TaxingTimes Budget 2015 Introduction - KPMG · TaxingTimes Budget 2015 1 Conor O’Brien Partner ... has been increased from €10,036 to ... duty on the acquisition of agricultural

TaxingTimes Budget 2015 1

Conor O’BrienPartner

Introduction

The Minister for Finance introduced the 2015 Budget (the Budget) on 14 October 2014. Further detailed measures will be included in the Finance Bill to be published on 23 October 2014.

Budget 2015 is one of the most significant Budgets of recent years. It sets out a roadmap for Ireland’s taxation regime for inward investment. The package of measures announced should significantly increase the attraction of Ireland as a location for inward investment. These measures include:

n A strong reaffirmation of Ireland’s commitment to the 12.5% rate of corporation tax.

n A commitment to introduce a best in class “Knowledge Development Box” at a low, competitive and sustainable rate.

n Elimination of the base year limitation for the Research and Development tax credit.

n Significant improvement of the capital allowances regime for intellectual property.

n Significant improvements to the income tax regime for foreign workers coming to Ireland. This will afford such workers a marginal income tax rate lower than that which applies in the UK.

In conjunction with the foregoing the Minister announced the elimination of the so called “double Irish” structure. Existing operations have been given up to 2021 to restructure and it is expected that groups will be able to restructure so that the corporation tax treatment of their Irish operation will remain very competitive.

The Minister referenced the 33,000 people employed in international financial services in Ireland and said that a new strategy for the sector will be launched in 2015.

Other positive measures include:

n The lowering of the income tax burden on low and middle earners.

n The abolition of the 0.6% pension levy.

n The abolition of the 80% rate of capital gains tax on rezoned land.

n The retention of the 9% tourism VAT rate.

n Improvements to the EIIS scheme (income tax relief for investment in certain trades).

On a less positive note the failure to reduce the top combined rates of income tax, USC and PRSI (52% for employed, 55% for self-employed) and the indication that policy is to keep these rates high is disappointing. These rates are very high by international standards and we have now reached the point where the top 1% of earners in Ireland pay more tax than the bottom 76%. The 33% capital gains tax rate is also an outlier. It is to be hoped that future taxation policy will give greater attention to the need for taxation policy to reward and incentivise risk taking and entrepreneurship.

Overall, however, the fact that Ireland has emerged from the worst financial crisis in living memory with its tax regime for business intact and now substantially enhanced is a most impressive achievement. It demonstrates that Ireland’s commitment to a competitive taxation offering for business, which has now endured for 60 years, remains extraordinarily strong.

Conor O’BrienHead of Tax and Legal Services

Personal Tax 2

Employee Issues 4 and Pensions

Business Tax 6

Property 10 and Construction

Research & 12 Development

VAT and other 13 indirect taxes

Tax Rates and 14 Credits 2015

Personal Tax 15 Scenarios 2015

2 TaxingTimes Budget 2015

Personal Tax

Income tax and USC changesChanges to the income tax and universal social charge (“USC”) regimes were widely anticipated in advance of Budget 2015 and, for the most part, the changes announced by the minister in his speech were consistent with changes mentioned in press coverage over the last two weeks.

In his speech, the minister made reference to a Government commitment, made over the summer, to delivering better living and working standards in Ireland. The minister highlighted that a key part of the Government’s commitment in this area was to introduce a considered and focused tax reform plan that reduces the tax burden on low and middle income earners, but one which maintains the highly progressive nature

of the Irish income tax system. The minister made specific reference to the increasing share of the income tax burden being funded by the top 1% of earners.

Budget 2015 is the first instalment of a three year plan. While the minister did not specifically indicate the nature of future changes, one can anticipate that they are likely to follow the framework adopted for Budget 2015, with the focus firmly on reducing tax for low to middle income earners.

In a widely-anticipated move, the minister announced the reduction in the marginal rate of income tax from 41% to 40%. This change will benefit those on incomes of less than €70,044, as the reduction in income tax rates for those on incomes above that level has been offset by corresponding increases in the USC rates.

The minister announced that a new USC rate of 8% (previously 7%) will apply to (i) employment income over €70,044 and (ii) self-employment income between €70,044 and €100,000. For the self-employed, the top rate of USC at 10% (7% plus 3% surcharge), which was due to revert back to 7% on 31 December 2014, has been increased to 11%. In other words, the existing overall marginal rate of tax of 55% is being retained for self-employed people earning over €100,000.

The changes mean that individuals with income in excess of €70,044 will continue to be subject to tax at marginal rates of 52%/55%. The overall effective rate may be marginally higher overall as tax reliefs such as pension contributions will be allowed at a lower rate of 40%, while the gross income before pension contributions will be chargeable at the increased USC rates.

In a change that will take a large number of people out of the charge to USC, the USC exemption threshold has been increased from €10,036 to €12,012.

Both of the lower USC rates have been reduced by 0.5% with the respective bands widened slightly. Full details of the revised rates and bands are available at the end of this publication.

Medical card holders and those over 70 whose aggregate income does not exceed €60,000 will continue to be exempt from the 7% rate of USC i.e. the highest rate of USC for which they will be liable is 3.5%.

All of the above changes will come into effect from 1 January 2015.

Robert DowleyPartner


Artists’ exemptionThe artists’ exemption from income tax will be increased from €40,000 to €50,000 per annum. Any income above this level will be subject to income tax. The artists’ exemption does not provide any relief from USC.

In addition, the scope of the relief is being extended to include non-resident individuals resident or ordinarily resident in another EU/EEA State to the extent that their relevant income would be taxable in Ireland.

Tax relief for water chargesIn a measure aimed at easing the burden of the upcoming water charges, the minister announced the introduction of an income tax relief for water charges. The relief will be provided at the standard rate of income tax (20%) on water charges up to a maximum of €500, i.e. maximum cash tax relief of €100. The relief can only be claimed in the year following payment.

Capital acquisitions tax relief on agricultural propertyAgricultural relief significantly reduces the gift and inheritance taxes on farmland by reducing the effective rate of capital acquisitions tax from 33% to 3.3%. A condition of the relief is that at least 80% of the beneficiary’s assets after taking the gift/inheritance are represented by “agricultural property”.

From 1 January 2015, the conditions for the relief are to be changed such that the relief will be targeted at “active farmers” rather than those satisfying the mathematical calculation based on the 80% asset test. No details are yet available on the definition of “active farmer”, but it would not be surprising if the definition follows other definitions of “farmer” included elsewhere within the tax code. For instance, in order to avail of the exemption from stamp duty on the acquisition of agricultural land, an individual is required to have attended a Teagasc training course in

farm management or obtained another similar qualification.

The existing agricultural relief is to be maintained for those individuals who are not themselves “active farmers” but who lease the property out to “active farmers” on a long-term basis for agricultural use.

Those considering making gifts of agricultural property to someone who may not qualify as an “active farmer” but who may meet the 80% test may wish to consider making such a gift before 31 December 2014.


Employee Issues & Pensions

The Special Assignee Relief Programme The Special Assignee Relief Programme (SARP) is a tax relief intended to encourage the relocation of key talent to Ireland. Such a scheme is essential for Ireland to remain competitive on the international stage and to continue to attract key skills. SARP provides relief in the form of a tax deduction from employment income for qualifying employees relocating to Ireland.

The programme first came into effect in 2009 under a scheme, the “old SARP”, which applied to individuals arriving in Ireland in 2009, 2010 and 2011. This programme was replaced in 2012 with the current scheme which applies to individuals arriving in Ireland in 2012, 2013 and 2014.

Under the current programme tax relief is provided by allowing for a tax deduction equal to 30% of the difference between €75,000 and the total of the individual’s employment income subject to a ceiling of €500,000.

The maximum relief allowed is €52,275, i.e. €127,500 (€425,000 x 30%) at the current marginal income tax rate of 41%. Under the post 2015 Budget measures there will be no maximum cap to the relief.

There are a number of additional restrictive features in the current scheme that have resulted in a low take-up of the programme. In 2012, only 15 employees availed of the relief (2013 data is not yet available).

The changes proposed in Budget 2015 will now allow for SARP to be available to a larger group of key talent relocating to Ireland from 1 January 2015. The new features include:

n An extension of SARP to the end of 2017

n Removal of the €500,000 ceiling

n The requirement to be tax resident in Ireland only has been removed. This will allow employees to avail of this relief even if they retain tax residence in their home country

n Where employees are required to perform duties outside of Ireland the relief will still apply

n The requirement for the employee to be hired by the relevant employer prior to their relocation to Ireland has reduced from 12 months to 6 months

While the above amendments are welcome, we believe the relief could be made more competitive by increasing the 30% deduction and also by providing relief for USC.

Example

n An employee is assigned to Ireland from the UK on 1 May for two years

n The employee is Irish tax resident but also retains UK tax residence up to 31 December of the first year

n The employee commenced employment with the relevant employer in the UK 14 months prior to assignment

n Base salary of €250,000 with 40 workdays in the UK up to 31 December of the first year

Pre 2015 Budget

n The employee would not have qualified for SARP in Ireland until the following 1 January as they were tax resident in Ireland and the UK

n The employee would have had more than 30 days working abroad during the first year of assignment which would prevent them from qualifying for SARP

n The employee would not qualify for SARP in the year of departure as they would be resident in Ireland and the UK

Post 2015 Budget

n The new measures introduced in relation to residence do not exclude the employee from qualifying for SARP relief from 1 May

n Allowing the employee to work abroad during their assignment will no longer disqualify the employee from SARP relief

n The employee will continue to qualify for SARP in their year of departure

Further details on the changes will be provided in the Finance Bill.

John BradleyPartner


Under the proposed new rules, that employee could have up to 5 qualifying days in each week travelled.

While raising the €35,000 cap on the relief would have been welcome, the relief has been extended such that more employees should qualify for the relief

Further details on the changes will be provided in the Finance Bill.

Pension LevyThe levies of 0.6% and 0.15% on pension fund assets will expire as follows:

n 0.6% levy at the end of 2014

n 0.15% levy at the end of 2015

The combined levy of 0.75% that applied for 2014 will therefore reduce to 0.15% for 2015, with no pension levy for subsequent years.

Foreign Earnings Deduction The Foreign Earnings Deduction (FED) is a tax relief available to employees of Irish companies who spend time working abroad in certain qualifying countries (see below). The relief was introduced in Finance Act 2012 to support efforts by Irish companies to expand into emerging markets, originally the BRICS countries and further extended in Finance Act 2013 (as outlined below).

The relief is available to Irish resident individuals who spend at least 60 “qualifying days” working outside Ireland in any of the qualifying countries in a continuous 12 month period.

A “qualifying day” is one of at least four consecutive days throughout the whole of which the individual is performing duties in any of the qualifying countries.

The relief is calculated by applying the following formula:

When the relief was originally introduced, it was anticipated that the cost to the Exchequer would be just under €1.5 Million for every 100 claims. According to latest figures available from Revenue, there were

only 83 FED claims during 2012 at a cost to the Exchequer of €0.6 million.

The minister has announced improvements to the relief including a reduction in the minimum number of qualifying days in a 12 month period from 60 to 40. In addition, the requirement to spend 4 consecutive days in a qualifying country has been reduced to 3 days and travel time can be included. Finally, the relief has been extended to 31 December 2017.

The level of deduction available to an individual employee is capped at €35,000 for any one year and this has not changed. This means that, while the maximum relief available in 2014 is €14,350 (€35,000 @ 41%), the maximum relief available in 2015 will be €14,000 (€35,000 @ 40%) due to the reduction in the marginal income tax rate.

Example:

Under the current rules an employee who leaves Ireland every Monday and returns every Friday would not qualify for FED as that employee would not have 4 consecutive qualifying days when travel time is excluded.

Qualifying employment

incomeX

Number of qualifying days in a year

Number of days in year that the employment is held

Qualifying Countries - FED

2012 Additional qualifying countries in 2013 & 2014

Additional qualifying countries in 2015

Brazil Egypt Senegal Chile

Russia Algeria Tanzania Mexico

India Nigeria Kenya Certain countries in the Middle East & Asia (not yet announced)

China Ghana Democratic Republicof CongoSouth Africa


Business Tax

Foreign Direct InvestmentThe Irish Government’s priority is that Ireland remains the global location of choice for Foreign Direct Investment (FDI). Today, the minister outlined very positive and powerful measures that make it clear that Ireland is committed to playing fair, and playing to win. Certainty and competitiveness are of paramount importance and the Government has committed to a clear road map by introducing important changes to our tax regime.

The following were announced in today’s Budget:

n The 12.5% tax rate for companies is settled tax policy. The Government stated that this rate never has been, and never will be, up for discussion. It will not change.

n The Government will abolish the so called ‘Double Irish’ for companies incorporated in Ireland on or after 1 January 2015. This means that Irish incorporated companies which are resident for tax purposes outside of Ireland, will be treated as resident in Ireland and liable to tax here. For existing companies, a transition period will apply until the end of 2020. While it is expected that this new measure will not apply to Irish incorporated companies resident for tax in a double tax treaty partner country, this detail should be included in the Finance Bill.

n The Government intends to introduce a ‘Knowledge Development Box’ to make Ireland an attractive location for the development of intangible assets. This will be an income-based tax regime and will be designed to

deliver an ongoing competitive and sustainable effective tax rate. Public consultation on the development of the regime will commence in late 2014 with legislation expected in late 2015.

n Ireland’s existing capital allowances regime for expenditure on intangible assets will be improved by expanding the definition of qualifying intangible assets to include customer lists and by removing existing restrictions on the annual benefit that can be claimed.

n There will be an enhancement to our personal tax regime (SARP) to attract the talent necessary to establish and develop global businesses in Ireland. The enhancements announced will make the Irish regime one of the more competitive regimes.

n Our existing R&D tax credit regime will be enhanced through the removal of the current ‘2003 base-year limitation’ with effect from 1 January 2015 in addition to enhanced clarity on how the regime will be administered through the publication of new guidelines.

n Significant additional resources will be dedicated to the Revenue Commissioners in their role as Ireland’s Competent Authority for transfer pricing to defend the Irish tax base and taxpayers operating in Ireland against challenges from foreign tax authorities.

n Expansion of Ireland’s Tax Treaty network will be accelerated to ensure that companies based in Ireland can continue to compete globally.

The Irish Government has sought to reassure multinationals by restating its commitment to a stable, competitive and transparent tax regime which stresses the core pillars of Ireland‘s corporate tax strategy of rate, regime and reputation.

The road map and measures introduced today are very welcome and will be important to Ireland’s continued success in competing for FDI.

Conor O SullivanPartner

Anna Scally Partner


Other Enterprise MattersIn his Budget speech, the minister acknowledged the contribution of SMEs to the Irish economy, and the importance of a strong SME sector to grow and create jobs. Building on the measures introduced in Budget 2014, the minister outlined various provisions expected to assist Irish domestic companies to access finance and drive market expansion.

Strategic Banking Corporation of Ireland

The Strategic Banking Corporation of Ireland is expected to be formally launched at the end of October. Its function will be to increase the availability of finance on more flexible

terms to the SME sector. This measure is expected to help SMEs in accessing finance to grow their business across new markets.

Start-up relief for entrepreneurs

The existing Seed Capital Scheme will be rebranded as “Start-up Relief for Entrepreneurs” (SURE) and will be officially re-launched in the coming months. This follows a public consultation into the existing Seed Capital Scheme during 2014. The minister did not outline the detail of the proposed changes. The minister did however confirm that the relief will be extended to individuals who have been unemployed for up to 2 years.

Employment and Investment Incentive Scheme

Following on from the changes introduced in Finance (No. 2) Act 2013 to increase the use of the Employment and Investment Incentive (EII), the minister has taken further steps to increase the attractiveness of this relief. The proposed changes increase the amount of finance that can be raised by a company, broaden the range of activities eligible for the scheme, and expand the scheme to include medium-sized enterprises in certain specified areas within Ireland. The minister has also increased the required holding period for shares under the scheme by one year.

EII was introduced in Finance Act 2011 to replace the Business Expansion Scheme, and is designed to encourage investment by individuals in small and medium-sized companies. Under the scheme, an individual can obtain relief on up to €150,000 invested in a qualifying company in each tax year. The relief is provided in two tranches: initial income tax relief of 30% of the qualifying investment in the year the investment is made, and further income tax relief of 11% in the year following the end of the minimum holding period which, prior to the budget, was three years. The second tranche is granted where certain conditions have been met by the qualifying company. Prior to the budget, the maximum investment by all investors in any one company or group of companies was €10 million, subject to a maximum of €2.5 million in any one twelve month period.

Liam LynchPartner


The Budget proposals now increase the amount of finance that can be raised by a company under EII to €5 million annually, subject to a lifetime maximum of €15 million. Investment in medium-sized enterprises in certain specified areas within Ireland, and internationally traded financial services that are certified by Enterprise Ireland, will also now qualify under the scheme. The proposals also increase the required holding period for shares from 3 to 4 years. These measures are subject to approval from the European Commission.

Investments in hotels, guest houses and self catering accommodation will remain eligible for relief for a further 3 years. The operating and managing of nursing homes will also qualify for these 3 years.

The proposed changes should further increase the attractiveness of the

scheme as a mechanism for small and medium-sized companies to raise capital.

3 year relief for start-up companies

The three-year relief from corporation tax on trading income for new companies, introduced in 2009, will be extended to include new business start-ups in 2015. The measure applies to relieve a company from corporation tax where its annual corporation tax liability does not exceed €40,000. This relief is capped at the amount of employers PRSI contributed in the period. The relief was due to expire on 31 December 2014. A review of the operation of the measure will take place in 2015.

Accelerated Capital Allowances for Energy Efficient Equipment

The minister has announced that accelerated capital allowances for

energy efficient equipment that were due to expire at the end of 2014 are to be extended by a further 3 years to the end of 2017. This incentive was introduced to encourage investment by companies in such equipment, and allows for capital allowances at 100% of qualifying expenditure in the first year as opposed to the usual 12.5% per annum over 8 years.

Microbreweries

The minister acknowledged the recent success of microbreweries in the Irish economy. Currently, microbreweries producing up to 20,000 hectolitres of beer qualify for a special relief that reduces by 50% the Alcohol Products Tax payable. To further assist with market expansion and job growth, this relief has been extended to microbreweries which produce not more than 30,000 hectolitres.

Betting duty

The minister did not signal any changes to the rate of betting duty. However, he noted that the expected increase in the yield from betting duty in 2015 arising from the extension of betting duty to remote operators and betting exchanges dealing with customers in Ireland will be €25 million.

Horse and greyhound racing

For the next three years the Government will be providing an additional €6 million per annum to the fund for horse and greyhound racing. The Government will also provide additional capital of €5 million to Horse Racing Ireland in 2015 to leverage investment in race courses.

Kevin CohenPartner


Other measures to benefit SMEs

Measures such as the improvements to the R&D tax credit system, the removal of the 80% restriction on specified intangible assets and the public consultation on the “Knowledge Development Box” should also be of great benefit to Irish business as companies continue to utilise research, development and innovation as a means of growing their business. Furthermore, the proposed improvements to the Foreign Earnings Deduction should help to support SMEs to grow their business abroad.

The minister also announced that the Department of Finance and Department of Jobs, Enterprise and Innovation will implement an integrated export strategy in 2015. This will be developed in conjunction with the other governing bodies including the Strategic Banking Corporation of Ireland, the Ireland Strategic Investment Fund, and Enterprise Ireland and will include funding options.

Farming and Agri Food SectorThe minister published the Agri-Taxation Review that he initiated at the time of Budget 2014, and introduced a number of changes arising from this review. He also announced a similar review for the marine sector.

Income tax

A relief from income tax is currently available for individual lessors of farmland. The relief exempts the lessor of the land from income tax on progressively increasing amounts linked to the duration of the lease.

The Budget proposes to increase the exempt thresholds by 50% and introduces a new threshold for lease periods of 15 years or more. The relief will also be extended to companies and the requirement for individual lessors to be 40 years of age or over will be removed. The income averaging system, which allows farmers to average their income over a number of years for tax purposes, will be broadened.

Stamp Duty

Stamp duty consanguinity relief, which applies to transfers of non-residential land to relatives, was due to expire on 31 December 2014. The Budget extends the relief for a further 3 years in certain circumstances where the transferor is 65 years or under and the transferee is an active farmer. The relief reduces the stamp duty rate by 50%.

Agricultural land leases of a period between 5 and 35 years will be exempt from stamp duty.

Capital Gains Tax

Under the current rules for capital gains tax (CGT) retirement relief in relation to farm land, one condition is that the individual has owned and farmed the land for the past 10 years. Where the land has been leased out, in order to qualify for the relief, the individual must satisfy the above 10 year rule and the land cannot have been let for a period in excess of 15 years. In order to ensure that farms are being transferred to the next generation of farmers, the Budget broadens the relief so that it applies to farm land which has been leased out for periods of up to 25 years prior to disposal.

CGT retirement relief in respect of leased farmland already applies to land let on a long term basis but does not apply to conacre lettings. It is proposed that conacre land will qualify for retirement relief if it is disposed of to a third party before 31 December 2016.

Where individuals switch land from conacre letting to long term leasing (between 5 and 25 years) before the end of 2016, the disposal of the farm land will also qualify for capital gains tax retirement relief, subject to certain conditions.

Capital gains tax relief for farm restructuring was introduced in Budget 2013 but did not apply to whole farm replacements. To increase the uptake of this relief, it has been extended to include whole farm replacements. The completion date for the first part of the restructuring has been extended by 12 months to 31 December 2016.

Pat McDaid Partner


Property and Construction

Budget 2015 is set against the backdrop of a significant recovery in many aspects of the Irish property market. The minister has correctly identified land supply constraints and housing shortages as areas for concern where he will seek to use tax policy to influence outcomes. With that in mind the minister has proposed a number of measures aimed primarily at stabilising the rented residential market and increasing and improving the housing stock in Ireland.

Removal of seven year capital gains tax exemptionAs expected, given the recent level of activity in the property sector, the minister confirmed that he is removing the capital gains tax relief introduced to incentivise the purchase of property between 7 December 2011 and 31 December 2014. The capital gains tax exemption for land or buildings purchased and owned for a period of seven years will not be extended beyond 31 December 2014. If an unconditional contract for the disposal of the property has been signed before the end of 2014, the exemption should be available even if the sale does not close until after that date.

The minister stated that the relief had achieved its objectives.

Abolition of Windfall TaxThe minister announced the abolition of the Windfall Tax provisions which were introduced in 2009 and sought to apply an 80% rate of tax to certain profits or gains from disposals, where those profits or gains were attributable to a relevant planning decision. The 80%

tax rate will be abolished from 1 January 2015. This measure should remove a very significant disincentive to the sale of certain land holdings.

Extension of Home Renovation IncentiveBudget 2014 introduced a new incentive (being a 13.5% tax credit) for individuals who were owner-occupiers and who renovated or improved their principal private residence located in the State in 2014 and 2015, using the services of a tax registered and tax compliant builder/contractor. In a measure which seeks to help upgrade the quality of private rental stock, particularly at the lower end, the minister announced the Home Renovation Incentive is being extended to include rental properties, owned by landlords subject to income tax, for work carried out from 14 October 2014 until the end of 2015.

Living City InitiativeThe Living City Initiative is aimed at the regeneration of retail and commercial districts and encouraging families to live in historic buildings in six cities. The relief is subject to European Commission approval, but discussions are at an advanced stage and it is hoped that the Local Authorities in Dublin, Cork, Limerick, Waterford, Galway and Kilkenny will be in a position to suggest final proposals for eligible areas that will qualify for the relief later in 2014 with a full rollout of the initiative in early 2015. The relief is intended to include regeneration works on any residential buildings built prior to 1915.

Jim Clery Partner


Rent-a-Room ReliefThe threshold for exempt income under the Rent-a-Room Scheme is being increased to €12,000 per annum from the current amount of €10,000.

Refund of DIRT for first time purchasersThe minister introduced new legislation providing for a refund of Deposit Interest Retention Tax (DIRT) that has been deducted from interest on savings used by first time purchasers to buy a house or apartment for use as their place of residence. First time purchaser is defined as an individual who has not, either individually or jointly, previously purchased or built any other house or apartment. The legislation provides for a refund of DIRT to be made to a first time purchaser on making a claim and details of how claims can be made will shortly be published by Revenue. The refund applies to DIRT deducted from interest paid on savings by the first time purchaser (up to a maximum of 20% of the consideration paid for the dwelling) at any time in a 48 month period ending on the date of the conveyance into the name of the first time purchaser. The relief applies to the conveyance of a house or apartment on or after 14 October 2014 and prior to 31 December 2017 and does not apply to self builds or the purchase of sites. Given the current low rates of interest being earned on deposits, while this will be somewhat helpful it is unlikely to materially change a buyer’s circumstances.

Other policy measures relevant to Property and ConstructionA number of other measures and initiatives aimed at supporting the supply of housing were also announced:

n Directing the Ireland Strategic Investment Fund to support financing projects that will enhance the supply of housing in Ireland. Such projects might include house builder’s investment funds, social housing investment and Public Private Partnership (PPP) projects. The announcements indicated a capital investment programme amounting to some €2.2 billion aimed at social housing, to be delivered before the end of 2017. Such measures will be strongly welcomed by the construction

sector and should allow the sector to expand significantly, generating additional employment in creating this most needed housing stock.

n Additionally, the minister is commencing a consultation process to examine what taxation measures might be introduced to penalise landowners who may be considered to be hoarding development land stock that is already zoned and serviced. Such a consultation process is likely to be controversial as it would have an impact on many stakeholders in the economy including landowners, NAMA and the lending banks.

This should be an exciting couple of years for the property and construction sector.


Research & Development

There was one major amendment to the Research and Development (R&D)Tax Credit. This was the announcement that the 2003 “base year” will be removed entirely from 1 January 2015. In the last three years, the minister has chipped away at the base year in €100k increments, and in last year’s Budget speech the minister set out that he would remove the base year over time, “as resources allow”.

Ireland’s R&D regime currently operates on an incremental basis, i.e. the R&D tax credit is available on current year R&D expenditure to the extent that it is incremental to what was incurred on R&D in 2003. This new measure appears to introduce an immediate volume base R&D tax credit regime for expenditure incurred in accounting periods commencing on or after 1 January 2015. This will enable companies to claim the R&D tax credit at 25% on all eligible expenditure, without reference to what was incurred in 2003. This acceleration of the base year phase out will be a major boost for companies that had a presence in Ireland in 2003, increasing the attractiveness of locating additional research projects here.

The cost of removing the base year is expected to be €50m annually. The fact that the Government are willing to invest this amount clearly indicates the importance of the R&D tax credit to Ireland’s corporate tax offering.

New guidelinesThe supporting documents to the Budget set out that Revenue plan to publish new guidelines to enhance clarity on the administration of the

R&D tax credit. While we agree that Revenue should take the opportunity to make further positive clarifications, we understand that the guidelines as currently drafted will include a number of very significant changes to previously published guidance. Some of these, unfortunately, may have a negative impact on many taxpayers’ R&D tax credit claims.

Some of the changes are expected to focus on:

n Consumables and ancillary/incidental costs – we expect Revenue to clarify what can be claimed, thus further restricting the cost categories that can be claimed.

n R&D that is incidental to the trade may be restricted, i.e. a credit may only be available for expenditure incurred on R&D to the extent that it would not otherwise have been incurred by the company.

n Residual product – if, after the R&D process has taken place, product

is left over that has a commercial value, then the sales proceeds would reduce the expenditure included in the claim. This is not consistent with the legislation which provides for claiming the credit on expenditure incurred (with no netting out provisions) and would be, we feel, an unhelpful move by Revenue.

If anything, the expected changes in the impending guidelines would seem to reduce the quantum of R&D tax credit claimable. The Department of Finance’s own 2013 review of the R&D tax credit was overwhelmingly positive and found that it was an important factor in attracting foreign direct investment into Ireland. As the new guidelines are yet to be published, we would call upon Revenue and the Department of Finance to consider the positivity the R&D tax credit has generated before going to print.

Ken Hardy Partner


VAT and other indirect taxes

VAT ratesThe minister has confirmed that the 23% and 13.5% VAT rates will remain unchanged. He also announced the continuance of the 9% VAT rate which was introduced in 2011 as part of the Government’s Jobs Initiative for Tourism. However, he noted that the retention of this rate will continue to be monitored and is dependent on the relevant industries passing on the savings to the consumer. The 9% rate applies to a range of services including restaurants and catering, hotel accommodation, and admission to cinemas, theatres and museums.

Telecoms, broadcasting & electronically supplied services As a result of changes at EU level, the VAT rules applying to telecoms, broadcasting and electronically supplied services (e.g. digital content) to consumers are due to change with effect from 1 January 2015. From that date, VAT arising on such supplies will be due in the country where the consumer is resident rather than in the supplier’s jurisdiction. The Exchequer will benefit from this change as Irish VAT will become due on such services when bought in by Irish consumers. In addition, the changes are expected to generate extra revenues for Ireland in the region of €100 million in 2015, rising

to €150 million by 2019. The minister confirmed that this will help fund some of the tax saving measures in the budget.

Farming flat-rate addition The flat-rate addition payable to non-VAT registered farmers will increase from 5% to 5.2% with effect from 1 January 2015. The flat-rate addition compensates unregistered farmers for irrecoverable VAT on their farming inputs.

Excise DutyThe price of a packet of 20 cigarettes will increase by 40 cents (including VAT) with a pro-rata increase on the other tobacco products, with effect from midnight on 14 October 2014. The excise duty on roll-your-own tobacco will also increase.

There are no increases in excise on alcohol, petrol or diesel. Motor Tax and Vehicle Registration Tax rates also remain unchanged.

Vehicle Registration Tax The Vehicle Registration Tax (VRT) reliefs available for the purchase of hybrid electric vehicles, plug-in hybrid electric vehicles, plug-in electric vehicles, and electric motorcycles are being extended to 31 December 2016.

Natural gas as a transport fuel The excise rate for natural gas and BioGas as a propellant will be set at the current EU minimum rate and this rate will be held for a period of eight years.

Niall CampbellPartner


PRSI contribution, Universal Social Charge

% Income

Employer 10.75% No limit

8.50% If income is €356 p/w or less

Employee** (class A1)

PRSI 4% No limit*

Universal Social Charge 1.5% €0 to €12,012**

3.5% €12,013 to €17,576

7% €17,577 to €70,044***

8% > €70,044* Employees earning €352 or less p/w are exempt from PRSI. In any week in which an employee is subject to full-rate PRSI, all earnings are subject to PRSI. Unearned income for employees in excess of €3,174 p.a. is subject to PRSI** Individuals with total income up to €12,012 are not subject to the Universal Social Charge*** Reduced rate (3.5%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not exceed €60,000

Tax Rates and Credits 2015

Personal income tax rates (rates and bands changed)

At 20%, first At 40%

Single person €33,800 Balance

Married couple (one income)* €42,800 Balance

Married couple (two incomes)*&** €67,600 Balance

One parent/widowed parent* €37,800 Balance* Applies to civil partnership/surviving civil partner also ** €42,800 with an increase of €24,800 maximum

Personal tax credits

Single person €1,650

Married couple* €3,300

Single person child carer credit €1,650

Additional credit for certain widowed persons* €1,650

Employee credit €1,650

Home carer credit €810

Water charges credit** €100

Rent credit - single and under 55 years (reduced)*** €120* Applies to civil partnership/surviving civil partner also** Available at the standard rate up to a maximum of €500 per household per annum, prior year basis*** Rent credit will be phased out by 2017. €40 reduction in 2015 for a single person

Tax relief capped on medical insurance premia : premium of €1,000 per adult, €500 per child, per annum.

Home Renovation Incentive Scheme

Income tax credit split over 2015 and 2016 for homeowners who carry out renovation/improvement works on their principal private residence from 25 October 2013 to 31 December 2015 (or to 31 March 2016 where planning permission for the work is required and granted before 31 December 2015). The credit is calculated at a rate of 13.5% on all qualifying expenditure over €4,405 (ex VAT). The maximum credit is €4,050. With effect from 14 October 2014, this scheme is extended to landlords of rental properties who are liable to income tax.

Home loan interest relief granted at source on principal private residence*

First time buyers loan taken out from 2009 to 2012

Years 3-5

Married/widowed** Lower of €4,500 or 22.5% of interest paid

Years 6-7

Married/widowed** Lower of €4,000 or 20% of interest paid

After year 7 (where applicable up to and including 2017)

Married/widowed** Lower of €900 or 15% of interest paid

Other mortgages, loans taken out from 2004 to 2012

Married/widowed** Lower of €900 or 15% of interest paid

First time buyers loan taken out from 2004 to 2008

Remainder of first 7 years of mortgage


After year 7 and up to and including 2017


Single persons

Thresholds set at 50% of those outlined above for married/widowed persons.

* Loans taken out on or after 1 January 2013 do not qualify for Mortgage Interest Relief. The relief will be abolished completely from 2018 and subsequent tax years

** Applies to civil partnerships/surviving civil partner also

Local Property Tax (varying rates)****

Market Value less than €1,000,000*Market Value greater than €1,000,000: - First €1,000,000 - Balance

0.18%

0.18%0.25%

* Market Value less than €100,000 - calculated on 0.18% of €50,000. Market Value €100,000 - €1,000,000 - assessed at mid-point of €50,000 band (i.e. property valued between €150,001 and €200,000, assessed on 0.18% of €175,000)

** Applies to residential (not commercial) properties. Exemptions for houses in certain unfinished estates and newly constructed but unsold property. Exemption until 31 December 2016 for new and unused houses purchased between 1 January 2013 and 31 December 2016 and second hand property purchased between 1 January 2013 and 31 December 2013

*** Certain payment deferral options may be available for low income households****From 2015 onwards, local authorities can vary the basic LPT rates on residential properties in their administrative areas. These rates can be increased or decreased by up to 15%

Self-employed PRSI contribution, Universal Social Charge

% Income

PRSI 4% No limit*

Universal Social Charge 1.5% €0 to €12,012**

3.5% €12,013 to €17,576

7% €17,577 to €70,044***

8% €70,044 to €100,000

11% > €100,000

* Minimum annual PRSI contribution is €500** Individuals with total income up to €12,012 are not subject to the Universal Social Charge*** Reduced rate (3.5%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not exceed €60,000

Tax relief for pensions

- Tax relief for pensions remains at the marginal income tax rate.

- The Defined Benefit pension valuation factor is an age related factor that will vary with the individual’s age at the point at which the pension rights are drawn down.

- Except where a Personal Fund Threshold applies, the Standard Fund Threshold is €2m.

Capital gains tax (rate unchanged)

Rate 33%

Annual exemption €1,270

Capital acquisitions tax (rate and thresholds unchanged)

Rate 33%

Thresholds

Group A €225,000

Group B €30,150

Group C €15,075

Corporation tax rates (no change)

Standard rate 12.5%

Residential land, not fully developed 25%

Non-trading income rate 25%

Value Added Tax (9% rate retained)

Standard rate/lower rate/second lower rate 23%/13.5%/9%

Flat rate for unregistered farmers 5.2%

Cash receipts basis threshold €2m

Deposit Interest Retention Tax (rate unchanged)

DIRT 41%*&**

* Also applicable to exit taxes on financial products** Refund of DIRT incurred in previous four years on savings (up to 20% of the purchase price) used by first time buyers to purchase a dwelling. This scheme will be in place from 14 October 2014 to the end of 2017

Stamp duty - commercial and other property (unchanged)

2% on commercial (non residential) properties and other forms of property, not otherwise exempt from duty.

Stamp duty - residential property (unchanged)

1% on properties valued up to €1,000,000

2% on balance of consideration in excess of €1,000,000

Exemption for Enterprise Securities Market share transfers (date TBA)


TaxingTimes Budget 2015 15Personal Tax Scenarios 2015

NotesThe above scenarios have not taken Local Property Tax into account on the basis that the rate will depend on the specific location of the property.

* Finance Act 2011 introduced a reduction in the rent credit on a sliding scale over seven years. The impact of this will be a reduction of €80 for 2015.

2015 changes Euro

Change in Tax Bands Change to Tax CreditsChange to PRSIChange to Universal Social Charge Change to Marginal Income Tax RateChange to Child Benefit

21000

17472

180

Net Saving €636

Married couple, one employed, earning €50,000, three children, property owner

e

2015 changes Euro

Change in Tax Bands Change to Tax CreditsChange to PRSIChange to Universal Social Charge Change to Marginal Income Tax Rate

42000

(451)1,124

Net Saving €1,093

Married couple, both employed, one earning €150,000, one earning €30,000, property owner

e

2015 changes Euro


42000

(451)1,124

Net Saving €1,093

Married couple, both self employed, one earning €150,000, one earning €30,000, property owner

e

2015 changes Euro

Change in Tax Bands Change to Tax Credits*Change to PRSIChange to Universal Social ChargeChange to Marginal Income Tax Rate

420(80)

0 249474

Net Saving €1,063

e

Unmarried couple, living together, renting, both employed, one earning €80,000, one earning €35,000

Married couple, both employed, one earning €250,000, one earning €90,000, one child, property owner

e

2015 changes Euro

Change in Tax Bands Change to Tax CreditsChange to PRSIChange to Universal Social ChargeChange to Marginal Income Tax RateChange to Child Benefit

42000

(1,651)2,724

60

Net Saving €1,553

2015 changes Euro


21000

174112

Net Saving €496

Single person employed, earning €45,000, property owner


Notes

Documents

TaxingTimes Budget 2015 Introduction - KPMG · TaxingTimes Budget 2015 1 Conor O’Brien Partner ... has been increased from €10,036 to ... duty on the acquisition of agricultural