Budget 2018FIONA MURPHY

TAX PARTNER

RBK

11 October 2017

Tax Backdrop

> Brexit> EU Developments> US Tax and Trade Reforms

Domestic Challenges> Housing Crisis> Demand for Public Services

International Uncertainty

BUDGET 2018

BUDGET 2018

Budget 2018

BUDGET 2018

Property Measures

Property Measures

> Stamp duty - Commercial property> Vacant Site Levy> 7 year CGT exemption> Mortgage Interest Relief> Pre letting expenses> HBFI – Home Building Finance Ireland> Other

BUDGET 2018

Stamp Duty – Non-Residential Property

BUDGET 2018

> Increase in rate on non-residential property from 2% to 6% - w.e.f. midnight

> Stamp Duty Refund Scheme - commercial land for housing development Must commence development within 30 months

Vacant Site Levy

BUDGET 2018

> To encourage early development of lands> Increased rate of 7% from 1 January 2019> Summary

> If undeveloped in 2018 and 2019 – effective 10% rate> Continues to be undeveloped – further 7% for each

subsequent year

Undeveloped Land –Year of Ownership

Year Payable Rate

2018 2019 3%2019 2020 7%Subsequent years 7%

CGT Relief – Certain Disposals

BUDGET 2018

> Aim – to release property for housing development but not restricted to this

> 7 Year CGT Exemption> Properties acquired between 7 December 2011 – 31

December 2014> Holding period reduced from 7 to 4 years> Full exemption from CGT for assets disposed after 4th

anniversary of acquisition

Mortgage Interest Relief

BUDGET 2018

> Scheduled to cease on 31st December 2017> Extended on a tapered basis to 2020 2018 – 75% of existing relief 2019 – 50% 2020 – 25%

Pre-Letting Expenses

BUDGET 2018

> Tax deduction against future rents> Up to €5,000 per property if vacant for 12 months or

more> Clawback if property withdrawn from rental market

within 4 years> Relief available for expenses incurred up to 2021

Home Building Finance Ireland

BUDGET 2018

> Establishment of new fund – Home Building Finance Ireland (HBFI)

> Up to €750m to provide funding for viable residential development projects

> Monies lent on commercial, market equivalent terms and conditions

> Risk profile of each project, the quality of collateral and credit worthiness of the borrower considered

Other

BUDGET 2018

Landlord – Interest Deductibility> April 2009 - interest deductibility restricted to 75%> FA 2017 - Full deductibility phased over a period

2017 – 80%

2018 – 2021 – Increase by 5% p.a.

Help to Buy > Retained / No changes

BUDGET 2018

Income Tax

Income Tax Changes

BUDGET 2018

Marginal Tax Rate 40% No change

Standard Rate Tax Band €34,550

Increased by €750 (from €33,800)

USC Rates Reduced, Bands Increased

Tax Credits Earned Income, Home Carer’s

Total tax rate for individuals earning less than €70,044 reduced to 48.75%

USC Rates & Bands

BUDGET 2018

Income Range Current Rate

Income Range (Income < €13,000 exempt)

New Rate

€0 - €12,012 0.5% €0 - €12,012 0.5%

€12,013 - €18,772 2.5% €12,013 - €19,372 2%

€18,772 - €70,044 5% €19,373 - €70,044 4.75%

Income > €70,044 @ 8%

USC

BUDGET 2018

> Relief from USC for medical card holders extended for 2 years – USC capped @ 2%

> > 70 years and income < €60k – USC @ 2%> USC surcharge @ 3% on self-employed income over

€100k

Amalgamating PRSI & USC

BUDGET 2018

> Working group being established to plan amalgamation of PRSI and USC looking to introduce a “European Style” social insurance system in Ireland

Tax Credits

BUDGET 2018

Earned Income Credit

> “PAYE Credit” for self employed introduced in 2016

> 2018 – increased to €1,150

Home Carers Credit

> Available on caring of one or more dependents (not spouse)

> 2018 – increased to €1,200

Income Tax - DIRT

BUDGET 2018

> Reduction in DIRT – Introduced in Finance Act 2017> 2% pa over next 3 years

Year Rate2017 39%2018 37%2019 35%2020 33%

BUDGET 2018

Business Taxes

Corporation Tax

BUDGET 2018

> Ireland has a stable and competitive Corporation Tax system

> 12.5% tax rate to remain“is and will remain a core part of our offering”

> Compete on rate and on ability to offer certainty> Coffey Report review of Corporate Tax code – June

2017 Our roadmap for CT reforms up to 2020

> Importance for certainty and need for consultation

Corporation Tax

BUDGET 2018

Start up Exemption> No changes> Due to expire on 31st December 2018> Reduced rate of CT 0% CT on profits of €320k and minimum 8 employees

Corporation Tax

BUDGET 2018

> Recommendation adopted from Coffey Report Software / Intangible Assets 80% cap, Capital Allowances and interest Expenditure incurred from midnight

> Consultation Process to cover Transfer pricing

exclusion of grandfathering provisions exclusion of SME’s

Taxation of Intangible Asset BEPS, transparency and other matters

Corporation Tax

BUDGET 2018

> Business Taxes – other measures 0% BIK on electric vehicles acquired during 2018 In addition to VRT relief

Review of BIK treatment of motor vehicles Inform decisions for next Budget

> Accelerated Capital Allowances 100% energy efficient equipment Extended to end of 2020 (previously to end of 2017)

Preparing for Brexit

BUDGET 2018

> Loan Scheme - €300m to be made available to SME’s> To fund short term working capital needs> Competitive rates of interest> A separate loan scheme of €25m specific to the

Department of Agriculture

Share Based Remuneration

BUDGET 2018

Key Employee Engagement Programme (“KEEP”) > Objective: Support SME’s in Ireland to compete with larger entities for talent

> Current Regime: Gain arising on exercise of share options subject to tax up to 52% Future disposal subject to CGT with deduction for amount subject to

income tax

> The KEEP Incentive: Deferral of tax event Gain arising on exercise of KEEP share options liable to CGT on

disposal of the shares Apply to share options granted between 1 Jan 2018 and 31 Dec 2023

Share Based Remuneration

BUDGET 2018

KEEP Example> 1st May 2018 Grant of Option 10,000 shares MV of shares = €1 @ date of grant

> 1st May 2021 Exercise of Option Employee purchases 10,000 shares for €1 each MV of shares = €3 @ date of exercise Discount = €20,000

> 1st May 2024 Disposal of Shares MV of shares = €4 @ date of disposal Proceeds €40,000

KEEP Example

BUDGET 2018

Tax Treatment Share Options Non KEEP Options

€

KEEP Options €

1. 01/05/2018 Grant of OptionNo Tax LiabilityShare Option @ MV

0 0

2. 01/05/2021 Exercise of OptionDiscount €20,000Income Tax @ 40%USC @ 4.75%Employee PRSI @ 4%Income Tax Liability

8,000950800

9,750

0000

3. 01/05/2024 Disposal of SharesProceedsLess: Consideration at ExerciseLess: Discount subject to Income TaxChargeable GainCGT @ 33%

40,000(10,000)(20,000)

10,0003,300

40,000(10,000)

-30,000

9,900

Tax SummaryIncome TaxCGTTotalDifference Saving

9,7503,300

13,050

-9,9009.9003,150

Share Based Remuneration

BUDGET 2018

> Details of incentive to be contained in Finance Bill Qualifying Company Qualifying Holding Period Qualifying Requirements throughout holding period Key employee

> Subject to State Aid approval> Comparable to UK EMI Scheme?

National Training Levy

BUDGET 2018

> Increase in employer contribution to National Training Fund

> Employer Levy to increase by 0.1% in 2018, 2019 and 2020

> Employer PRSI / Levy: 2018 10.85% 2019 10.95% 2020 11.05%

> Consultation process to follow

BUDGET 2018

Farming

Agri Sector

Renewable Energy

BUDGET 2018

> To encourage renewable energy> Leasing of agri lands used for solar panels eligible for

capital taxes reliefs CAT Agricultural Relief CGT Retirement Relief

> Eligible if less than 50% of total lands used for solar panels

Agri Sector

Stamp Duty

BUDGET 2018

> Consanguinity Relief at 1% extended for a 3 years 1% Stamp Duty applying to inter-family farm transfers

> Exemption for young trained farmers extended> Renewable Heat Incentive introduced Initial budget of €17m

BUDGET 2018

Capital Taxes

Capital Taxes

BUDGET 2018

> 33% rate of CGT and CAT remain > No increase to CAT thresholds - €310,000> No changes to CAT Business Property Relief or CGT

Retirement Relief> Application of the 66 year age threshold for unlimited

relief on family transfers – outdated and counter productive

Entrepreneur Relief

BUDGET 2018

> Rate 10% on first €1m of chargeable gains> Lifetime limit – opportunity missed?> Existing limitations Interaction with CGT retirement relief Existence of dormant companies in group Where group is party to joint venture Where group / company holds investments Where group / company leases out part of premises

BUDGET 2018

Indirect Taxes

Value Added Tax

BUDGET 2018

> Tourism Rate 9% maintained> Construction sector – no change> VAT rate on sunbed services – increased to 23%> Charities VAT Refund Scheme W.e.f. 1/1/2018 refund for certain input VAT suffered To be paid one year in arrears i.e. 2018 VAT to be paid in 2019 Recoverability based on % of non-public funding Capped fund of €5m €500 de-minimus claim threshold

Customs & Excise

BUDGET 2018

> Cigarettes 50c on pack of 20 cigarettes 25c on roll your own tobacco Effective midnight

> Sugar Tax Applies to drinks with added sugar content of 5 grams per 100ml Rates:

Less than 5 grams no tax 5 grams – 8 grams 20c per litre > 8 grams 30c per litre

Effective from April 2018 (in line with UK implementation) Subject to State Aid Approval

BUDGET 2018

Other Measures

Social Welfare

BUDGET 2018

> Increases in Social Welfare rates – deferred to March 2018

> Increased spending> Additional frontline resources

Revenue Powers / Resources

BUDGET 2018

> Additional funds available to Revenue - part of on-going strategy

> Increase technical capacity> Increased PAYE compliance interventions

BUDGET 2018

What’s Next?

What’s Next

BUDGET 2018

> To Commence - Consultation Coffey Report Stamp Duty on transfer of shares – consultation process Amalgamation of PRSI / USC – working group Carbon tax

> Still Ongoing! Mileage and subsistence Personal Service Companies Working Group – Rental Accommodation Providers / Landlords

Conclusion

BUDGET 2018

> Creating a roadmap for the years ahead> Little bit extra for everyone> Supporting Charities, SME’s in a Brexit context,

housing sector> Various “Consultation” Processes – onus on

businesses to take responsibility> Continued focus required in terms of the entrepreneur

agenda / burden of marginal income tax rates“We have achieved so much and we can,

and will, achieve more”

@RBK

@RBKCA

@RBK

www.rbk.ie

Thank you Fiona MurphyTax PartnerT: +353 9064 80600E: fmurphy@rbk.ie

DisclaimerWhile every effort has been made to ensure the accuracy of information within this publication is correct at the time of going to print, Russell Brennan Keane do not accept any responsibility for any errors, omissions or misinformation whatsoever in this publication and shall have no liability whatsoever. The information contained in this publication is not intended to be an advice on any particular matter. No reader should act on the basis of any matter contained in this publication without appropriate professional advice.