Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Paschal Donohoe presented the first Budget of the Minority Government Fine Gael-Independent Coalition. Ministers Noonan and Donohoe announced that the total Budget package of €1.3bn favours expenditure increases over revenue reductions by three to one reflecting the Government’s commitment to rebuilding and investing in public services. More detail will be included in the Finance Bill to be published later this month.
Similar to last year the Budget introduced just one revenue raising measure being an increase of 50c in excise duty on a pack of 20 cigarettes with a pro-rata increase on other tobacco products. This is the only tax increase in the Budget.
Personal Tax Matters
There will be no change to income tax rates, tax bands, personal tax credits or PRSI for 2017. However there are some small changes around the Universal Social Charge (“USC” ). It is the Government’s intention that the USC will be phased out over time as resources permit.
The 2017 USC rates and bands have changed as follows:
Incomes of €13,000
or less are exempt
€0 to €12,012 @ 0.5%
€12,013 to €18,772 @ 2.5%
€18,773 to €70,044 @ 5%
€70,045 plus @ 8%
The USC on PAYE income in excess of €100,000 remains at 8%
The USC on self-employed income in excess of €100,000 remains at 11%
These USC changes will reduce the marginal rate of tax to 49% for all earners under €70,044
The top rate of USC for all medical card holders and those over 70 years of age earning less than €60,000 has been reduced from 3% to 2.5%
Home Carer Tax Credit has been increased from €1,000 to €1,100 per annum
The Earned Income Credit has been increased by €400 to €950 for the self-employed and those not eligible for the PAYE Tax Credit, benefiting 147,000 self-employed individuals
DIRT will be reduced by 2% each year for the next four years bringing it from 41% to 33% by 2020
The income ceiling that applies under the Rent-a-Room scheme has been increased by €2,000 from €12,000 to €14,000. This relief enables a house owner to rent a room in their private home and receive rent to the value of €14,000 without it being subject to income tax
The deduction for qualifying interest payments on monies borrowed to purchase, improve, repair residential rental properties has been increased from 75% to 80% for 2017. It is intended that this relief will be increased by 5% each year until it is fully restored to 100%
The Living City Initiative which was introduced to encourage urban renewal and promote the renovation of city centre properties has been expanded to include landlords and remove the cap on maximum floor size
The Home Renovation Incentive is being extended to 31 December 2018.
To assist the problem of acute shortage of new houses being built, a new Help to Buy Scheme has been introduced for first time buyers.
The new scheme will provide a rebate of income tax paid by a first time buyer over the previous four tax years up to a maximum of 5% of the purchase price of a new home to a value of €400,000
Pro-rata rates will apply to lower priced house and a full rebate based on 5% of €400,000 will apply for houses priced at between €400,000 and €600,000
No rebate will apply where the house is priced in excess of €600,000
The maximum benefit is €20,000
Second hand properties are not included
The scheme will apply to the purchase of newly built primary residences acquired between 19 July 2016 and the end of 2019.
The Knowledge Development Box (KDB ) is to be modified to provide for additional benefits for small companies
The “Start your own Business relief” has been extended for a further 2 years until the end of 2018. This provides an exemption from income tax for individuals unemployed for at least 12 months and who set up a qualifying business. The maximum income tax relief is €40,000 per annum for a period of two years
Minimum wage is to increase from €9.15 to €9.25 per hour effective 1 January 2017
Extending Special Assignee Relief Programme (SARP ) to the end of 2020
Extending the Foreign Income Deduction (FID ) relief to the end of 2020 and to include Colombia and Pakistan. The minimum number of days is being reduced from 40 to 30 days
Tourism and hospitality retains the 9% VAT rate
A review of the corporation tax code is to be carried out, the terms of reference issued on 11 October 2016
Revenue are launching a consultation process for the purposes of modernising the current PAYE system.
Farming and Marine Matters
The Government acknowledges that the farming and agri-food sector has been going through a tough time recently due to lower world prices and weather as well as being impacted by Brexit and the weakness in sterling. To help in this regard, it is proposed to allow with immediate effect, that a farmer facing an exceptionally poor year can “step out” of income averaging and instead pay tax due on the current year basis with any deferred liability becoming payable over subsequent years.
The flat-rate of VAT for farmers not registered for VAT is being increased from 5.2% to 5.4% from 1 January 2017.
The farm restructuring relief has been extended for a further three years to end of 2019.
It is also proposed to develop a loan fund that will be low cost and flexible to enable farmers to improve the management of their cash flow and reduce the cost of short term borrowings.
The accelerated capital allowances for investment in energy-efficient equipment has been extended to sole traders helping businesses in the farming and marine sectors to receive full allowances in the first year.
Payments under the new raised bog restoration incentive scheme will be exempt from Capital Gains Tax (CGT ).
A new annual income tax credit of €1,270 for fishermen is being introduced which shelters income up to €6,350.
The current Capital Acquisitions Tax (CAT ) lifetime tax free thresholds have been increased
Group A which applies primarily to gifts and inheritances from parents to their children has been increased from €280,000 to €310,000.
Group B which applies to gifts and inheritances made to parents, siblings, nieces, nephews or grandchildren has been increased from €30,150 to €32,500.
Group C which applies to gifts and inheritances made to all others (except spouses and civil partners who are exempt ) has increased from €15,075 to €16,250.
This increase applies in respect of gifts or inheritances received on or after 12 October 2016.
A reduced CGT rate of 10%, previously 20% will apply to the disposal of chargeable assets qualifying for entrepreneur relief to a limit of €1m.
Pensions and Social welfare payments
The State pension payments are to increase by €5 per week from March 2017. The basic social welfare rates for carers’ allowance, disability allowance and jobseekers’ benefit and allowance will also increase by €5 per week from March 2017. The Christmas bonus for those in receipt of social welfare will increase to 85% of the weekly amount for Christmas 2016.
The Government intends introducing higher quality and more affordable childcare through;
Increasing Early Years Funding
The introduction of a new Single Affordable Childcare Scheme which will provide both
Means-tested subsidies, based on parental income, for children between 6 months and 15 years and
Subsidies for all children ages 6 months to 3 years.
Indirect and Excise Taxes
The excise rates were increased with effect from 12 October to apply an extra 50 cent to a packet of 20 cigarettes bringing the price to €11.
Following a consultation process a “sugar tax”, a tax on sugar sweetened drinks is to be introduced in April 2018.
VRT relief for electric and hybrid vehicles to be extended by 5 and 2 years respectively.
The reduced rate of Alcohol Products tax on beers produced in microbreweries is extended to apply to microbreweries which do not produce more than 40,000 hectolitres per annum.