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Irish Budget Delivers Modest Income Tax Cuts

by Jason Gorringe, Tax-News.com, London

11 October 2017


Paschal Donohoe's first Irish Budget contained minor tweaks to income tax brackets and Universal Social Charge (USC) rates.

As expected, the Finance Minister had little fiscal space to play with. The focus was largely on the personal income tax and housing tax systems.

According to Donohoe, the following income tax reductions are together worth EUR335m (USD395.8m):

  • The entry point for single earners to the higher rate of income tax (40 percent) will increase from EUR33,800 to EUR34,550;
  • The 2.5 percent USC rate will be reduced to two percent, and the ceiling for this rate will be increased from EUR18,722 to EUR19,372, to ensure that full-time workers on the newly increased minimum wage do not pay the upper rates of USC;
  • The five percent rate of USC will be reduced to 4.75 percent;
  • The Earned Income Credit for the self-employed will rise by EUR200 to EUR1,150 per year from 2018; and
  • The Government will establish a working group to plan, over the coming year, the process of amalgamating USC and Pay Related Social Insurance over the medium term.

The Budget also included a number of measures designed to tackle growing concerns about the stability of the housing market. Donohoe announced the following tax-related proposals:

  • Stamp duty on non-residential property transactions will be increased from two percent to six percent, effective midnight on October 10;
    • A refund scheme will however be introduced in relation to commercial land purchased for the development of housing, which will include a requirement that developers will have to commence the development within 30 months of the land purchase.
  • The vacant site levy will be increased, with the three percent levy rate that applies to the first year to be increased to seven percent in the second and subsequent years;
  • The period owners must retain assets for to enjoy the full relief from capital gains tax will be reduced from seven to four years;
  • A new deduction will be introduced for certain pre-letting expenses incurred on a property that has been vacant for 12 months or more; and
  • Mortgage Interest Relief for homeowners will continue to be phased out, with the continuation of 75 percent of the existing relief into 2018, 50 percent in 2019, and 25 percent in 2020.

On the business tax front, Donohoe said that Ireland's 12.5 percent corporate tax rate "is, and will remain a core part of our offering." His speech contained comparatively few business tax measures, with the announcements limited to the following:

  • A new Key Employee Engagement Programme (KEEP) will be introduced to facilitate the use of share-based remuneration by unquoted SMEs, with gains arising to employees on the exercise of KEEP shares liable only to capital gains tax upon their disposal;
  • The Government will launch a consultation process as part of the Update on the International Tax Strategy; and
  • The limitation on the quantum of relevant income against which capital allowances for intangible assets and any related interest expense may be deducted in a tax year will be reduced to 80 percent. This change will be made in respect of expenditure incurred by a company on intangible assets from midnight on Budget night.

Lastly, the remaining tax-related measures included in the Budget were as follows:

  • A tax on sugar-sweetened drinks will be introduced at a rate of 30 cents per litre on drinks with more than eight grams of sugar per 100 millilitres, and at a rate of 20 percent in drinks with between five and eight grams of sugar per 100 millilitres;
  • The reduced nine percent value-added tax rate on the tourism and services sector will remain in place; and
  • A 50 cent increase in the excise duty on a pack of 20 cigarettes, and a pro-rata increase on other tobacco products.

TAGS: tax | business | value added tax (VAT) | Ireland | property tax | employees | corporation tax | tax thresholds | excise duty | Health tax | travel and tourism | tax rates | stamp duty | social security | tax reform | individual income tax | services

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