Following Ireland’s exit from the EU/IMF recovery programme and in the context of projected GDP growth of 4.7 per cent for 2014 and 3.9 per cent for 2015, Ministers Noonan and Howlin announced their budgetary measures for 2015 which have been set out below. More detail will be included in the Finance Bill to be published later this month.
Corporation tax reform was one of the first areas addressed in the Minister’s speech. The Government has reaffirmed its commitment to the 12.5% corporate tax rate and continuing efforts to attract and retain foreign direct investment (FDI ) leading to job creation. To protect Ireland’s reputation in the global tax arena, the Minister has abolished the ability of companies to use the “Double Irish” structure. The Irish corporate tax residency rules have been changed such that all companies registered in Ireland will be treated as Irish tax resident unless they are resident for tax in a Treaty partner country. This applies to new companies from January 1 2015 while a transitional period to the end of 2020 will apply for existing companies. The Minister also announced additional tax measures to increase Ireland’s attractiveness for FDI:
— The Department of Finance conducted a detailed review of the R&D tax credit in 2013. On foot of that review, it has now been announced that the 2003 base year expenditure no longer needs to be deducted in calculating the R&D tax credit. This will be effective for accounting periods commencing on or after 1 January 2015
— Ireland’s existing suite of intangible asset tax incentives will be enhanced by removing the current restrictions which limit intangible asset allowances and related interest to 80% of relevant trading income. Furthermore, the Minister proposes introducing an intellectual property incentive in the form of a “Knowledge Development Box” regime. Public consultation on the development of the regime will commence shortly with legislation expected in late 2015. This legislation may potentially be sooner, depending on how the current EU/OECD review progresses.
— Special Assignee Relief Programme (SARP ) has been extended for a further three years to 2017. Additional improvements include: (i ) the removal of the €500,000 upper salary threshold, (ii ) the relaxation of residency requirements, and (iii ) reducing to six months the length of time that the employee needs to be employed abroad by the employer
— To promote the expansion of Irish business abroad, the Foreign Earnings Deduction has been extended for a further three years to 2017 and now includes Chile, Mexico and certain countries in the Middle East and Asia. The number of qualifying days abroad have been reduced from 60 to 40 and the minimum stay in a country has been reduced to 3 days, inclusive of travel time
— The Employment and Investment Incentive Scheme (EIIS ) has been enhanced. The amount of finance that a company can raise annually under the scheme has been increased to €5m subject to a €15m lifetime limit. It is proposed that it will now also extend to the operation and management of nursing homes, medium sized companies in non-assisted areas and internationally traded financial services that are certified by Enterprise Ireland
— The three year start-up company exemption from corporation tax has been extended to new business start-ups in 2015
— The availability of 100 per cent capital allowance for energy efficient equipment has been extended for a further three years.
The higher rate of income tax has been reduced from 41% to 40 per cent while the standard rate tax band is increased by €1,000 for a single individual and married one earner couples. The rate band for couples with both earning has increased by €2,000. Most tax credits will continue at 2014 levels.
The Universal Social Charge (USC ) rates and bands have changed as follows:
Incomes of €12,012 or less are exempt Incomes of €10,036 or less were exempt
€0 to €12,012 @ 1.5% €0 to €10,036 @ 2%
€12,013 to €17,576 @ 3.5% €10,037 to €16,016 @ 4%
€17,577 to €70,044 @ 7% €16,017 plus @ 7%
€70,045 plus @ 8%
The USC on self-employed income in excess of €100,000 has increased to 11%, this was formerly 10%.
Medical card holders and individuals aged 70 years or more will pay a maximum rate of 3.5% USC where their aggregate income is €60,000 or less.
A new water charge tax credit has been introduced giving tax relief at 20% on water charges up to a maximum of €500 per household per annum. The maximum tax credit is therefore €100. This will be paid in arrears i.e. water charges paid in 2015 will be relieved in 2016. The threshold for exempt income under the Rent-a-Room relief scheme has increased from €10,000 to €12,000 per annum.
The artists’ exemption threshold will increase by €10,000 to €50,000. The exemption is also being extended to certain non-resident individuals.
The Home Renovation Incentive which was introduced in last year’s budget has been extended to rental properties owned by landlords subject to income tax. It applies to homes and private rental renovations costing between €5,000 and €30,000. A tax credit of 13.5% of the expenditure will be granted in the two years after the year in which the work is carried out. There will be no change to the 33% Capital Gains Tax (CGT ) and Capital Acquisition Tax (CAT ) rates in 2015.
In addition to the Home Renovation Incentive mentioned above, a number of measures focused on the Irish property sector were introduced:
— The CGT exemption for property purchased between 7 December 2011 and 31 December 2014 and held for a period of at least 7 years is not being extended beyond 31 December 2014
— The 80% windfall tax is being abolished from 1 January 2015. This applied to certain profits or gains from land disposals or development attributable to relevant planning decisions
— In light of the current housing supply shortage, the Minister is launching a public consultation to examine measures that could be introduced to penalise land owners who do not develop lands that are currently zoned and serviced
—To encourage first time buyers to save, the Minister introduced a refund of DIRT on savings used to purchase their first home. This refund will apply from Budget night and will run to the end of 2017. The refund will be capped in respect of savings up to 20% of the purchase price of the house
—The Living City Initiative introduced in 2013 and extended in 2014 to include Galway, Cork, Kilkenny and Dublin is due to commence in early 2015. The incentive grants tax relief of 10% of expenditure on refurbishment and conversion of qualifying residential properties by an owner occupier every year for 10 years. Tax relief is also available for expenditure on the renovation of certain pre 1915 commercial premises at a rate of 15% per annum for 6 years and 10% in year 7.
In line with the recommendations in the Agri-Taxation Review published by the Minister, a number of changes were announced:
— The flat rate addition which is available to farmers is increasing from 5% to 5.2% from 1 January 2015
— There has been a significant uplift in the level of rental income from land that a farmer can receive exempt from tax. In addition, a key change is that there is no longer an age requirement to be satisfied in respect of this relief
— Changes to CGT retirement relief have also been announced including an amendment to enable a farmer to lease land for up to 25 years and still qualify for the relief
— CAT agricultural relief will only be available to recipients that are active farmers or who lease the property on a long term basis to active farmers
— In the context of non-residential property, consanguinity relief (50% stamp duty relief ) has been extended for three years on transfers between relatives where the transferor is 65 years or under and the transferee is an active farmer.
The income tax relief for pension contributions remains unchanged. The pension levy on pension funds of 0.6% will be abolished from the end of 2014. The additional 0.15% levy which was introduced for 2014 and 2015 will remain until the end of 2015.
Tourism and hospitality sector
The 9% VAT rate has been retained. This applies to a wide range of hospitality related goods and services including restaurants, hot takeaway food and hot drinks, hotel and other tourist accommodation, cinema, theatre and art gallery tickets, hairdressing and printing.
The new Irish film tax credit scheme is due to commence in 2015. The tax relief will be available to the film production company rather than to the investor. According to the Minister this has been broadly welcomed by the film industry. The Minister has indicated that he will monitor the operation of the scheme with a view to potentially increasing the €50m cap on eligible expenditure.
Excise rates were increased with effect from midnight on 14 October as follows:
— 40 cent on a packet of 20 cigarettes
— 20 cent on 25g pouch of roll-your-own tobacco
There was no increase in excise rates on alcohol, petrol, diesel or home heating fuels.
Furthermore there was no increase in motor tax or VRT.
Microbreweries which produce not more than 30,000 hectolitres per annum can now avail of the 50% reduction in the standard rate of Alcohol Products Tax.
No new cuts to social welfare were announced in Minister Howlin’s speech. Furthermore the following represent the first rate increases to social welfare schemes since 2009:
— A new Back to Work Family Dividend will be introduced to provide an additional incentive for families to move from welfare to work. This will allow families to retain the full Qualified Child increase of €29.80 per week per child for 12 months after their return to work and 50% of the payment in the second year
— The rate of Child Benefit will increase by €5 per child to €135 per month from 1 January 2015. It is anticipated that a further €5 increase to Child Benefit will be introduced in 2016
— The Living Alone Allowance will increase by €9 per week
— €25 per quarter to be paid to pensioners, people with disabilities and carers receiving the Household Benefits Package
— Increase of €100 per annum for all Fuel Allowance recipients who do not receive the Household Benefits Package
— 25% Christmas Bonus will be paid this December to recipients of a long-term Social Welfare payment (minimum of €20 )
Detailed advice should be sought before acting on any of the above matters.
This article was compiled by the KPMG Galway Tax Team, Dockgate, Dock Road, Galway. Tel: 091-534600.