Budget 2019: Summary and key changes
09th October, 2018
We have set out our thoughts on the impact of tax measures relating to investments, business, succession planning and pensions relevant to clients. Broadly speaking, the changes to the tax code are limited. There were a number of omissions in areas where we hoped there would be changes.
The Finance Bill (to be published on 18th October) will outline further details.
There were very few changes for investors. The amount of interest paid in respect of loans used to purchase, improve or repair a residential property that may be deducted by landlords was increased to 100% effective from 1st January 2019. Minister Donohoe said measures would be in introduced in the Finance Bill to address problems identified with regard to the Employment and Investment Incentive Scheme (EIIS) to increase its efficiency and effectiveness. We await the details.
DAVY VIEW: While the increase in interest deductibility for landlords was welcome, it’s disappointing that there were so few changes. For example, a reduction in Capital Gains Tax (CGT) rates would be welcome. It’s also disappointing that the gap has widened further between fund exit tax at 41% and Deposit Interest Retention Tax (DIRT) which will be at 35%, effective from 1st January 2019.
There were more substantive changes for business and farm owners including the following:
- As was widely expected, the VAT rate for the hospitality sector (excluding sporting facilities) increased from 9% to 13.5%.
- Some changes are being introduced to the share-based remuneration incentive known as ‘KEEP’ (Key Employee Engagement Programme) for unquoted small and medium sized enterprises (SME) companies. The intention is to make this relief more effective.
- The 0% benefit-in-kind rate for electric vehicles is being extended for a period of three years. This is capped at €50,000 on the Original Market Value of the vehicle.
- Stock relief for farmers has been extended for three years until 2021.
- Income averaging for farmers with off-farm trading income has been extended.
- CGT Exit Tax at 12.5% to apply from midnight 9th October 2018 for companies ceasing to be Irish tax resident.
- Controlled foreign corporation rules are to take effect from 1st January 2019.
DAVY VIEW: The changes regarding share options are to be welcomed. The absence of other measures, however, was disappointing. In particular, it was hoped that there would be an extension of the Entrepreneur Relief threshold for CGT purposes from €1 million. Ireland has one of the highest CGT rates at 33% in the European Union (EU) and it was disappointing not to see the CGT rate decrease.
Succession planning continues to be a key area of interest for our clients and Budget 2019 had little to offer in this regard. The Category A (parent/child relationship) threshold only increased by €10,000. The Category B and Category C thresholds remain static.
DAVY VIEW: Given the government’s previous commitment to increase the Category A threshold to €500,000, it is disappointing to see such a modest increase. As many asset values (particularly property) continue to increase, larger numbers of children are falling into the net of having to pay tax on gifts/inheritances from their parents. Furthermore, the rate of Capital Acquisition Tax (CAT) remains high at 33%.
As in last year’s budget, there was no mention of pensions in the Minister’s speech apart from a €5 increase in State Pension (Contributory). From March 2019, individuals in receipt of the full State Contributory Pension will satisfy the specified income requirement of €12,700 per annum and will no longer be required to set aside €63,500 in an Approved Minimum Retirement Fund (AMRF).
DAVY VIEW: With the increase in the State Pension, we would expect government to eliminate the AMRF/specified income requirement, in order to provide equality among pensioners. However, these assets will now be subject to the annual imputed distribution. Given the government’s commitment to continue to incentivise private pension coverage, it is disappointing that there was no increase on the earnings limit of €115,000. Further details of the proposed Auto-Enrolment pensions scheme were released during 2018. This will provide a 25% rate of relief on contributions by way of credit to the scheme. In light of this, we welcome the retention of marginal rate tax relief at 40% on personal contributions, which remains one of the best income tax reliefs available to earners who are subject to marginal rate income tax
This article is based on our understanding of Budget 2019 as presented by the Minister for Finance, which will be implemented in the forthcoming Finance Act. This article is general in nature and it is not intended to constitute tax, financial or legal advice. It does not take account of your financial situation or investment objectives. Prior to making any decisions which have tax, legal or other financial implications, you should seek independent professional advice.