This year’s Budget was the first budget during the current coalition’s term and Minister Noonan’s sixth budget since 2011. In keeping with recent trends the vast majority of changes announced in the budget were disclosed in recent days via various media outlets. As a result, there is little contained within the budget at a first glance that can be described as a shock.
The 2017 budget aims to allocate budgetary resources on a 2:1 basis in favour of capital spending over tax reductions and adjustments.
The budget reflects a recovering economy which will grow by 4.2% in 2016 and a projected 3.5% in 2017 (adjusted downwards following Brexit). A backdrop to the recovery is that employment levels have increased to 2m people and the Government is expected to run a balanced budget in 2017 and a surplus in 2018.
With an eye to the future, the Government plans to commence contributions to a “rainy day fund” in 2018 with a projected annual contribution of up to €1bn subject to available resources. The aim of this fund is to safeguard the economy against future economic shocks. National debt currently stands at 76% of GDP and while there is a short term target of 60% to reach to comply with the Stability and Growth Pact, the Government have announced a new long term National debt target of 45% of GDP by mid-2020’s.
This summary will focus primarily on the Taxation measures presented by Minister Noonan with a brief outline of the Public Expenditure adjustments announced by Minister Donoghue.
The main features of Budget 2017 as they will affect you in business and in your personal life are as follows;
- No changes to income tax rates of bands. Income tax rates remain 20% and 40%.
- Incomes of €13,000 or less are exempt from USC. 1% rate cut to 0.5%. This applies on the first €12,012 of income; 3% rate cut to 2.5%. This applies on income in excess of €12,012 up to an increased threshold of €18,772. 5.5% rate cut to 5%. This applies on income in excess of €18,772 up to €70,044.
- Individuals over 70 and with aggregate income which does not exceed €60,000 will pay a maximum USC of 2.5%.
- Increase of €100 in home carer tax credit to bring it up to €1,100.
- An increase in the Earned Income Credit for the self-employed from €550 to €950.
- Increase in interest rate relief for landlords from 75% to 80% of interest for new and existing mortgages with a proposed 5% increase each year until full deductibility is restored.
- Help to Buy scheme for first time buyers announced. Scheme will allow first time buyers an income tax rebate for the previous four years and up to 5% of the purchase price up to €400,000. Relief will also apply to homes with a value of €400,000-€600,000 but the rebate will be capped at €20,000. The scheme will run until 2019 and will only apply to new homes with a mortgage of at least 80% of the purchase price.
- Rent a room relief increased to €14,000 per annum.
- Home Renovation Initiative extended until 31st December 2018.
- Start your own business relief has being extended by another two years until 2018.
- A reduced CGT rate of 10% will apply to the disposal in whole or in part of a business up to an overall limit of €1 million in chargeable gains.
- Capital Acquisitions Tax – all thresholds have been increased
- Increase in farmer’s flat rate from 5.2% to 5.4%.
- Income averaging regime to be amended to allow farmers “opt out” in a year of poor income. Currently the income average regime allows a farmer’s taxable income or profit to be averaged out over a 5-year period.
- DIRT to be reduced by 2% each year for the next 4 years until it reaches 33%.
- There is to be no change in the VAT rates, which includes the keeping of the 9% rate for the tourism / hospitality sector.
- No changes in CGT or CAT rates apart from the above special CGT rate of 10% for entrepreneurs.
- Cigarettes to increase by 50c per packet of 20 from 11 October 2016.
- No change to main Corporation tax rate.
- State Pension will increase by €5 per week from March 2017 while all other social welfare payments will increase by €5 per week in line with State Pension.
- The Christmas bonus for social welfare recipients will be restored to 85 per cent of the recipient’s weekly payment.
- Proposal to develop new share based remuneration scheme for budget 2018 which is aimed at updating the current arrangement is to be put in place and subject to European Commission approval.
- Introduction of sugar tax proposed for April 2018 to coincide with UK sugar tax.
Income Tax & Levies
As outlined previously the main change in terms of income tax is the reduction is the USC rates on incomes of up to €70,044. Any income over this is still liable to the USC at 8%. For the self-employed the additional surcharge on income in excess of €100,000 appears to remain.
There were no changes to the income tax rates or bands. However, self-employed individuals will now benefit from an increased earned income credit of €950.
Landlords will also benefit with the news that interest relief allowed as a deduction against rental income will be increased by 5% from a current level of 75% each year with the aim of allowing a full deduction of interest against rental income in the future.
Universal Social Charges
Incomes of €13,000 or less are exempt. Otherwise,
- €0 to €12,012 @ 0.5%
- €12,013 to €18,772 @ 2.5%
- €18,773 to €70,044 @ 5%
- €70,045 to €100,000 @ 8%
- PAYE income in excess of €100,000 @ 8%
- Self-employed income in excess of €100,000 @ 11%
- Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed €60,000 will now pay a maximum rate of 2.5% USC.
The 9% rate applicable to certain service industries (tourism / hospitality etc.) will continue in 2017. No further changes.
Farmers will now be entitled to an increased flat rate addition of 5.4%
Home Renovation Incentive (HRI)
This incentive which came into force following Budget 2014 provides a tax credit to homeowners who carry out renovation and improvement works on their principal private residences and investment properties. The tax credit is calculated at 13.5% of qualifying expenditure over €5k to a maximum of €30k. This scheme has now been extended to December 2018.
Capital Gains Tax (CGT)
The CGT relief for entrepreneurs introduced from January 2016 will be amended to reflect a CGT rate of 10% and will apply to the disposal in whole or part of a business up to an overall limit of €1m in chargeable gains.
No changes were announced with regard to CGT rates.
Capital Acquisitions Tax (CAT)
The Group A threshold (Parent to child, primarily) has been increased from €280,000 to €310,000 with immediate effect.
The Group B threshold which applies to gifts and inheritances made to parents, siblings, nieces, nephews or grandchildren is raised from €30,150 to €32,500.
The Group C threshold which applies to gifts and inheritances made to all others (except spouses and civil partners) is raised from €15,075 to €16,250.
No changes were announced with regard to CAT rates or bands.
The Government has stated its commitment to maintaining the 12.5% Corporation Tax rate.
Start your own business tax relief is being extended until the end of 2018.
Deposit Interest Retention Tax (DIRT)
DIRT to be reduced by 2% each year for the next 4 years until it reaches 33%.
Customs & Excise
Excise duty on a packet of 20 cigarettes is being increased by 50c with effect from 11 October 2015. No changes to duty on alcohol, petrol or diesel.
VRT & Motor Tax
The VRT reliefs available for the purchase of hybrid vehicles is extended until December 2018.
No other changes were announced with regard to VRT or private motor tax.
There appears to be no changes announced with respect to private pensions.
Brief outline on the Public Expenditure measures
• Public services- provision made for hiring more nurses, guards and teachers, pay increases under Lansdowne Road agreement.
• Housing – budget of €1.2bn to build 47,000 social housing units by 2021.
• State Pension- increase of €5 per week from March 2017.
• Social welfare payments- all payments to increase by €5 per week in line with the State Pension.
• Christmas – 85% Christmas bonus for social welfare recipients.
Over the coming days we will be reviewing the budget in detail and preparing appropriate analysis. If you require any clarification on any of the Budget matters, please do not hesitate to contact your advisers as follows;
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