Budget Briefing 2016

October 13, 2015

Introduction

The Minister for Finance introduced the final Budget of the 31st Dail.  He advised that it is considered that as a result of this Budget that the recovery will be felt in every home in the country.  The only taxation increase introduced is an extra 50 cents on every packet of standard cigarettes.  The majority of the changes announced today have been circulating in the media in the last few days.

Income Tax

For the first time since April 2009, the marginal rate of tax falls below 50%, being 49.5% for all individuals earning less than €70,044.  This has been achieved by reducing the rates of USC as noted below. 

Universal Social Charge (“USC”)

The entry point for USC has been increased with the effect that incomes of €13,000 or less are exempt from USC.  For amounts in excess of €12,012, the rates are set out below:

                             For Employees         Self Employed
                                                                 Individuals

€0 to €12,012                1%                            1%
€12,013 to €18,668       3%                            3%
€18,669 to €70,044       5.5%                         5.5%
€70,045 to €100,000     8%                            8%
Balance                         8%                           11%

The higher rates of USC, which were introduced in Budget 2015 minimise the benefit of the USC rates reduction for individuals with incomes in excess of €70,044.

Home Carer Tax Credit

The Home Carer Tax Credit has been increased by €190 to €1,000.  The income threshold of the home carer has also been increased to €7,200 (previously €5,080).

Earned Income Tax Credit

A new tax credit of €550 has been introduced for self-employed individuals and proprietary directors who have earned income.  This is to recognise the fact that such individuals are not entitled to the PAYE tax credit.

Employer PRSI change

Currently an employer pays PRSI at 8.5% in respect of an employee earning €356 or less per week.  This threshold has been increased on €376 per week.  On amounts exceeding €376 per week, the rate remains 10.75%.

Pension Levy

As expected, the Minister has confirmed the current pension levy of .15% will end in 2015.

Employment Investment Incentive Scheme

The changes announced last year are being commenced with effect from 14 October 2015.  The changes have been awaiting EU approval up to now.  The changes included an increase in the amount that a company could raise annually to €5 million with a lifetime cap of €15 million.  A further change is that the scheme has been amended to include expansion works on existing nursing homes.

Profits/ Gains from Woodlands

Currently, the profits/ gains from woodlands are subject to the High Earners’ Restriction.  The Minister has announced that such profits are being removed from the High Earners’ Restriction.

Home Renovation Incentive (HRI)

The HRI has been extended to 31 December 2016.

Capital Allowances for Aviation Sector

Subject to EU approval, the Finance Act 2013 introduced capital allowances for the construction of aircraft hangers used for the maintenance, repair or overhaul of aircraft.  The section is being commenced with effect from 14 October 2015 with some amendments in order to ensure compliance with EU State aid rules. 

Business Taxation

Knowledge Development Box

A public consultation process was announced in Budget 2015 for the development of a Knowledge Development Box, similar to the Patent Box which is currently in operation in other countries.  The mechanics of the Knowledge Development Box have since been agreed upon and full details of this measure will be contained in the Finance Bill.  Under this new regime, profits arising in respect of certain patents and copyrighted software which has resulted in qualifying R&D in Ireland will be subject to a lower rate of corporation tax of 6.25%.  Minister Noonan has indicated that the proposed Knowledge Development Box will be the first OECD compliant regime of this nature. 

It is hoped that this new lower rate of corporation tax combined with additional tax incentives already available to companies such as the research and development tax credit and the intangible asset regime should assist in increasing Ireland competitiveness in an international context in terms of attracting foreign direct investment.

3 Year Relief for Start-up Companies

The corporation tax exemption available to start-up companies whose tax liability does not exceed €40,000 has been extended to new start-ups for a further three years.  This incentive was originally introduced in Budget 2009 and has been extended and modified in recent Budgets. 

Film Relief

Following changes to the film tax incentive regime brought in by Finance Act 2013, only a film producer company can qualify for a corporation tax credit in respect of their film investment.   The amount of the corporation tax credit was limited to an amount equal to 32 per cent of the lowest of the eligible expenditure amount, 80 per cent of the total cost of production of the film and a cap of €50 million.

Budget 2016 announces that the cap on the amount of eligible tax relieved expenditure has been increased from €50 million to €70 million.  This new measure is subject to State aid approval.

International Tax Strategy

In order to enhance transparency, measures will be introduced in the Finance Bill to provide for country-by-country reporting in line with the OECD recommendations.

Capital Gains Tax

Entrepreneurial Relief

A new capital gains tax relief for entrepreneurs has been announced which will lower the rate of capital gains tax from the current rate of 33% to 20% in respect of certain business disposals by entrepreneurs.  The revised CGT rate of 20% will apply to the first €1 million of chargeable gains arising on a disposal of the whole or part of a business.  The balance of chargeable gains arising will remain liable to CGT at its current rate of 33%.  This new rate will become effective from 1 January 2016.

The above change has come about amid considerable pressure from the business community in recent years to align Ireland’s competitiveness internationally and in particular with the UK.  However, the above measure has a long way to go in terms of matching the UK’s favourable CGT regime which is in place for entrepreneurs who currently enjoy a lower CGT rate of 10% on the first Stg£10 million of chargeable gains.

Capital Acquisitions Tax

There has been no change to the 33% CAT rate.  However, the Group A CAT tax free threshold has been increased from €225,000 to €280,000 with effect from 14th October 2015 therefore benefitting gifts or inheritances being received by children from their parents.  There have been no changes to the CAT Group B and C thresholds which remain at €30,150 and €15,075 respectively.

VAT

There have been no changes to VAT rates.

Stamp Duty

There have been no changes to general stamp duty rates.

Farming Measures

Income Taxation

The Minister has announced the extension of general stock relief, stock relief for young trained farmers, stock relief for registered farm partnerships and the stamp duty exemption for young trained farmers for a further three years to the end of 2018.  All of these measures were due to expire at the end of 2015.

He also announced a new succession transfer proposal to assist with succession planning for farms.  It is intended to allow two people to form a partnership with the intention of transferring the farm to the younger individual at the end of a particular specified period.  It is understood that this will take the form of an income tax credit worth up to €5,000 per annum for five years allocated to the partnership and split between the partners in their profit sharing ratio.  It is anticipated that further information regarding this measure will be included in the Finance Bill.