Budget Highlights 2017

Social welfare up by €5 per week, USC rates cut  and ‘help-to-buy’ plan for first-time buyers

Most Irish people should have on average an extra five euro in their pockets every week.
Unemployed people aged under 25 will receive an additional €2.70 in their weekly payments.

Find all the details inside our Budget Highlights 2017

Hugh McCarthy Budget Highlights 2017

Hugh McCarthy Budget Highlights 2017

 

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RESEARCH AND DEVELOPMENT TAX CREDITS

Tax Credit

The availability of tax credits has proven to be a very valuable relief for companies engaged in research and development activities in recent years. From a slow start, it has grown in popularity to the point where in 2012 there were almost 1500 claims to Revenue at a total cost of €270 million.

 

In more recent years Revenue have paid closer attention to the veracity of claims, and through their audit programme have identified shortcomings not so much on the “scientific” aspects of the activities carried out but on the amounts claimed. Click here for more information.

Call us today on 01 4924367 for a free consutation regarding your tax credit or email us at info@hmca.ie.

VAT ON PROPERTY TRANSACTIONS – A SHORT OVERVIEW

INTRODUCTION – VAT on Property

With some hopeful signs of a  pick up in the Irish economy and more specifically in the property market it is perhaps an opportune time to look at some of the main VAT issues typically arising on property transactions.  It should be emphasised that while this summary  may be helpful in determining general principles applying it will be necessary in advising on specific transactions to take a case by case approach based on the individual characteristics of each case.

A SALE OF PROPERTY

The first point to be remembered in all transactions involving the sale of property is that the purchaser usually acquires a particular building not just for immediate consumption but for a longer period of time

If the Business owner referred to above therefore decides to sell the building he acquired at a time when it is still regarded as “new” VAT will automatically apply.  

                 Sale of a building not regarded as new

In other cases when the Building is no longer regarded as new VAT will not automatically apply on the sale. However to avoid a clawback of VAT by Revenue in relation to the initial cost of the property which would arise if VAT did not arise on the subsequent sale, the Business owner will still have the option of entering an agreement with the purchaser to account  for VAT on this transaction. This is known as a Joint option to tax and in this case the purchaser will need to be VAT registered. It will be the new purchaser rather than the seller who will account for the VAT in this case to Revenue.

It is essential that up to date VAT records are always retained in relation to all property transactions and that these are passed on to the purchaser in any transaction. It is mandatory to retain these records for the lifetime of the Building and this is usually reflected in a document known as a VAT Requisitions of Property which will be passed between Solicitors prior to a sale. 

RENT OF A BUILDING

In many cases a purchaser of a building will decide to let the property and will be equally concerned with his or her entitlement to reclaim VAT charged. The same rules as to VAT recovery apply here as with any other acquisition – it is the use to which you put the property that determines the amount of VAT that can be reclaimed.

In VAT terms the deemed “lifetime” of property is generally taken as being 20 years. A purchaser may be a business person who uses a building to carry on his or her business with all sales receipts from that business coming within the scope of VAT. In that situation the purchaser would be entitled to reclaim all of the VAT included on the purchase price at that time. However, it will then be necessary for that purchaser to review the situation over each of the next 20 years and look at their general entitlement to reclaim VAT in each of those years based on how they are using the building then.

If after say 5 years the purchaser decides to use half of the building for personal storage this is outside of the charge to VAT and he would be required to pay back part of the initial VAT reclaimed to Revenue.

If and when the business owner decides to sell the building great care will be required to ensure that no VAT clawback arises to Revenue at that time. The position in relation to VAT on the sale of property in general will need to be considered at that time and this is now summarised as follows:

              Sale of a “new” building

A sale of a “new” building will automatically attract VAT at the 13.5% rate. A building is regarded as “new” when it was developed or constructed within the past 5 years. In addition if it is more than 5 years old but was significantly redeveloped within 5 years of a second sale VAT will apply on that second sale. The term “significantly redeveloped” means that the cost of renovation exceeds 25% of the VAT exclusive sales price of the building.

An exception to the 5 year rule will apply where a building was previously sold and was also occupied for more than 24 months in the past 5 years.

Since 2008 rental income is automatically exempt from VAT regardless of whether it is a short or long term lease which on first principles means that the purchaser would have no entitlement to reclaim VAT. Fortunately in the case of commercial property only, a landlord has an option to opt to tax the rent which means that VAT at the 23% rate will arise on all rental income arising from that property. In this instance the landlord includes an appropriate clause in the lease and collects the VAT which is passed over to Revenue.

Of course he must then review on an annual basis for 20 years how he is using the property and if for example in one year he does not charge VAT on the rent a clawback by Revenue of part of the initial VAT reclaimed on purchase of the property will take place.   

In summary it can be seen that great care is required in what has historically been regarded by practitioners as one of the more challenging sections of tax legislation likely to arise with clients on an ongoing basis.

EMPLOYMENT AND INVESTMENT INCENTIVE SCHEME

INTRODUCTION

The recent Budget and subsequent Finance Bill No  2 2013 propose to remove the Employment and Investment incentive scheme (EII) from the High Earners Restriction on use of certain tax reliefs for a period of three years from 2014. 

It is perhaps timely therefore to summarise the main features of this scheme especially as we are approaching the traditional busy time of year in relation to taxpayers wishing to consider qualifying investments that may be offered to them in coming weeks.

AN OVERVIEW

The EII scheme was introduced by Finance Act 2011 and replaced the Business Expansion (BES ) scheme which had been in place since 1984 but which was regarded by many as rather technical and bureaucratic.  European Union approval was received later that year and the scheme came info effect on 25 November 2011.

The main features of the scheme are:

QUALIFYING COMPANY

1.            The relief will apply to qualifying shares issued in eligible companies at any time up to 31December 2020.

2.            In general many trading companies will be regarded as eligible companies as long as they areincorporated in Ireland or an other EU/EEA State, are not public companies and are not inthe general service sector. The onerous pre approval procedure applicable under the old BES scheme is now removed.  Green energy and certain tourism related activities will qualify        generally although certain industry sectors such as the coal steel and shipbuilding sectors are excluded. 

3.            A distinction is made between:

             A micro or small enterprise which has 50 or fewer employees and turnover/balance sheet value of less than €10 million and which will be regarded as a qualifying company regardless of its location,

             A medium  company with less than 250 employees, turnover less than €50 million and   balance sheet value of less than €43 million.  This will be regarded as a qualifying company if located outside of Dublin, Cork, Kildare, Meath or Wicklow.However, medium sizedcompanies that are still regarded as being in the startup phase of development will be regarded as qualifying when located in these counties.

4.            It is important to note that in a Group situation the company will only qualify where all associated Group companies also meet the relevant qualifying conditions. For this reason to avoid complications Companies intending to attract EII funds are generally standalone entities.

5.            The lifetime qualifying investment that can be made in a qualifying company is €10 millionwith an annual cap of €2 million. 

6.            A controlling shareholder can not have an interest in another company carrying on substantially the same trade – the condition here refers to a period of two years before andfive years after an EII investment is made so care is required to ensure that a taxpayer wishing to avail of the relief does not inadvertently come within this anti avoidance measure.  

QUALIFYING TAXPAYER AND APPLICATION OF THE RE RELIEF

To qualify for the relief the investor must be tax resident in Ireland and subscribe for shares at a time when he/she is not regarded as connected with the company. In broad terms this means that the investor can not directly or indirectly own 30% of the issued share or loan capital of the company although this condition is relaxed where the total issued share/loan capital is less than €500,000.

The shares must be held for a period of at least three years and tax relief will be available on amounts invested of up to €150,000 in any one year. It is for this reason that the removal of the restriction on the use of the resulting tax relief on an investment of as little as €80,000 in any one year is quite important.

Tax relief will be available at a rate of 30% in the year the investment is made with the remaining 11% – assuming an investor will generally be liable to tax at the marginal 41% rate – claimed at the end of the three year holding period. To get this additional 11% relief certain conditions will need to be met by the company in relation to either/or a net increase in employment numbers or increasing expenditure on research and development activities.

WITHDRAWAL OF RELIEF

It is important that the shares are held for at least the minimum holding period of three years. If there is any arrangement in place to counteract this by either a share redemption, repayment of an existing Directors loan – even if bona fide in place at date of share issue – the relief will be clawed back.

SUMMARY

As with many measures in Irish tax legislation the basic EII relief is quite straightforward and easy to understand, however, a comprehensive review of the finer detail of legislation is warranted before advising investors to invest funds in a company in a manner that will attract tax relief as even a bona fide investment can in certain circumstances fall foul of quite tricky anti avoidance measures. 

BUDGET 2014 – THE MAIN MEASURES

INTRODUCTION

With Irelands’ three year EU/IMF programme shortly coming to an end, there will have been considerable international attention on Budget 2014, introduced to the Dail on 15th October. In line with expectations, the measures introduced are intended to bring in a deficit of 4.8% in 2014, with circa €2.5 billion taken out of the economy through a combination of tax hikes and spending cuts.

THE MAIN MEASURES

At first glance, the fact that there are no increases in general income tax or capital tax rates will be seen as evidence of a “soft” Budget, at least compared to prior years.

             A new capital gains tax relief  applicable on the sale of assets used in new productive activities in cases where the assets were initially acquired in the period 1 January 2014 to 31 December 2018, and were held for three years prior to sale. The taxpayer must previously have made a disposal of assets and the relief will be the lower of:

i.              The capital gains tax already paid on the previous sale, OR

ii.             50% of the tax due on the sale of the new assets

             An extension of the general capital gains tax relief applicable to individuals and companies on gains on the sale of property. As a result of the Budget, property acquired any time before 31 December 2014 and held for at least 7 years will now qualify for exemption. The land can be located anywhere in the European Economic Area. 

OTHER CHANGES

RETIREMENT RELIEF

It is proposed that this very valuable relief will be extended to farmers who dispose of leased land once certain conditions are met, including one specifying that the lease term is for at least 5 years and the sale is not to a child of the farmer.

There were no other specific changes under this heading. However, it should be noted that under changes previously announced a cap of €3 million will apply to Retirement Relief for individuals aged over 66 selling qualifying business or farm assets

However, it is estimated that at least 50% of private medical insurance customers will be affected by the proposed capping of tax relief, to a ceiling of €500 per child and €1,000 per adult insured. In addition, the one parent family tax credit that was previously available to almost all single parents will in future only be available to the “principal carer”, a move that is likely to be a source of contention in cases of dual custody of children in many separation cases.

Self-employed business people including many partners of legal and accounting firms will be disappointed with the proposed elimination of tax relief on interest on loans taken out to invest in a partnership, although it should be noted that this will be on a phased basis over a number of years in relation to pre-existing loans.

On a more positive note there are welcome measures aimed at promoting entrepreneurial spirit, especially in the SME sector, including:

             A removal of the 30% tax relief under the EII scheme from the scope of the high earners restriction on the use of certain tax reliefs over and above specified income limits. It is hoped that this will further encourage investment in SME activities by allowing unrestricted tax relief at the 30% relief on amounts invested in qualifying business activities up to €150,000 per annum.

             An exemption from income tax, up to a maximum of €40,000 per annum for two years for individuals who set up a new unincorporated business and who were previously on the live register for 15 months.

after 1 January 2014 to family members. Also persons aged 66 or over will see a reduction in the general exemption from €750,000 to €500,000 after 1 January 2014.

PENSIONS

The maximum retirement fund or standard fund threshold that a taxpayer may have is reduced from €2.3 million to €2 million from 1 January 2014, although provision is included to protect the capital value of existing pension funds by election before that date. 

On a related matter, top slicing relief, which could be quite valuable to certain employees obtaining lump sums from their employers will not apply to payments in 2014 or subsequent years.

MISCELLANEOUS

After some lobbying, the 9% VAT rate is retained for the Tourism sector. The valuable Film Relief Scheme changes will now be brought forward to 2015.