Budget Briefing 2020
October 8, 2019
Minister Pascal Donohoe delivered his third budget this afternoon. The proposed tax cuts which were highlighted earlier in the summer have been strictly curtailed as the prospect of a no deal Brexit looms closer. There has been no pre-election bonanza for taxpayers despite the economy performing strongly, as GDP grew by 6.6% in the first half of 2019. The Minister has indicated that €1.2 billion additional resources will be made available in the event of a no deal Brexit with €220 million to be made available immediately. The key targeted tax changes are as follows:
Capital Taxes
Stamp Duty
• A 1.5% increase in the rate of stamp duty on commercial property to a near all time high of 7.5%. The new rate takes effect from midnight with certain transitional measures. Historic marginal rates of stamp duty for non-residential property were previously:
- May 1975 to 4 December 2002 6%
- 5 December 2002 to 14 October 2008 9%
- 15 October 2008 to 7 December 2011 6%
- 8 December 2011 to 11 October 2017 2%
- 12 October 2017 to 8 October 2019 6%
- 9 October 2019 onwards 7.5%
• The stamp duty rates on residential property remain unchanged at 1% on the first €1 million and 2% on the balance.
• Stamp duty of 1% to apply on ‘Schemes of Arrangement”’ under Part 9 of the Companies Act 2014 where it is used for the sale of a company.
Capital Acquisitions Tax
• Group lifetime Class A threshold (Parent to Child) will increase from €320,000 to €335,000. The Class B and Class C thresholds remain at €32,500 and €16,250 respectively.
• No changes to Business Relief.
Capital Gains Tax
• Entrepreneur Relief lifetime limit is currently set at €1,000,000. It was hoped that this would increase in order to compete with the equivalent UK limit as their lifetime threshold is Stg£10,000,000. An increase had been highlighted by the Minister at the Institute of Tax dinner in February. He has now confirmed that no change is to be made but has asked his Department to consider changes to the scheme to make it easier for entrepreneurs to qualify for the relief.
Help to Buy Scheme
• The Help to Buy scheme has been extended for a further two years to the end of 2021.
• There are no changes to the scheme. The cap of €500,000 had been expected to be lowered to between €250,000 to €300,000 but this had met opposition from purchasers in the Dublin Region. The maximum amount of relief is the lesser of €20,000 or 5% of the purchase price.
Corporation Tax
• No changes to the corporate tax rate of 12.5%.
• Extended BIK exemption on electric cars to 2022.
• Key Employee Engagement Programme (KEEP) is a focussed share option programme, intended to help SMEs attract and retain talent in a highly competitive labour market. It aimed to do this by not subjecting employees to income tax, USC and PRSI on the exercise of share options but to subject the gain to CGT on the subsequent disposal of the shares. The KEEP scheme will be modified to encourage a higher level of uptake in the participation of the scheme. The scheme will now apply to company group structures and will allow part time employees participate. The changes are subject to State Aid approval. Further details to be included in the Finance Bill.
• Employment Investment Incentive (EII) is a tax relief which aims to encourage individuals to provide equity-based finance to trading companies. In 2019 tax relief is claimed on investment when certain conditions are met. The relief is split into two tranches, thirty fortieths (30/40) in the year of investment, ten fortieths (10/40) in the fourth year after the initial investment. From today, full tax relief can be claimed in the year of the investment and the annual investment limit will be increased to €250,000. Additionally, this investment limit is increased to €500,000 for investments which will be held for 10 years or more. Further details to be included in the Finance Bill.
• R& D Tax Credit (changes subject to State Aid approval):
• This relief is being increased from 25% to 30% for micro and small companies.
• Relief will apply to qualifying pre trading expenditure but credit can only be used to offset VAT and payroll taxes.
• The current limit of expenditure which can be out sourced to third level institutions is to be increased from 5% to 15%.
• As mentioned in prior budgets, Ireland will be adopting new transfer pricing guidelines from 1 January 2020.
• New anti-hybrid mismatch rules in line with the Anti-Tax Avoidance Directive will be introduced.
• IREFs – new measures will be introduced from tonight to limit interest deductions and to combat the artificial avoidance of gains on redemption of IREF units. Details to be included in Financial Resolutions this evening.
• REITs – targeted amendments to be made from today to ensure that an appropriate level of tax is paid on property gains – details to be included in Financial Resolution this evening.
Income Tax
• Reduced rate of USC for medical card holders to continue to 31 December 2020.
• Withholding tax on dividends will increase from 20% to 25% from 1 January 2020. From 1 January 2021 a real time personalised withholding tax rate will be introduced similar to the PAYE regime based on the rate of income tax and USC a taxpayer pays.
• The Earned Income tax credit in 2019 is €1,350 and this is will increase by €150 to €1,500 from 1 January 2020.
• The Home Carer tax credit in 2019 is €1,500 and this will increase by €100 to €1,600 from 1 January 2020.
• Special Assignee Relief Programme (SARP) to be extended to 2022. SARP provides income tax relief for certain people who are assigned to work in Ireland from abroad for a minimum of 12 months. You must be assigned by a relevant employer to work in Ireland for that employer (or an associated company of your relevant employer) and your base salary must be over the threshold of €75,000 .
• Foreign Earning Deduction( FED ) to be extended to 2022.
• Farm restructuring relief to be extended to the end of 2022.
Other Revenue Measures
• Carbon tax to be raised by €6 per tonne to €26 which will raise €90 million in 2020. This equates to 2 cent per litre on motor diesel. Projected to increase carbon tax from €26 to €80 per tonne by 2030.
• Free Health care for under 8s and free dental for under 6s from September 2020.
• Excise duties on cigarettes to rise by up to 50 cents. A 20 pack of cigarettes will now cost €13.50 and excise duties will represent 79% of the cost.
VAT
• No changes to VAT rates.
PRSI
• Employers PRSI to increase by 0.1% to 11.05% from 1 January 2020.
The detail in the Budget and other amendments in tax legislation will be contained in the Finance Bill 2019 which should be published on 17 October 2019. However please note some legislation will be passed tonight by Financial Resolutions. There are several stages in the Finance Bill, as follows:
Second Stage Review 22/23 October 2019
Committee stage Review 5/6/7 November 2019
Report Stage Review 19/20 November 2019
Seanad Second Stage 26 November 2019 (Seanad Committee 3/12 – Seanad Report 10/12)
President signs by 1 January 2020
Please note that this is a general summary and no action should be taken without taking detailed advice.
If you have any queries on the Budget, please do not hesitate to contact Purcell McQuillan Tax Partners Ltd on 01 668 2700.
Purcell McQuillan Tax Partners Limited 8 October 2019.
