Spring Budget Information
Amidst all the Brexit debates, the Chancellor Philip Hammond presented his second Spring Statement on Wednesday 13 March 2019.
The UK personal allowance, tax rates and bands for 2019/20 were announced by the Chancellor in the Autumn budget in October 2018.
The personal allowance
The personal allowance is £11,850 for 2018/19 and increases to £12,500 for 2019/20. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So for 2018/19 there is no personal allowance where adjusted net income exceeds £123,700. For 2019/20 there is no personal allowance available where adjusted net income exceeds £125,000.
The marriage allowance
The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner. The marriage allowance reduces the recipient’s tax bill by up to £238 a year in 2018/19. If never claimed, it is possible to claim for all years back to 2015/16 where the entitlement conditions are met. A recent change to the law allows backdated claims to be made by personal representatives of a deceased transferor spouse or civil partner.
Tax bands and rates
The basic rate of tax is 20%. In 2018/19 the band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance. In 2019/20 the basic rate band increases to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance.
Individuals pay tax at 45% on their income over £150,000.
Tax on savings income
Savings income is income such as bank and building society interest.
The Savings Allowance, which was first introduced for the 2016/17 tax year, applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers. Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income less allocated allowances and reliefs) exceeds £5,000.
Tax on dividends
The first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
Making Tax Digital for Business: VAT
Making Tax Digital (MTD) requires taxpayers to move to a fully digital tax system. Under the new rules, businesses with a taxable turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.
The new rules have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, or otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019. For some VAT-registered businesses with more complex requirements the rules will not have effect until 1 October 2019.
The government has now confirmed that a light touch approach to penalties will be taken in the first year of implementation. Where businesses are doing their best to comply, no filing or record keeping penalties will be issued. Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements.
Corporation tax rates
Corporation tax rates have already been enacted for periods up to 31 March 2021.
The main rate of corporation tax is 19%. The rate will fall to 17% for the Financial Year beginning on 1 April 2020.
Plant and machinery
In the Autumn Budget, the government announced an increase in the Annual Investment Allowance for two years from £200,000 to £1 million in relation to qualifying expenditure incurred from 1 January 2019. Special rules apply to accounting periods which straddle this date.
Other changes made to plant and machinery capital allowances include:
- a reduction in the rate of writing down allowance on the special rate pool from 8% to 6% from April 2019. This includes long-life assets, thermal insulation, integral features and expenditure on cars with CO2 emissions of more than 110g/km. Special rules apply to accounting periods which straddle this date
- the end of the 100% first year allowance and first year tax credits for products on the Energy Technology List and Water Technology List from April 2020.
Structures and buildings
A new capital allowance, the Structures and Buildings Allowance, gives relief for expenditure on certain structures and buildings. The allowance is available for new structures and buildings intended for commercial use, and the improvement of existing structures and buildings, including the cost of converting or renovating existing premises to qualifying use. Relief is limited to the original cost of construction or renovation and given across a fixed 50-year period, at an annual flat rate of 2% regardless of changes in ownership.
Only certain expenditure will qualify. The structures or buildings must be brought into use for qualifying activities. These include trades, professions or vocations and certain UK or overseas property businesses – essentially commercial property lettings.
Relief will be given on eligible construction costs incurred on or after 29 October 2018. Where a contract for the physical construction work is entered into before this date, relief is not available.
Intangible fixed assets
The Intangible Fixed Assets regime refers to assets such as copyrights, patents and goodwill. Generally, the regime taxes gains and losses on such assets as income and gives relief for the cost of acquiring such assets as and when the expenditure is written off in the company’s accounts.
However, since 8 July 2015, the amortisation of goodwill has not been eligible for relief. After a review of the rules, the government has now decided to introduce targeted relief for the cost of goodwill but only in relation to the acquisition of businesses with eligible intellectual property. Companies that acquire goodwill on or after 1 April 2019 will receive relief for goodwill up to a limit of six times the value of any qualifying intellectual property assets in the business being acquired. The categories of qualifying assets include: patents, registered designs, copyright and design rights and plant breeders’ rights. Relief will be given at a fixed rate of 6.5% in all cases.
The restriction on relief will continue to apply in relation to internally-generated goodwill acquired in a related party incorporation. Goodwill acquired prior to 1 April 2019 will continue to be subject to the tax treatment prevailing at the time it was acquired.
Preventing abuse of the R&D tax relief for SMEs
Budget 2018 announced that, from 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year. This is to help prevent abuse of the payable credit system.
VAT fraud in labour provision in the construction sector
The government will pursue legislation to shift responsibility for paying VAT along the supply chain with the introduction of a domestic VAT reverse charge for supplies of construction services with effect from 1 October 2019. Draft legislation and guidance has been issued.
The domestic reverse charge will affect supplies of ‘specified services’ at the standard or reduced rates where payments are required to be reported through the Construction Industry Scheme (CIS). Therefore, supplies between sub-contractors and contractors, as defined by CIS, will be subject to the reverse charge unless they are supplied to a contractor who is an end user. End users will usually be recipients who use the building or construction services for themselves, rather than those who sell the services on as part of their business of providing building or construction services.
There will be exclusion from the reverse charge for certain supplies such as the manufacture of building or engineering equipment. But the reverse charge will apply to goods, where those goods are supplied with the specified services.
A domestic reverse charge means that a contractor receiving the supply of specified construction services must account for the output VAT due rather than the sub-contractor who supplied the services. The contractor also deducts the VAT due on the supply as input VAT, meaning no net tax is payable to HMRC. This removes the scope to evade any VAT owing to HMRC.
Employer Provided Cars
The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are normally announced well in advance. Most cars are taxed by reference to bands of CO2emissions multiplied by the original list price of the vehicle. The maximum charge is capped at 37% of the list price of the car.
For 2018/19 there was generally a 2% increase in the percentage applied by each band. For 2019/20 the rates will increase by a further 3%.
Exemption for Travel Expenses
New legislation has been introduced which removes the requirement for employers to check receipts when making payments to employees for subsistence using benchmark scale rates. This will apply to standard meal allowances paid in respect of qualifying travel and overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel. This will have effect from April 2019.
The legislation also allows HMRC to put the existing concessionary accommodation and subsistence overseas scale rates on a statutory basis from 6 April 2019. Like benchmark rates, employers will only be asked to ensure that employees are undertaking qualifying travel.
Capital gains tax (CGT) rates
The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.
There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:
- Entrepreneurs’ Relief (ER).
This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses
- Investors’ Relief.
The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares.
CGT annual exemption
The CGT annual exemption is £11,700 for 2018/19 and £12,000 for 2019/20.
Entrepreneurs’ Relief (ER)
Minimum qualifying period
The minimum period throughout which certain conditions must be met to qualify for ER is being increased from one year to two years. This has effect for disposals on or after 6 April 2019 except where a business ceased before 29 October 2018. Where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period continues to apply.
New 5% rules for company shareholders
To qualify for ER, the company needs to be an individual’s ‘personal company’. This means that an individual must throughout the relevant qualifying period:
- be a company employee or office holder
- hold at least 5% of the company’s ordinary share capital and
- be able to exercise at least 5% of the voting rights.
For disposals on or after 29 October 2018, an individual must also satisfy either of the following:
- distribution tests which require the individual, by virtue of that holding, to be entitled to at least 5% of the company’s profits available for distribution to ‘equity holders’ and 5% of the assets available for distribution to ‘equity holders’ in a winding up
- a proceeds test which requires the individual, in the event of a disposal of the whole of the ordinary share capital of the company, to be beneficially entitled to at least 5% of the proceeds.
In the distribution tests the term ‘equity holders’ is a wider definition than ordinary share capital. As a consequence, the tax profession raised concerns about the wide ranging impact of these tests and, as a result, the government introduced the alternative proceeds test.
In the proceeds test, the 5% threshold is computed by reference to the market value of the company at the end of the qualifying period. That may mean, in situations where the new distribution tests are not met, it may not be known until the disposal of shares whether ER will be available.
Gains for non-residents on UK property
Legislation, broadly having effect for disposals from 6 April 2019, charges all non-UK resident persons on gains on disposals of interests in any type of UK land, whether residential or non-residential. As a consequence, the CGT charge relating to the Annual Tax on Enveloped Dwellings is abolished.
All non-UK resident persons will also be taxable on indirect disposals of UK land. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25% interest.
All non-UK resident companies will be charged to corporation tax rather than CGT on their gains.
There are options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019.
The main effect of the new legislation will be to extend the scope of UK taxation of gains to include gains on disposals of interests in non-residential UK property.
Previous legislation has focused on bringing gains made by non-residents on residential properties within the UK tax regime.
Inheritance tax (IHT) nil rate bands
The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.
From 6 April 2017 a new nil rate band, called the ‘residence nil rate band’ (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.
The RNRB is being phased in. For deaths in 2018/19 it is £125,000, rising to £150,000 in 2019/20 and £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.
There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.
Changes to IHT RNRB
Amendments have been introduced to the RNRB relating to downsizing provisions and the definition of ‘inherited’ for RNRB purposes. These amendments clarify the downsizing rules and provide certainty over when a person is treated as ‘inheriting’ property. The changes have effect for deaths on or after 29 October 2018.
Stamp Duty Land Tax (SDLT)
Consultation on SDLT charge for non-residents
The government has recently published a consultation on the introduction of a SDLT surcharge for non-UK residents. The surcharge will apply to purchases of residential property made by non-UK resident individuals and certain non-natural persons. The surcharge will apply to freehold and leasehold purchases of residential property and will be at a rate of 1% on top of existing SDLT rates, including the rates applicable to the rental element of leasehold property.
No date has been set for the introduction of the surcharge.
A discussion paper has been issued launching a review of the Aggregates Levy including the Terms of Reference and information on timing and scope of the review.
Tackling tax avoidance, evasion and other forms of non-compliance
A policy paper has been issued which:
- outlines HMRC’s strategy and approach to compliance for different taxpayer types
- details the government’s record in addressing areas where risks of non-compliance have been identified
- provides a summary of the government’s investment in HMRC and its commitment to further action.
Late payments made to small businesses
In his speech, the Chancellor announced that further action will be taken to tackle the issue of late payments by large businesses to small businesses. A full response to a call for evidence issued in 2018 will be published shortly. As a first step the government will require Audit Committees to review payment practices and report on them in their Annual Accounts.
In the event that the UK leaves the EU without a deal, from 11pm GMT on 29 March 2019, many UK businesses will need to apply the same processes to EU trade that apply when trading with the rest of the world.
Claiming EU VAT refunds
If you want to use the EU VAT refund electronic system to submit a refund claim for 2018 you’ll need to do so by 5pm on 29 March 2019. If claims are submitted after that, HMRC will not be able to send your claim on to the relevant EU member state.
If you’ve paid VAT in an EU member state in 2019 you should not use the EU VAT refund system to make your claim as it may be rejected by that member state.
After 29 March, you must claim VAT refunds from EU member states by using the relevant member state’s existing process for businesses based outside the EU. This includes outstanding claims that relate to 2018 expenses, and claims relating to 2019.
Making Tax Digital
Making Tax Digital for VAT requires VAT registered businesses with taxable turnover above the VAT registration threshold (income above £85,000 for 2018/19 and 2019/20), to keep records in digital form and file their VAT Returns using software.
It is increasingly common for business records and accounts to be kept digitally, in a software program on a computer. The difference under Making Tax Digital is that the software which businesses use must be capable of keeping and maintaining the records specified in the regulations, prepare VAT Returns using the information contained in those digital records and communicating with HMRC digitally.
If digital records are up to date, the VAT software will be able to collate and prepare your return for you. It will then show the return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation through your software that it has been received.
Anyone who has yet to submit their 2016/17 self-assessment tax return form is being urged to do so before the end of this month to avoid daily penalties of £10 accruing
While anyone who did not file their tax return by the 31 January 2018 deadline will already have been charged a penalty of £100, they will also have to pay a daily penalty on top of that if it is more than three months late.
For online returns with a 31 January 2018 filing date, additional penalties will kick in from 1 May 2018.
The £10 daily penalties continue to be chargeable for up to 90 days unless the taxpayer submits their return within that time.
Therefore, if a tax return for 2016/17 has still not been filed by 31 July 2018, the initial penalty of £100 and the daily penalties chargeable will amount to a total of £1,000, in addition to a further penalty of at least £300.
These automatic penalties take no account of the amount of tax an individual owes, even if nothing is owed or you’re due tax back.
Anyone who has registered for self-assessment must submit a tax return or inform HMRC that they no longer fall under the self-assessment criteria and ask HMRC to agree to cancel the requirement for the tax return. If they do this, then any late filing penalties will also be abated.
If someone believes they do not need to be in self-assessment, for example because their taxes are fully dealt with under the PAYE system or simple assessment, or because they have left the UK, they should be able to ask HMRC to withdraw the notice to file a tax return. Such an application must be made within two years of the end of the tax year to which the return relates.
Even if HMRC do not cancel the request for the tax return to be filed, late filing penalties can be appealed if there is a reasonable excuse for filing late such as prolonged ill-heath, bereavement or family breakdown.
Those who should have registered for self-assessment for 2016/17 but have not yet done so, do not fall under this penalty regime. Specific rules apply to such ‘failure to notify’ cases, penalties are based on the amount of tax lost as a result of the failure to notify and are stepped according to whether or not the failure is deliberate and the quality of any disclosure.
Parents and Carers urged to be cautious before applying for tax-free childcare
For any parents or carers considering applying for tax-free childcare it is advised to check all childcare benefit options as it may be found other benefits which are currently being received add up to more financial assistance than what tax-free childcare is offering.
If an existing tax credit claimant makes a claim for tax-free childcare, even if they do not claim any help with childcare costs through tax credits, their whole tax credit claim will be automatically terminated. If they live in an area where universal credit full service has rolled-out they may find that they are not able to claim tax credits again and this is very confusing.
Someone is not entitled to tax-free childcare if they claim tax credits (any tax credits, not just childcare support) or universal credit. They also cannot receive childcare vouchers or directly-contracted childcare via their employer at the same time as receiving help through the tax-free childcare scheme. This means that people thinking of applying for tax-free childcare need to ensure that it is the right scheme for them before claiming, which involves a series of complex calculations.
For some people, who do not currently receive any government benefits or childcare support, the choice to apply for tax-free childcare will be an easy one. However, those on lower incomes who claim tax credits or universal credit or who get help with their childcare costs through their employer need to ensure they seek good advice to make sure that tax-free childcare is the right choice for them when compared to the other options. Those new to paying childcare will need to work out carefully which scheme will provide them with the most financial support.
Whatever your decision, please take caution as there is the risk that if the wrong option is chosen, (meaning the parent or carer does not receive the full benefits that they are entitled to), this can mean you are financially worse off. And in some cases this decision may be irreversible.
The National Minimum Wage and Living Wage
There are different levels of National Minimum Wage (NMW), depending on your age and whether you are an apprentice. If you’re aged 25 and over, you’ll get the National Living Wage (NLW). The hourly rates change every April.
The current minimum wage rates and the rates from April 2018 are:
|Age||Current rate||Rates from 1 April 2018|
|25 and over||£7.50||£7.83|
|21 to 24||£7.05||£7.38|
|18 to 20||£5.60||£5.90|
The apprenticeship rate does not apply to Higher Level Apprenticeships.
Agricultural workers in Northern Ireland are entitled to the Agricultural Minimum Wage rates, rather than the NMW or NLW, unless the NMW or NLW rate is higher.
No worker can be paid less than the NMW or NLW, but some agricultural workers must be paid more than the NMW or NLW because there is a higher Agricultural Minimum Wage rate. The rates change in April each year.
|Grade||Current rate per hour*||Rates from 1 April 2018*|
|Grade 1 – minimum rate applicable for the first 40 weeks cumulative||£6.88||£6.88|
|Grade 2 – standard worker||£7.17||£7.42|
|Grade 3 – lead worker||£7.88||£8.16|
|Grade 4 – craft grade||£8.46||£8.76|
|Grade 5 – supervisory grade||£8.95||£9.26|
|Grade 6 – farm management grade||£9.70||£10.04|
These are the minimum hourly rates before tax and national insurance deductions.
Where at any time the NMW becomes higher than the hourly rate set out above, then the minimum rate shall be equal to the NMW.
When overtime is to be applied after 39 hours of work, it will be applied at time and a half.
Tax returns: tips and advice on year-end tax issues
With the current tax year ending on 5 April 2018, now is the time to get your tax affairs in order. Below are some important tax planning points to which may be of benefit.
Use your annual pension allowance
Pension contributions are still a tax-efficient way of saving for retirement, with tax relief given at your highest marginal rate of income tax. Tax relief is restricted to the lower of the annual allowance, which is £40,000 for most people, or your net relevant earnings. It may also be possible to take advantage of your unused annual allowance from the three previous tax years.
This is a complex area as pensions are subject to a lifetime cap as well as potential restrictions for higher earners, so you should get specialist advice before making any contributions.
Transfer income-producing assets to your spouse or civil partner
Transferring assets such as property or quoted investments to a spouse or civil partner is accepted by HMRC provided there is an outright gift with no conditions attached to it.
Following the change in how dividends are taxed, it can be beneficial for both spouses to receive dividends so that they both utilise the available zero percent band. The current band of £5,000 drops to £2,000 from 6 April 2018.
From April 2017 there has been a restriction in the amount of relief that can be claimed on interest charges by landlords who own residential property. The restriction is being phased in over four tax years and, by 2020/21, higher rate tax payers will only be entitled to basic rate tax relief on their finance costs.
As well as the potential income tax benefits, transferring assets between spouses/civil partners could reduce the high income child benefit charge and also the potential loss of personal allowance. It is also important to consider Stamp Duty Land Tax (SDLT) implications where debt is involved.
Gift aid donations to charity also give tax relief at your highest marginal tax rate. Any donations made before 31 January of the following tax year, or the date of the submission of your tax return if earlier, can be carried back to the previous tax year. Cash donations made before both 31 January 2019 and the submission of your 2017/18 tax return can be included on your 2017/18 tax return.
This is the amount of income you can receive that you don’t have to pay tax on. In 2017/18 this is £11,500.
Pension contributions and cash charitable donations can increase the amount of income that you can receive before you start to lose your personal allowance. In 2017/18, £1,150 of an individual’s personal allowance can be transferred to a spouse or civil partner, providing that neither the transferor nor recipient is liable to income tax above the basic rate band.
Gifts of £3,000 can be made annually with no impact on the nil rate band of £325,000 or inheritance tax charge. If you don’t reach the £3,000 limit in one tax year, the balance can be carried forward, but only for one tax year
Capital Gains Tax
There is an annual exemption for CGT of £11,300 for 2017/18 for individuals. Spouses/civil partners could consider transferring assets to ensure that they both utilise their annual exemption and also any gains above this being taxed so as to make maximum use of any unused income tax basic rate band, if one of them is a higher rate taxpayer.
Disposal of assets – timing
Consider timing carefully if you are disposing of assets. In some cases, it is better to sell assets before the end of the tax year. In other cases it might be better to delay a disposal so to take advantage of the following year’s annual exemption and/or defer the payment of any capital gains tax for another 12 months.
The 2017/18 overall limit for ISAs is £20,000. This can be invested in cash or stocks and shares. Any income or gains arising on the investments will be tax free.
If you are aged between 18 and 40, consider opening a Lifetime ISA (LISA). An individual can contribute up to £4,000 per year while under 50 and receive an additional 25% Government bonus. This means for every £4 contributed, the Government will add a further £1, worth up to £1,000 a year. A LISA can also be used to help fund your first home.
LISA contributions count towards an individual’s annual ISA contribution limit but any bonus received does not.
Majority Unaware of Inheritance Tax Limits
Confusion about the operation of inheritance tax (IHT) is growing, with over two thirds of those liable not knowing the threshold for the standard nil rate band of £325,000, according to a survey by Canada Life.
For many people, their single largest asset is their house. Hopes for securing their children and beneficiaries financial futures rest on being able to pass on as much of its value as possible.
Last month the government announced plans to review the ‘complex’ IHT system in the UK, tasking the Office of Tax Simplification (OTS) to make recommendations about possible reforms.
The OTS will consider simplification options; IHT has become increasingly complex in recent years as successive governments have failed to increase the base IHT limit of £325,000 for individual taxpayers in line with soaring house prices or inflation. There is a higher limit of £650,000 for married couples and civil partnerships. In addition there is the residential nil rate band, applied to lived-in property and this will earmark up to £1m exempt from IHT by 2020.
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died. There’s normally no Inheritance Tax to pay if either :
- the value of your estate is below the £325,000 threshold
- you leave everything to your spouse or civil partner, a charity or a community amateur sports club.
If you give away your home to your children or grandchildren, your threshold will increase to £425,000.
If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. This means their threshold can be as much as £850,000.
Inheritance Tax rates
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.
There’s normally no Inheritance Tax to pay if you move out and live for another 7 years.
If you want to continue living in your property after giving it away, you’ll need to:
- pay rent to the new owner at the going rate (for similar local rental properties)
- pay your share of the bills
- live there for at least 7 years
You don’t have to pay rent to the new owners if both the following apply:
- you only give away part of your property
- the new owners also live at the property
Irish Budget 2018 Overview
The Minister for Finance, Paschal Donohoe, introduced the 2018 Budget on 10 October 2017. Further detailed measures will be
The minister made clear in his speech that he was very conscious of the dangers for the Irish economy arising from Brexit. This was reflected in his decision to retain the 9% VAT rate for tourism.
There were a number of welcome personal tax relief measures in the Budget including:
- The threshold for the higher rate of tax for an individual increases from €33,800 to €34,500.
- The 2.5%rate of USC is reduced to 2% therefore increasing the band from€18,772 to €19,372.
- The 5%rate of USC is reduced to 4.75%
- An increase of €750 in the income tax standard rate band
- An increase of €200 in the earned income credit bringing the amount to €1,150.
- An increase in the home carer tax credit of €100
- National minimum wage is set to increase to €9.55/hr
Small and Medium Enterprises
- Capital gains tax treatment to apply to gains on share options granted by unquoted Small and Medium-sized Enterprises (SME) companies to key employees where the conditions of a new Key Employee Engagement Programme (KEEP) incentive are met.
- The introduction of an SME friendly share option scheme (KEEP) is a welcome measure to help smaller companies compete with larger enterprises to recruit and retain key employees. For qualifying share options granted from 1 January 2018, the scheme provides that no income tax, USC or PRSI arises on the exercise of share options by an employee of an SME ; instead the employee is liable to CGT at a rate of 33% on the ultimate disposal of the shares – a saving of up to 19%.”
PAYE and the Self-Employed
- Whilst PAYE and Self Employed workers earning up to €70,000 will each benefit from the reduced USC rates, self-employed individuals will also get the benefit of the increase of €200 in the earned income credit which has been increased to €1,150.
The Residential Property Sector
- In order to release property into the market, the Government plans to shorten the CGT exemption holding period to a minimum of 4 years for those properties that qualified for the original scheme. Owners are also being encouraged to bring vacant residential property into the rental market with the introduction of a new deduction for certain pre-letting expenses.”
- The stamp duty rate on non-residential property is being trebled from 2% to 6%. However, the proposed introduction of a stamp duty refund scheme should help reduce the cost for developers who purchase commercial land for housing development and meet the relevant conditions.”
- The minister also announced a number of measures designed to alleviate the shortage in residential accommodation. The reduction from seven to four years of the holding period to qualify for the capital gains tax exemption on certain property assets should be of assistance in freeing up supply.
- Climate change announcements in the budget include CAT relief for land used for solar panels, the renewable heat incentive and most importantly the recognition given to the fast-approaching electric car revolution by removing BIK for, at least one year. This will also benefit the farming community who can now share in the economic potential arising from the deployment of solar farms across the country.
Mortgage interest will no longer be deductible when calculating your rental profits
From April 2017, a 4 year equal phase-in will commence and mortgage interest will no longer be deducible when calculating your rental profits.
This is applicable to residential property and so you will not be affected if you operate a Furnished Holiday Let or a commercial lettings business. It will also not affect those with property in a limited company, but will affect LLPs and partnerships.
The finance costs will be restricted as follows:
- 75% for the tax year ended 5th April 2018
- 50% for the tax year ended 5th April 2019
- 25% for the tax year ended 5th April 2020
- 0% from tax year commencing 6th April 2020
Care will need to be taken where losses are involved and therefore to be clear, the tax “reducer” is calculated as the 20% of the lower of:
- Mortgage interest and finance costs not deducted from income
- Profits less any losses brought forward
- Total income (less savings and dividend income) exceeding the personal allowance
Stamp duty changes
|Purchase Price||Previous SDLT||New SDLT|
|£0 – £125,000||0%||3%|
|£125,000 – £250,000||2%||5%|
|£250,000 – £925,000||5%||8%|
|£925,000 – £1.5M||10%||13%|
For more information please see the official HMRC Website.