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6 Ways Budget 2018 Will Affect SMEs
10 October 2017 saw the unveiling of the second Budget of the 32nd Dáil. Delivering his first Budget, Minister Donohoe said the Budget “achieves sustainable and affordable tax reform, delivers improvements in services and ensures increased investment in our national infrastructure”. Thomas Sheerin, Tax Director at KPMG in Ireland, outlines some of the elements affecting SMEs.
1. Income Tax, Earned Income Tax Credit for Self-employed and USC Changes
The point at which an individual attracts the higher 40% income tax rate has increased by €750. Therefore, for a single person the first €34,550 of income will be taxable at the 20% rate. The first €43,550 will be taxable at the 20% rate in the case of a married person (one earner).
The Minister announced an increase of €200 in the Earned Income Tax Credit to €1,150 for 2018. This credit is available to self-employed individuals who cannot benefit from the PAYE tax credit of €1,650 that is available to employees.
The entry point for the USC remains at €13,000. However, the 2.5% rate is to reduce to 2% and the ceiling for this new rate is increased from €18,772 to €19,273. This change ensures that full-time workers on the minimum wage do not pay the upper USC rates. The 5% USC rate is also to reduce to 4.75% thereby reducing the top marginal rate of tax on income up to €70,044 to 48.75%.
2. Share-based remuneration
Following a public consultation and review of share-based remuneration that took place last year, a new incentive called Key Employee Engagement Programme (KEEP) is being introduced. KEEP is to facilitate the use of share-based remuneration by unquoted SME companies to attract and retain key employees. Gains arising to employees on the exercise of KEEP share options will be liable to Capital Gains Tax on the disposal of the shares. At present, such gains on the exercise of options are subject to income tax, USC and PRSI. This incentive will be available for qualifying share options granted after 1 January 2018.
3. Retailers and Tourism
The Minister confirmed that the reduced 9% VAT rate for tourism and related activities will continue to apply.
The old reliable excise duty on tobacco is to increase by 50 cents on a pack of 20 cigarettes with a pro-rata increase on other tobacco products.
4. Construction and Property
The rate of stamp duty on commercial property transactions is to increase from 2% to 6% with effect from midnight tonight. However, a stamp duty refund scheme will be introduced for commercial land purchased for the development of housing, provided the relevant development commences within 30 months of the land purchase – further details to follow in the Finance Bill.
Funds of €750 million are to be made available to a new vehicle, Home Building Finance Ireland for commercial investment in housing finance. This vehicle will increase the availability of debt on market terms to commercially viable residential development projects whose land owners want to build homes.
The holding period to qualify for the exemption from Capital Gains Tax for certain land and buildings will be reduced from 7 years to 4 years. The exemption is available on the disposal of certain land and buildings that were acquired between 7 December 2011 and 31 December 2014. Further details to follow in the Finance Bill which should be examined clearly.
The Minister announced an increase from 3% to 7% in the vacant site levy that applies to the second and subsequent years. An owner of a vacant site on the register who does not develop the land in 2018 will pay the 3% levy in 2018 and the increased 7% levy from 1 January 2019.
Finance Act 2016 introduced the Help to Buy scheme for first time buyers of new houses that take out a mortgage of at least 80% of the purchase price. No changes to this scheme were announced in the Budget.
Mortgage interest relief was due to cease on 31 December 2017. This relief is available in respect of qualifying loans provided to owner occupiers between 2004 and 2012 to purchase, repair, develop or improve their home. The relief has been extended to 2020, but in a tapered manner. As a result, 75% of the existing relief will be available in 2018, reduced to 50% in 2019 and 25% in 2020.
Generally, a landlord is not entitled to offset pre-letting expenses against rental income arising from a first letting. A deduction of up to €5,000 per property in relation to pre-letting expenses is to be introduced. The deduction will be available for owners of residential property that has been vacant for 12 months or more. A clawback will arise if the property is withdrawn from the rental market within four years.
Last year’s Budget saw an increase to 80% for the deduction of interest incurred by landlords on qualifying loans when computing the rental income subject to income tax. At that time, it was announced that the deductible amount would increase by 5% each year until a 100% deduction for interest is restored. Therefore, the deduction for 2018 will be equal to 85% of the interest incurred.
5. Food and Farming
For the purposes of agricultural relief for Capital Acquisitions Tax and retirement relief for Capital Gains Tax, agricultural land used for solar farms will continue to be classified as agricultural land. This measure is designed to increase diversification. However, the amount of the farmland that can be used by the solar farm will be restricted to 50% of the total farm acreage.
To facilitate intergenerational shift in farm ownership and management, consanguinity stamp duty relief at a rate of 1% for inter-family farm transfers is to be maintained for a further three years. The exemption for young trained farmers from stamp duty on agricultural land transactions also continues.
The Minister for Agriculture, Food and the Marine is to bring forward a package of Brexit response measures. These include a Brexit Loan Scheme for SMEs. This scheme will see €300 million available at a competitive rate to SMEs, including food businesses given their unique exposure to the UK market to assist with their working capital needs.
On 1 April 2018, a tax on sugar-sweetened drinks will be introduced subject to State Aid approval. The tax will be levied at 30 cent per litre on relevant drinks containing more than 8 grams of sugar per 100 millilitres and 20 cent per litre on drinks where the sugar content is between 5 grams and 8 grams per 100 millilitres.
No changes were announced to the Capital Acquisitions Tax thresholds.
For further coverage of Budget 2018, visit www.kpmg.ie/budget2018
Please be aware that all of the views expressed in this Blog are purely the personal views of the authors and commentators (including those working for AIB as members of the AIB website team or in any other capacity) and are based on their personal experiences and knowledge at the time of writing.
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