This year’s Budget was the second budget of the current coalition’s term and Minister Donohue’s first as Finance Minister.
In keeping with recent trends the vast majority of changes announced in the budget were disclosed in recent days via various media outlets. As a result there is little contained within the budget at a first glance that can be described as a shock.
The 2018 budget aims to balance the books for the first time in years and allocate budgetary resources on a 2:1 basis in favour of capital spending over tax reductions and adjustments.
The budget reflects a recovering economy which will grow by 4.3% in 2017 and a projected 3.5% in 2018. A backdrop to the recovery is that unemployment levels have decreased to 6.3% in 2017 and is expected to reach 5.7% by 2018 which is close to the full employment level.
Following on from last year’s announcement of a “rainy day fund”, the Government has announced plans to make an initial transfer of €1.5bn to this fund in 2018 with a contribution of €500m per annum thereafter. The aim of this fund is to safeguard the economy against future economic shocks.
The debt to GDP ratio continues to fall and is projected at 70.1% of GDP by the end of 2017.
This summary will focus primarily on the main policy changes and provisions presented by Minister Donoghue.
The main features of Budget 2018 as they will affect you are as follows;
- An increase of €750 in the income tax standard rate band for all earners, from €33,800 to €34,550 for single individuals and from €42,800 to €43,550 for married one earner couples.
- An increase in the Home Carer Tax Credit from €1,100 to €1,200.
- An increase in the Earned Income Credit from €950 to €1,150.
- No changes to income tax rates. Income tax rates remain 20% and 40%.
- Incomes of €13,000 or less are exempt from USC. 0.5% applies on the first €12,012 of income; 2.5% rate cut to 2%. This applies on income in excess of €12,012 up to an increased threshold of €19,372. 5% rate cut to 4.75%. This applies on income in excess of €19,372 up to €70,044.
- There is to be no change in the VAT rates, which includes the keeping of the 9% rate for the tourism / hospitality sector.
- No changes in CGT or CAT rates.
- Cigarettes to increase by 50c per packet of 20 from 10 October 2017.
- A tax on sugar sweetened beverages is to be introduced on 1 April 2018.
- No change to main Corporation tax rate.
- State Pension will increase by €5 per week from March 2018 while all other social welfare payments will increase by €5 per week in line with State Pension.
- The Christmas bonus for social welfare recipients will be restored to 85 per cent of the recipient’s weekly payment.
- Key Employee Engagement Programme (KEEP)- A share-based remuneration incentive is being introduced to facilitate the use of share-based remuneration by unquoted SME companies to attract key employees.
- Pre-letting Expenses – Rented Residential Property- subject to certain conditions a landlord can receive a tax deduction for pre letting expenses. A cap of €5,000 applies.
- Capital Gains Tax- the 7-year CGT exemption will be reduced to 4 years to allow individuals who purchased property or land to dispose of property between years 4 and 7 free of CGT.
- Vacant site levy which will come into force in 2018 will have a rate of 3% in 2018 and 7% in 2019.
- Commercial Stamp duty will increase from 2% to 6% from midnight. Refund scheme for developer’s subject to criteria.
Income Tax and Levies
- As outlined previously the main change in terms of income tax are the minor reductions targeted at “middle income earners” while the Standard rate income threshold has increased by €750.
- For higher rate earners or more specifically those earning in excess of €70,044, USC @ 8% will still apply to income in excess of this level.
- For the self-employed the additional surcharge on income in excess of €100,000 appears to remain. However, self-employed individuals will now benefit from an increased earned income credit of €1,150.
- The Minister has announced the set-up of a working group to plan for the amalgamation of the USC and PRSI.
Universal Social Charges
USC Rates & Bands from 1 January 2018:
- Incomes of €13,000 are exempt. Otherwise:
- €0 – €12,012 @ 0.5%
- €12,012 – €19,372 @ 2%
- €19,372 – €70,044 @ 4.75%
- €70,044+ @ 8%
- Self-employed income over €100,000: 3% surcharge
- Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed €60,000 will now pay a maximum rate of 2% USC.
Tax Bands Amendments
- €33,800 to €34,550 for single individuals
- €42,800 to €43,550 for married one earner couples.
- Key Employee Engagement Programme (KEEP)- A share-based remuneration incentive is being introduced to facilitate the use of share-based remuneration by unquoted SME companies to attract key employees. Gains arising to employees on the exercise of KEEP share options will be liable to Capital Gains Tax on disposal of the shares, in place of the current liability to income tax, USC and PRSI on exercise. This incentive will be available for qualifying share options granted between 1 January 2018 and 31 December 2023.
- Measures were introduced to prepare for Brexit, including the creation of a Brexit loan scheme that will see €300m available at competitive rates to Irish businesses.
- The Minister announced the introduction of a Brexit package, which includes Brexit loan schemes of up to €300m to support SMEs and up to €25m for the agri-sector. In addition, the agricultural sector has been allocated €50m for Brexit response measures. This will help indigenous Irish companies to remain competitive in a post-Brexit environment.
- There was no significant changes to VAT. The 9% rate applicable to certain service industries (tourism / hospitality etc.) will continue in 2018.
- Compensation to be introduced for VAT incurred by charities based on proportion of non-public funding to State funding.
- An amendment will be made in relation to CGT treatment on certain disposals of land or buildings otherwise known as the 7-year CGT relief, which will allow the owners of qualifying assets to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy a full relief from CGT on any chargeable gains.
- The Vacant Site Levy due to commence in 2019 will increase from 3% to 7% in second and subsequent years and the holding period
- Landlords will also benefit with the news that subject to certain criteria, pre- letting expenses may qualify for a tax deduction. A cap of €5,000 will apply and there will be a claw back period.
- Commercial Stamp duty will increase from 2% to 6% from midnight.
- Mortgage Interest Relief -Tapered extension of mortgage interest relief for remaining recipients. The relief will cease entirely from 2021.
There appears to be no changes to the CAT thresholds.
No changes were announced with regard to CAT rates.
The Government has stated its commitment to maintaining the 12.5% Corporation Tax rate.
Excise duty on a packet of 20 cigarettes is being increased by 50c with effect from 10 October 2017. No changes to duty on alcohol, petrol or diesel.
Sugar Tax -A tax on sugar sweetened beverages is to be introduced on 1 April 2018. The tax will apply to sugar sweetened drinks with a sugar content between 5 grams and 8 grams per 100ml at a rate of 20c per litre. A second rate will apply for drinks with a sugar content of 8 grams or above at 30c per litre.
There appears to be no changes announced with respect to private pensions.
Social Welfare Benefits
- State Pension – increase of €5 per week from March 2018.
- Social welfare payments – all payments to increase by €5 per week in line with the State Pension
- Christmas – 85% Christmas bonus for social welfare recipients.
If you require any clarification on any of the Budget matters please do not hesitate to contact your advisers as follows;
|Telephone:||01 491 4132|
|Office:||192-194 Harold’s Cross, Dublin D6W AP86|