Budget 2020 has shown itself to be one focused on striking the right balance between directing resources towards measures aimed at insulating the Irish economy from external threats, while maintaining the tax yield for the exchequer.
Budget 2020 saw the deployment of a number of measures to enhance the practical tax toolbox available to Irish businesses and employers in attracting key talent, investment and growing the Irish economy.
This includes the KEEP (Key Employee Engagement Programme), a share-based remuneration incentive introduced in 2018 with the aim of enabling start-ups and SMEs to compete with larger organisations and multinationals in attracting and retaining key talent.
It soon became apparent that the programme would fail to achieve the desired result due to its restrictive conditions, with figures suggesting that less than 60 employees nationwide have availed of KEEP since its introduction.
KEEP it lit
The major point of attraction for the incentive is that gains arising to employees on the exercise of KEEP share options are liable to capital gains tax on disposal of the shares, as opposed to a liability to income tax, USC and PRSI. Budget 2019 amended the scheme, as follows:
- Companies that operate through a group structure will now qualify for KEEP,
- The conditions for a qualifying employee have been amended to allow for part-time/flexible working and movement within group structures (as business needs dictate),
- The legislation has been amended to allow existing, as well as newly issued shares, to qualify for KEEP.
Changes have also been introduced to the EII Scheme, which provides individual investors with income-tax relief for investments in qualifying SMEs. The income-tax relief under the scheme will now be available for investors – in full – in the year of investment, compared with the previous position, which granted 75% of the relief in year one, with a wait until year four for the remaining 25% of the relief.
Additionally, the maximum investment per year has been increased from €150,000 to €250,000 and to €500,000 in the case of those who invest for a minimum period of ten years.
The strengthening of the scheme is designed to incentivise entrepreneurs and investors and will, from a cash-flow perspective, be well received by investors also.
That’s a relief
The research and development (R&D) tax credit regime for SMEs was also targeted, with an increase in the rate of relief for qualifying expenditure to 30% (from the current 25% rate) for micro and small businesses, and increasing the 5% restriction to 15% on expenditure incurred in outsourcing R&D to universities to foster greater collaboration with industry.
Further, a pre-trading R&D tax credit will allow relief in the form of offsets/repayments by reference to payroll and VAT liabilities for the same period. These reforms should serve to increase activity in the Irish indigenous sector.
The Special Assignee Relief Programme (SARP) is an income tax-relief measure that reduces the cost to employers of assigning skilled individuals in their companies from abroad to take up positions in their Irish-based operations, thereby facilitating the creation of jobs and the development/expansion of business.
The Foreign Earnings Deduction (FED) provides relief from income tax on up to €35,000 of salary for employees who travel out of State to certain qualifying countries for extended periods on behalf of their employer.
Existing SARP and FED legislation had sunset clauses of 31 December 2020. In a welcome move, both reliefs have now been extended, by a further three years, until 31 December 2022.
In a further nod to the Brexit dilemma, British residents who currently have a liability to Irish income tax, and qualify for a host of personal allowances, relief and deductions by virtue of EU membership, will be allowed to retain those reliefs in a post-Brexit landscape.
The current Farm Restructuring Relief scheme provides for capital-gains-tax relief where an individual disposes of and purchases land and/or exchanges land with another farmer in order to consolidate an existing farm.
The scheme (which was due to expire on 31 December 2019) is now extended to 31 December 2022.
The home-carer credit and the earned income-tax credit were increased to €1,600 and €1,500, respectively. The increase in the earned-income credit for the self-employed brings entrepreneurs closer to equal treatment with PAYE workers.
The State has raised stamp duty on commercial property purchases from 6% to 7.5%. The 6% rate will continue to apply for purchasers/lessees with binding contracts in place before 9 October 2019, and where the sale/lease is executed before 1 January 2020.
This stamp-duty hike represented an unexpected increase in transaction costs. This increase in stamp duty will likely have a bearing on investors’ decision-making – in particular, the price they will bid and pay for commercial real-estate assets in the future.
Furthermore, Irish real-estate investment legislation saw the introduction of a number of measures designed to ensure that the appropriate level of tax is being collected, and to curtail the use of aggressive activities, such as the use of excessive interest charges to avoid the payment of tax in respect of profits from Irish property.
These measures, viewed together with the impact of the stamp-duty increase for investors in commercial property, may raise a degree of uncertainty in investing in Ireland, at a time when investment will be critical.
On a positive note, first-time buyers’ income-tax relief, which was due to expire on 31 December 2019, has now been extended to 31 December 2021. This is an effective tax rebate of up to €20,000, which can be claimed towards a deposit, for first-time buyers of newly built houses.
This extension, together with the retention of the 2% rate of stamp duty on residential property, is the most promising aspects of Budget 2020 for the real-estate sector.
In a welcome move, the ‘Group A’ gift/inheritance-tax threshold has increased by €15,000 (with the amount that a child can now receive, tax-free, from a parent standing at €335,000).
Budget 2020 saw the provisions of dwellinghouse relief further restricted to ensure that its parameters are confined to those receiving a property as their only place of residence.
The amendment now ensures that not only will a dwellinghouse not qualify for the exemption where the beneficiary has an interest in any other dwellinghouse on the date of inheritance, but that this removal of the relief will extend to the situation where the beneficiary acquires an interest in another dwellinghouse, from the same deceased person, between the date of inheritance and up to the date the estate or its residue is available for distribution to beneficiaries.
While a reduction in the rate of CGT did not materialise, a number of pre-budget submissions had requested a reduction in the rate of CGT to 20% to give Ireland an edge comparable to that of our British neighbours in competing as an attractive investment location.
Additionally, Budget 2020 failed to bridge the gap between entrepreneur relief in Ireland and Britain, with Britain having relief on gains of up to £10 million, being far in excess of the €1 million Irish limit.
Many in the tourism and hospitality sector believe that support is needed to lower the cost of doing business in Ireland, and it had been hoped that the Government would reverse the tourism VAT hike.
The hike (which came into effect following last year’s budget) saw an increase in VAT from 9% to 13.5%. Many in the Irish hotel and restaurant trade have voiced concerns that this has seriously undermined Irish tourism’s international competitiveness.