Revenue in raising finances to fund publicexpenditure. In light of this and the release of the “Panama Papers”, a deadline of 1 May2017 has been announced for the making of a voluntary disclosure in respect of offshorestructures and accounts.

A new strict liability criminal offence for failure to return details of offshore accounts hasalso been announced. A similar strict liability criminal offence for offshore tax evasion wasintroduced in the UK earlier this year. In the UK there is an automatic presumption ofcriminality for offshore fund tax evasion. Further details are awaited in the Finance Bill.

An additional €5m in funding was also announced for the Revenue Commissioners, toallow the recruitment of 50 additional staff on audit and investigation activities, to tackletax evasion, with the aim being to increase tax and duty yields from complianceinterventions.

The Revenue Commissioners are also launching a consultation process today in order toensure a fundamental redesign and modernisation of the PAYE system, with the aimbeing to assist employees to manage their tax affairs, reduce contact between Revenueand employers and reduce administration costs for employers and Revenue while alsoimproving compliance in this area. A consultation paper has been published byRevenue today inviting submissions from interested parties.

Indirect Taxes

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Value Added Tax

The 9% reduced VAT rate applicable to

the hospitality and tourism sectors,which was introduced from 1 July 2011has been retained in order to maintaingrowth in the tourism and hospitalityindustries.

There were no changes introduced tothe standard rate and the reducedrate of VAT, which remains at 23% and13.5% respectively.

Vehicle Registration Tax

(VRT)

The VRT relief available for the

purchase of hybrid electric vehicles isbeing extended to 31 December 2018.

The VRT relief available for thepurchase of electric vehicles andelectric motorcycles is also beingextended to 31 December 2021. Thesereliefs were introduced in order toencourage the use of environmentally-friendly vehicles.

Excise Duties

Excise duty on a packet of 20

cigarettes has been increased by 50cent (incl. VAT) with a pro-rataincrease on other tobacco products.These measures are effective from 12October 2015.

There were no increases in excise dutyon alcohol, petrol, diesel or homeheating oil and gas.

Extension of Excise Duty Relief for Microbreweries

A relief which reduces the standardrate of Alcohol Products Tax by 50% onbeer produced by microbreweries willnow be extended to microbrewerieswhich produce no more than 40,000hectolitres per annum.

The relief was previously restricted tomicrobreweries producing no morethan 30,000 hectolitres per annum.

Carbon Tax

The fuel inputs used to create high

efficiency electricity in combined heatand power are now fully exemptedfrom carbon tax.

Appendix 1

Income Tax Credits & Tax Bands

Tax Credits 2016 2017

€ €

Employee Tax Credit 1,650 1,650

Earned Income Tax Credit 550 950

Personal Tax Credits Single 1,650 1,650

Married 3,300 3,300

Widowed person

Bereaved in year of assessment3,300 3,300

One Parent Family Tax Credit 1,650 1,650

Home Carer Tax Credit 1,000 1,100

Dependent Relative Tax Credit 70 70

Incapacitated Child Tax Credit 3,300 3,300

Blind Persons Credit Single 1,650 1,650

Married (both blind)

3,300 3,300

Widowed Additional Credit 540 540

Widowed Parent Tax Credit Year 1 3,600 3,600

Year 2 3,150 3,150

Year 3 2,700 2,700

Year 4 2,250 2,250

Year 5 1,800 1,800

Age Credit Single 245 245

Married 490 490

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Appendix 1

Income Tax Credits & Tax Bands

Standard Rate Bands 2016 2017

€ €

Single/Widowed 33,800 33,800

Married One Income 42,800 42,800

Married Two Incomes 67,600 67,600

One Parent/Widowed Parent

37,800 37,800

Age Exemption Limits 2016 2017

€ €

Single 18,000 18,000

Married 36,000 36,000

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Appendix 2

Changes to Net Income

Annual Income Net Wage 2016 Net Wage 2017 Difference

€20,000 €18,448 €18,551 €103

€35,000 €28,442 €28,620 €178

€75,000 €48,518 €48,871 €353

€150,000 €84,518 €84,871 €353

Single Person - Employee

Married Person – One Income - Employee

Annual Income Net Wage 2016 Net Wage 2017 Difference

€20,000 €19,148 €19,251 €103

€35,000 €30,332 €30,510 €178

€75,000 €51,968 €52,231 €263

€150,000 €87,968 €88,321 €353

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Appendix 2

Changes to Net Income

Married Person – Two Incomes – Employees*

Single Person – Self-Employed

Annual Income Net Wage 2016 Net Wage 2017 Difference

€20,000 €20,000 €20,000 -

€35,000 €34,030 €34,206 €176

€75,000 €59,409 €59,789 €380

€150,000 €97,036 €97,742 €706

Annual Income Net Wage 2016 Net Wage 2017 Difference

€20,000 €17,007 €17,510 €503

€35,000 €27,342 €27,920 €578

€75,000 €47,418 €48,171 €753

€150,000 €81,918 €82,671 €753

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*Assumes both spouses earn same income

Disclaimer

This information is designed to remind/inform readers of important issues and deadlines,

and to provide information of recent developments in the taxation sector in general.

Please note that this leaflet is intended to be a brief outline of the issues involved and

should not be regarded as a comprehensive guide. In all cases only a summary of the

main points are included and you should contact us if you wish to discuss any of these

matters in more detail. The emphasis is on clarity so some items may be over-simplified.

While every effort has been made to ensure that the information contained therein is

correct, Cahill Taxation Services do not accept any responsibility for loss or damage

occasioned by any person acting, or refraining from acting, as a result of this

information. Should you have any queries regarding any of the issues raised above,

please do not hesitate to contact us at 065 6840630 or at info@cahilltaxation.ie.

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