Budget 2016

Budget 2016 was announced on 13 October 2015. Many of the measures announced were leaked to the media well in advance and so there are few surprises.

The Government is very conscious that it will shortly (whether next month or in Spring 2016) be launching its re-election campaign so this Budget has a little something for everyone – a reduction in the rate of CGT from 33% to 20% for the self employed and entrepreneurs, an easing of the USC burden for the so called “squeezed middle” and some details of Ireland’s Knowledge Development Box which is designed to increase Ireland’s attractiveness as a location for IP development and investment.

Below are the key measures of Budget 2016 from a tax perspective.

  • Highlights
  • Personal
  • Business
  • Property
  • Financial Services

Highlights

Knowledge Development Box: 

Announcement of OECD compliant and “best-in-class” Knowledge Development Box with a corporation tax rate of 6.25% applying to profits generated by qualifying R&D activities.

  • Corporate Tax:

The Minister reiterated Ireland's commitment to the OECD’s objectives in relation to Base Erosion and Profit Shifting with the announcement of the introduction of country by country reporting.

  • Start-Up Exemption:

The 3 year relief for start-up companies will be extended to new business start-ups in 2016.

  • CGT Entrepreneur Relief: 

A reduced rate of CGT of 20% (as opposed to 33%) has been introduced for entrepreneurs and the self-employed.

  • Employment and Investment Incentive Scheme (EII):

The amendments announced in last year’s Budget have received EU State Aid Approval and will take effect from 14 October 2015.  

Farm Succession Partnership:

To facilitate the transfer of family farms, plans to introduce a family farm partnership model have been announced. The commencement of this measure is subject to EU State Aid approval.

Earned Income Credit:

An annual income tax credit of €550 has been introduced for self-employed individuals. 

Pension Levy:

The remaining pension fund levy of 0.15% will be abolished with effect from 1 January 2016.

Personal

USC

  • Rates have been overhauled with effect from 1 January 2016 with incomes of €13,000 or less exempt and earnings of €0 to €12,012 subject to USC at 1%, €12,013 to €18,668 at 3%, €18,669 to €70,044 at 5.5% and €70,044 to €100,000 at 8%. PAYE income in excess of €100,000 continues to be subject to USC at 8% and self-employed income in excess of €100,000 continues to be subject to USC at 11%.

Tax Credits

  • A new credit has been introduced for self-employed taxpayers earning trading or professional income. The Earned Income Credit is in the amount of €550 and is available for those who are ineligible for the PAYE tax credit. 
  • The Home Carer Tax Credit has been increased from €810 to €1,000 and the home carer’s income threshold increased from €5,080 to €7,200.

PRSI

  • A tapered PRSI tax credit has been introduced for employees of €12 per week.  
  • The ceiling for the higher rate of employers PRSI of 10.75% is to be increased to €376 per week.

CGT Entrepreneur Relief

  • A reduced rate of CGT of 20% (as opposed to 33%) will be introduced for entrepreneurs and the self-employed with effect from 1 January 2016. The reduced CGT rate will apply to the disposal in whole or part of a trade or business up to a maximum limit of €1 million of net chargeable gains. The relief will be available to the individual owners of a trade or business (owners / founders of private unquoted companies, sole traders and farmers) concerning the disposal of all or part of that trade or business which they have owned for the last 3 years. 
  • Full details of this measure will be published in Finance Bill 2015. 

Capital Acquisitions Tax (CAT)

  • The Group A tax-free threshold (in respect of gifts / inheritances received by a child from their parent) will be increased from €225,000 to €280,000 with effect from 14 October 2015. 

Film Relief

  • The maximum amount of qualifying expenditure under this relief will be increased to €70 million.  This is subject to EU State Aid approval.

Employment and Investment Incentive Scheme (Ell)

  • The amendments announced in last year’s Budget have received EU State Aid Approval and will take effect from 14 October 2015. Ell is now being amended to raise company limits, increase the holding period for shares by 1 year and include certain medium-sized companies. In addition, hotels, guesthouses and self-catering accommodation will remain eligible for Ell for a further 3 years and operation and management of nursing homes will be included for 3 years.

Farming Taxation

  • General stock relief, stock relief for young trained famers, stock relief for registered farm partnerships and stamp duty relief for young trained farmers will all be extended for a further 3 years until 31 December 2018.
  • A new farm succession transfer proposal has been announced.  This will take the form of a farm partnership between family members where a profit sharing agreement which allows for the transfer of the farm to the younger farmer at the end of a period no longer than 10 years.  An income tax credit of up to €5,000 per annum will be available for 5 years for the partners split in accordance with the profit sharing agreement. This measure is subject to EU State Aid approval.

Pension Levy

  • The pension levy currently at a rate of 0.15% will be abolished with effect from 1 January 2016.

High Earners’ Restriction

  • Profits or gains arising from the occupation of woodlands are being removed from the high earners’ restriction.

Business

Corporation Tax Rate

  • The commitment to the 12.5% corporation tax rate has been reiterated.

Intellectual Property Regime

  • Details of the “Knowledge Development Box” income-based tax regime for intangible assets were announced. A corporation tax rate of 6.25% will apply to profits arising from the exploitation of certain patents and copyright software which result from qualifying R&D carried out in Ireland. 
  • The regime has been announced as OECD compliant in light of the ongoing actions being undertaken by the OECD in relation to Base Erosion and Profit Shifting (BEPS).
  • Ireland will deliver a “best-in-class” regime to compliment existing intangible asset and research and development regimes.
  • Full details of this measure will be published in Finance Bill 2015.

Employment and Investment Incentive Scheme (Ell)

  • The amount of finance that a company can raise under the Ell scheme will be increased to €5m annually and €15m over a company's lifetime. The holding period will be increased by 1 year.
  • The Ell scheme will be extended to include investment in medium-sized enterprises in non-assisted areas, the management and operation of nursing homes and internationally traded financial services.
  • Investment in hotels, guest houses and self-catering accommodation will also qualify for the Ell scheme for a further 3 years.

International Tax Strategy

  • Additional commitment to the OECD BEPS process was announced with the introduction of country-by-country reporting which will increase transparency for tax authorities across borders in relation to multinational companies operating across multiple jurisdictions.

Start-Up Exemption

  • The 3 year relief for start-up companies will be extended to new business start-ups until the end of 2018.

Employer’s PRSI

  • An increase in the weekly threshold to €376 at which liability to Employer’s PRSI increases to 10.75% from 8.5%.

Excise Duty Relief for Microbreweries

  • Availability of upfront rebate of the special relief reducing the standard rate of Alcohol Products Tax by 50% on beer produced in microbreweries.

Motor Tax Regime

  • A simplified regime of motor tax rates for commercial vehicles will apply. The 20 existing rates will be replaced with 5 new rates of commercial motor tax ranging from €92 to €900 introduced. The new maximum rate is down from €5,195. Interim measures will apply pending the replacement of the current commercial motor tax regime with a fairer basis for calculating commercial motor tax.

9% VAT Rate

  • The temporary 9% reduced rate of VAT, applicable to the tourism sector, will continue to apply.

Property

Home Renovation Incentive Scheme

  • The Home Renovation Incentive Scheme was introduced in Budget 2014 to provide relief to homeowners who carry out certain renovation and improvement works to their principal private residence. The relief consists of an income tax credit at a rate of 13.5% on qualifying expenditure carried out by qualifying contractors (subject to a minimum spend of €5,000 and a maximum spend of €30,000), split over 2 years following the year in which the work is carried out. The relief was extended in last year’s Budget to apply to landlords who are liable to income tax.
  • Budget 2016 has extended the availability of the relief until 31 December 2016.

Local Property Tax (LPT)

  • The Minister announced that he will be making a proposal to Government to postpone the revaluation date for the LPT from 2016 to 2019. The postponement of the revaluation date means that home owners will not be faced with significant increases in their LPT in 2017.
  • The Minister also stated that the recommendations made by Dr Thornhill for continued exemption for properties significantly affected by pyrite have been accepted. The LPT exemption will continue to remain in place for those properties that fall into certain damage categories and meet certain testing criteria.

Increasing the Supply of Residential Housing

  • The Minister stated that there is a requirement for a minimum of 10,000 new units per annum in the Dublin area but that the market only delivered 3,300 units in the last year. Following a review of residential sites under its control, NAMA is aiming to deliver a target of 20,000 residential units before the end of 2020, and will work with developers in doing so.

Financial Services

Extension of Bank levy to 2021

  • The current Financial Institutions Levy (originally introduced for the 3 year period from 2014 to 2016), will be extended to 2021. This is subject to a review taking place of the methodology used to calculate the levy (it is currently calculated on the basis of DIRT payments made in 2011).

Electronic Payments

  • A reduction in fees for retailers for accepting card payments will apply from 9 December 2015. The interchange fees for credit card payments will reduce to 30 basis points while the corresponding fee for debit card payments will be halved to 10 basis points.

By Martin Phelan, Sonya Manzor & Ted McGrath of William Fry.

Article Published: 14/10/2015