New tax deduction of up to €5,000 for pre-letting expenses incurred by landlords

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Up to recently, landlords were not entitled to a tax deduction for pre-letting expenses such as mortgage interest, insurance and repairs incurred before the date a property was first let out.

To encourage owners of vacant residential properties to offer those properties for rent, Finance Act 2017 has introduced a new tax deduction for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months or more.

The pre-letting expenses are now given as a deduction against rental income from that property in the first year it is let out.

Conditions

The property in question must have been vacant for a period of at least 12 months prior to its first letting during the period 25 December 2017 and 31 December 2021.

The expenditure must have been incurred in the 12 months before the property was let out and a cap of €5,000 per vacant property applies.

Claw Back

Where the landlord

  • ceases to let the property as residential premises or
  • sells the property

within 4 years of the first letting, this tax deduction will be clawed back in the year the property ceases to be let by the landlord.

If you have any questions about pre-letting expenses or other rented residential property queries, please contact Eddie Murphy, Partner and Head of Tax Services.

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Changes to Benefit-in-Kind: Private Use of Company Vans

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Normally, where a van is available for the private use of an employee as a result of their employment, the employee is chargeable to PAYE, PRSI and USC in respect of that private use. Travel to and from work is considered private use.

The notional pay in which PAYE, PRSI and USC must be applied is determined the ‘cash equivalent’ of the private use of the van. The cash equivalent is 5% of the (OMV) Original Market Value of the vehicle.

No taxable benefit will arise in relation to the use of a company van where all the below conditions are met:

  1. The van is supplied by the employer for the purpose of the employee’s work.
  2. The employee is required to bring the van home after work.
  3. Apart from travelling to and from work, other private use of the van is forbidden by the employer.
  4. During work, the employee spends at least 80% of his or her time away from the premises of the employer to which he or she is attached.

An exemption to the Benefit-in-Kind (BIK) rule takes place from 1 January 2018 and applies to used and new company vans. If an electric van is made available for an employee’s private use, then no taxable benefit will arise in relation to that private use. This only includes vans that derive their motive power solely from electricity.

Definition of a van

A van is a mechanical vehicle which:

  • Is made solely/mainly for the transport of goods or other burden, and
  • Has a roofed area to the rear of the driver’s seat, and
  • Has no side windows or seating fitted in that roofed area.

Where a crew cab or other similar type of vehicle meets all these criteria, it is regarded as a van rather than a car.

Please contact us if you require assistance with the above.

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KEEP – Share Option Scheme

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The Finance Bill 2017 has introduced a tax efficient share option scheme for employees of SMEs. The Finance Bill provides that from 1 January 2018, SMEs in Ireland will be able to grant KEEP (Key Employee Engagement Programme) share options to their employees.

The change in a tax treatment of these share options means an employee may exercise a “qualifying” share option without incurring the liability to income tax, PRSI and USC that he would have under the current rules. Currently, gains arising on the exercise of a share option at a discount on market value are subject to income tax, PRSI and USC. However, KEEP provides that tax on such shares will be deferred until the shares are disposed of and the employee will pay only capital gains tax at 33% on his profit when the shares are sold.

The KEEP Scheme was introduced to facilitate the use of share-based remuneration to attract and retain key employees in unquoted companies.

A number of conditions must be satisfied in order to avail this tax advantageous KEEP Share Option incentive, which are briefly set out below:

Qualifying share options

  • Shares must be new, ordinary fully paid up with no preferential, current or future rights to dividends or assets on a winding up or redemption
  • Share options must have an exercise price that is not less than the market value of the underlying shares on the date the option is granted
  • There must be a written contract in place setting out number and type of shares, option price and exercise period
  • Share options cannot be exercised within 12 months of grant other than in limited circumstances and options cannot be exercised more than 10 years after date of grant
  • Share options must be granted for bona fide commercial purposes the main purpose of which is to recruit or retain employees in the company and not part of a tax avoidance scheme or arrangement.

Qualifying company

  • For the purpose of the relief the company must be a “qualifying” company i.e. must have been Ireland/EEA incorporated and Irish resident or carrying on a business in Ireland through a branch or agency
  • Qualifying company must be carrying on trading activities with the exception of certain excluded activities set out in legislation. The most notable of these excluded activities include professional service companies, companies dealing in or developing land, financial activities and the building and construction industry
  • The company must be unquoted and remain within the definition of an SME i.e. a company with less than 250 employees and with turnover less than €50m or less than €43m balance sheet
  • The company can only have a maximum of €3m value of share options in issue and unexercised at any one time.

Qualifying individual

  • Must be a fulltime employee/director working at least 30 hours per week
  • The employment held must be capable of being held for at least a further 12 months from the date the option is granted
  • The employee must not acquire or be connected to a person who controls more than 15% of the ordinary share capital of the company during option period
  • Market value of all shares which can be granted in any year of assessment to an employee cannot exceed €100k in any one tax year, €250k in any three consecutive years or 50% of the employee’s annual emoluments for the year in which the option is granted.

KEEP will be available for qualifying share options granted between 1 January 2018 and 31 December 2023. As State Aid approval will be required to introduce this scheme, the scheme is subject to a Ministerial Order.

Contact our Tax Department if you have any questions about KEEP share options or other employee share scheme matters.

 

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VAT and Payment Services

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The Revenue Commissioners have issued guidance which sets out the VAT treatment of transactions concerning the transfer of money.

Guiding Principles

Transactions are defined according to the purpose and nature of the service provided and not according to the person supplying or receiving the service.

The principles that need to be considered when determining if a service qualifies for exemption are as follows:

  1. Exemption can only relate to transactions which form a distinct whole, fulfilling in effect the specific, essential functions of such transfers.
  1. An exempted service must be distinguished from the supply of a mere physical or technical service.
  1. A transfer is a transaction consisting in the execution of an order for the transfer of a sum of money from one bank account to another.
  1. A transfer is characterised by the fact that it involves a change in the legal and financial relationship existing, on the one hand, between the person giving the order and the recipient and, on the other, between those parties and their respective banks; and in some cases, between those banks.
  1. The transaction which produces the change is solely the transfer of funds between accounts, irrespective of its cause.
  1. The mere fact that a service is essential for completing an exempt transaction does not warrant the conclusion that the service is exempt

Status of the Supplier

When considering whether a service qualifies for exemption, the nature of the person supplying the service is not relevant (i.e. the supplier does not have to be a regulated financial institution). It is the nature of the service being supplied that needs to be considered.

Means by which the service is supplied

The means by which the service is supplied e.g. electronically or manually is not a decisive factor when considering the application of the exemption. Again it is the precise nature of the service being supplied that will determine the VAT treatment.

Physical or Technical Services

Where a supplier provides the infrastructure that facilitates the transfer of funds, those supplies cannot qualify for VAT exemption unless they themselves fulfill the specific and essential function of a transfer, in particular creating the change in the financial and legal relationship between the parties.

Charges for Using Certain Payment Methods

Where a supplier supplies goods or services to a customer and charges an additional fee to accept payment via a specified method, e.g. credit card, this charge is not independent from the supply of goods or services and cannot qualify for VAT exemption.

The receipt of a payment and the handling of that payment are intrinsically linked to any supply of goods or services provided for consideration. It is inherent in such a supply that the provider should seek payment and make appropriate efforts to ensure that the customer can make effective payment in consideration for the goods or services supplied.

Please contact us if you require assistance with the above.

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Preparing for General Data Protection Regulation (GDPR)

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The General Data Protection Regulation (GDPR) will come into effect from May 2018 replacing the existing data protection framework. Are you preparing for GDPR? Here are 10 tips to consider:

1. Have you created awareness?

Staff should be made aware that the law is changing to GDPR. They need to appreciate the impact that this will have and how the company will need to plan to meet those commitments and evidence of compliance.

2. Have you nominated someone to be responsible?

You should nominate someone to be responsible for data protection compliance and assess where the role will sit within your organisation’s structure and governance arrangements.

3. Do you know what information you hold?

You need to document what personal data you hold, where it came from, consent received and who you share it with. You may need to organise an information audit to do this.

4. Are your privacy notices sufficient or do you have any?

You need to review your current privacy notices and put a plan in place for making any necessary changes in time for the GDPR implementation deadline.

5. Can you facilitate the rights of individuals?

  • Check your procedures to ensure they cover all the rights of individuals have, including how you would document your processing activities.
  • Clearly document all the data you hold.
  • Provide data electronically and in a commonly used format (portability).

6. Can you handle subject access requests?

You should update your procedures and plan how you will handle requests within the new timescales and provide any additional information.

7. How do you handle or obtain consent?

  • You should review how you seek, record and manage consent and whether you need to make any changes.
  • Refresh existing consents now if they don’t meet the GDPR standard.

8. What do you do if there is a data breach?

You need to ensure you have the right procedures in place to detect, report and investigate a personal data breach.

9. How do you implement or evidence Privacy by Design and perform Data Privacy Impact Assessments (DPIA)?

You need to familiarise yourself with the various code of practice on Privacy Impact Assessments as well as the latest guidance from Article 29 Working Party, and work out how and when to implement them in your organisation.

10. Is your organisation an international organisation?

If your organisation operates in more than one EU member state (i.e. you carry out cross border processing), you should determine your lead data protection supervisory authority.

Talk to Us

Download our infographic of the top 10 tips to consider

Pamela Nodwell
Manager, Governance Risk & Compliance
pamela.nodwell@crowleysdk.ie

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Budget 2018 Highlights

Personal Tax

  • Cuts to the two middle rates of Universal Social Charge – 2.5% rate cut to 2%; 5% rate cut to 4.75%.

  Incomes of €13,000 or less are exempt from the USC. Otherwise, rates are as follows:

Income €                      Rate

0- 12,012                          0.5%

12,012 – 19,372               2%

19,372 – 70,044               4.75%

70,044 +                            8%

Self-employed income in excess of €100,000 at 3%.
The USC relief for medical card holders is being extended fro another two years. Medical card holders and individuals aged 70 years and over whose aggregate income does  not exceed €60,000 will now pay maximum rate of USC of 2%.
Marginal tax rates on incomes up to €70,044 reduced from 49% to 48.75%.

  • Income Tax Bands – the threshold which an individual will pay tax at the 40% rate of income tax will rise from its current level of €33,800 by €750 to €34,550.
  • The Home Carer Tax Credit will increase from €1,100 to €1,200.
  • The Earned Income Credit will increase from €950 to €1,150.
  • There will be a tapered extension to mortgage interest relief for remaining recipients – owner occupiers who took out qualifying mortgages between 2004-2012. 75% of the existing relief will be continued into 2018, 50% in 2019 and 25% in 2020. The relief will cease entirely from 2021.
  • A new deduction for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months is being introduced. The cap on the expenditure is €5,000 per property and the relief will be subject to a clawback if the property is withdrawn from the rental market within 4 years. The relief is available for qualifying expenses incurred up to the end of 2021.
  • A share based remuneration incentive – Key Employee Engagement Programme (KEEP) is being introduced to facilitate the use of share based remuneration by unquoted small to medium enterprises to retain key employees. Gains arising to employees on the exercise of KEEP shares will be subject to capital gains tax as opposed to 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.

VAT

  • Standard rate of VAT will remain at 23%.
  • The reduced 9% rate of VAT for the tourism and hospitality sector, introduced in 2011, will remain.
  • The rate of VAT on sun-bed services is being increased from 13.5% to 23% from 1 January 2018 in line with the government national cancer strategy.
  • A charities VAT compensation scheme is being introduced in 2019 in respect of VAT expenses incurred in 2018. Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive.

Stamp Duty

  • The rate of stamp duty on non-residential property will increase from 2% to 6%.
  • In relation to commercial land purchased for the development of housing, there will be the introduction of a stamp duty refund scheme. The refund will be subject to conditions, including a requirement that developers will have to commence the relevant development within 30 months of the land purchase.
  • Consanguinity stamp duty relief at 1% for inter-family farm transfers is extended for a further three years.
  • The exemption for young trained farmers from stamp duty on agricultural land transactions continues.
  • The vacant site levy will increase from 3% to 7% in the second and subsequent years. In practical terms, the owner of a vacant site on the register who does not develop their land in 2018 will pay the levy of 3% in 2019 and then become liable to the increased rate of 7% from 1 January 2019.

Capital Gains Tax and Capital Acquisitions Tax

  • There is a change to the 7-year CGT relief that will allow the owners of qualifying assets to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy full relief from CGT on any chargeable gains.
  • The leasing of agricultural land for solar panels is to be classified as qualifying agricultural activity for the purposes of CAT agricultural relief and CGT retirement relief. This initiative is subject to the panels no more than covering 50% of the total farm holding.
  • The life time thresholds for capital acquisitions tax remain unchanged.

Corporation Tax

  • Confirmation of the 12.5% rate of tax.
  • The deduction for capital allowances for intangible assets, and any related interest expense, will be limited to 80% of the relevant income arising from intangible assets in an accounting period.
  • Accelerated capital allowances for energy efficient equipment is being extended until the end of 2020.

Other Measures

  • The excise duty on a packet of 20 cigarettes is being increased by 50 cents with a pro-rate increase on other tobacco products, and an additional 25c on roll your own tobacco. This will take effect from midnight on 10 October 2017.
  • A sugar tax is to be introduced on the 1 April 2018. A tax of 30c will apply to drinks with a sugar content of 8 grams or more per 100ml. A tax of 20c will apply to drinks with a sugar content of between 5 grams and 8 grams per 100ml. These levels are consistent with the rates being introduced in the UK in April 2018 and Ireland’s sugar tax will commence at the same time as the UK.
  • A 0% benefit-in-kind (BIK) is being introduced for electric vehicles for a period of one year. Electricity used in the workplace for charging vehicles will also be exempt from benefit in kind.
  • State Pension will rise by €5 per week with effect from the last week in March 2018.
  • All other weekly social welfare payments to increase by €5 per week, including the carer’s allowance, disability allowance and jobseeker’s benefit and allowance.
  • Prescription charges are to be reduced for everyone with a medical card under the age of 70 from €2.50 to €2 per item and the monthly cap for prescription charges decreased from €25 to €20.
  • There will be a reduction in the threshold for the Drugs Payment Scheme from €144 to €134.
  • In order to assist small and medium businesses prepare for Brexit, a Brexit Loan Scheme will be introduced. A loan scheme of €300m, will be available at competitive rates to SMEs, to assist them with short term working capital requirements.

If you would like further information, please contact our Tax Team.

View our Budget 2018 Analysis

Download a PDF of the key highlights from Budget 2018

 

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Our Analysis of Budget 2018

 

 

Budget 2018 was delivered by Minister Donohoe in the continuing context of an Irish economy in good shape and with strong and sustainable future growth predicted.  However, with potential Brexit headwinds forecast and being mindful of not returning to the days of giveaway budgets (remember them?), he delivered a constructed ‘balancing act’ that didn’t significantly affect many.

So how does this budget affect your disposable income?

The reductions in the rates of the USC will benefit everyone with particular focus on middle incomes. The point at which the marginal tax rate kicks in was increased by €750 to €34,550. For the self-employed, the earned income credit increases from €950 to €1,150.

Pensioners and those in receipt of social welfare payments will also benefit with an increase of €5 from March 2018. The Christmas bonus for social welfare recipients has remained at 85%.

Prescription charges are further reduced to €2 and this charge now applies to medical card holders of all ages.

However, if you are partial to a cigarette whilst sipping your fizzy drink, then prepare from tomorrow to pay an extra 50c on a pack of 20 cigarettes and to start paying Sugar Tax of 20c/30c per litre from April 2018.

Housing and other matters

With the Minister noting the “corrosive impact of homelessness” on the State in his speech, he announced an allocation of €1.8 billion for housing next year, which he said would help to fund the building of 3,800 new social homes next year.

Other measures to increase the supply of housing/land, include the tax deductibility of pre-letting expenses, the reduction of the CGT ‘hold period’ from 7 years to 4 years and the increase vacant site tax rate from 3% to 7%.

However, the rationale of raising the Stamp Duty rate three-fold to 6% on commercial property, apart from funding many other tax cuts/spending increases, appears to fly in the face of the residential property ‘supply measures’.

The Budget also continues the commitment to repair the State’s public services with increases in the number of teachers and guards, and significant additional funding being made available for education and health. The litmus test will be whether anyone will experience a notable improvement in services during 2018.

The tourism sector will continue to benefit from the reduced rate of VAT at 9%. The agri-food sector, in particular, will benefit from the introduction of a Brexit Loan Scheme.

Foreign Direct Investment

The Minister took the opportunity to reaffirm Ireland’s corporation tax rate at 12.5%. This is and will remain the central plank of Ireland’s FDI offering. However, restricting the deduction for capital allowance and interest on Intangible Assets to 80% of relevant income is a backwards step.

Overall, Budget 2018 is the final (Balancing) Act in Ireland achieving a projected deficit by end of 2018 at near 0% of GDP.

It may take you until then though to have worked out if this was a good Budget for you or your business!

Edward Murphy
Partner and Head of Tax Services
edward.murphy@crowleysdk.ie

 

 

 

If you would like further information, please contact our Tax Team.

View the key highlights from Budget 2018

Download a PDF of our Budget 2018 Analysis

 

 

 

 

 

 

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Rent a Room Relief

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Are you aware of the rent a room relief? If you let a room in your home, the income you receive may be exempt from tax.

If your gross rental income does not exceed the exemption limit below, you do not pay Income Tax, Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) on the rent you receive.

If it does exceed the limit, then you are liable to income tax, PRSI and USC on the profit from renting the room. This relief can only be claimed by individual taxpayers. It cannot be claimed by companies.

Annual exemption limit for Rent a Room Relief
Year Income amount exempt
2013 €10,000
2014 €10,000
2015 €12,000
2016 €12,000
2017 €14,000

What type of residence qualifies?

Sole or main residence

Your main residence is your home for most of the year and where friends would expect to find you. You do not have to own the property to claim relief.
The room or rooms must be in a residential property that is located in Ireland. You must use it as your main residence during the tax year.

Self-contained unit

The rented room or rooms can be a self-contained unit within the house, such as a basement flat or a converted garage. If this unit is not attached to the property it cannot qualify for the relief.

Business use or guest accommodation

Your tenants must use the room on a long-term basis. You cannot claim relief on rooms that are used for business purposes. Short-term stays provided through bed and breakfasts, a guesthouse or online booking sites do not qualify for relief.

You cannot claim the relief against income received for the use of the room(s) from:

• your child or civil partner
• an employer
• an employee
• short-term guests, including those who book accommodation through online booking sites.

There is a four-year time limit to claim relief. This is important if you have been paying tax on rental income which should have been exempt.

Please contact us if you require assistance with the above.

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VAT Treatment of Education and Vocational Training

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Finance Act 2015 amended the VAT treatment of education and vocational training. The amendment was to ensure that Irish VAT legislation reflects judgements of the Court of Justice of the European Union.

The wording of the amended legislation caused uncertainty for many training providers in the private sector as it stated that only training or retraining services provided by a “recognised body” could continue to be exempt from VAT. The definition of “recognised body” made it difficult for many private sector training providers to qualify.

If a supply if not exempt, VAT is chargeable on that supply.

Revenue did comment at the time of Finance Act 2015 that it did not believe that the changes would lead to divergence from existing practices but there was no written guidance from Revenue on the subject to give training providers comfort.

Thankfully, this uncertainty has now been resolved with Revenue’s recent e-Brief on the subject.

Revenue confirm that vocational training and retraining services continue to be exempt from VAT where certain conditions are met. They confirm that where each of the conditions (listed below) are met, there is no requirement that the provider must be a “recognised body”.

They list these conditions as:

  • The training must be vocational in nature; that is, it must be directed towards an occupation and its associated skills.
  • It must be provided to improve the vocational rather than the personal skills of the trainee.
  • The vocational skills that the trainee acquires can be transferable from one employment to another, or to self-employment.
  • The training will generally be provided by means of a structured programme, have concise aims, objectives and clear anticipated outcomes.
  • There should be a clear trainee/trainer relationship between the student and the teacher or instructor.

Where any of the above conditions are not met or the course is primarily directed towards personal development or undertaken for recreational purposes, the course will be subject to VAT at the appropriate rate.

This is a very welcome clarification for training providers in the private sector who now have written guidance from Revenue to assist in deciding if their supplies are subject to VAT or exempt.

It is also useful for Irish businesses and public bodies who receive education and training services from abroad. The responsibility for correctly self-accounting for VAT on the receipt of these services falls on the Irish recipient and there is now written guidance from Revenue to assist in deciding whether to self-account for VAT at the appropriate rate or whether the receipt of the service is exempt from VAT.

Please contact us if you require assistance with the above.

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New income tax exemption for Irish resident non-executive directors

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Finance Act 2016 introduced an income tax exemption in respect of certain expenses of travel and subsistence of an Irish resident non-executive director of a company.

The expenses must be incurred solely for the purpose of attendance by a non-executive director, in his or her capacity as a director, at a “relevant meeting”.

The exemption applies to expenses incurred on or after 1 January 2017.

Payments to which the exemption applies may not exceed the Civil Service approved rates for mileage and subsistence as set down by the Minister for Public Expenditure and Reform. See details of the current Civil Service Rates for Travel and Subsistence.

Payments which come within the term of the exemption are also exempt from USC and PRSI.

Definitions

“Relevant director”, in relation to a company, means a person holding office as a non-executive director of that company –

  1. who is resident in the State, and
  2. whose annualised amount of emoluments from the office for the year of assessment 2017 and for each subsequent year in which the person is a director of the company does not exceed €5,000.

“Relevant meeting” means a meeting in the State attended by a relevant director in his or her capacity as a director for the purposes of the conduct of the affairs of the company.

“Travel” means travel by car, motorcycle, bus, rail or aircraft.

For more information please contact us.

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