The Finance Bill 2016 has now been enacted into law. This gives legal effect to the recent Budget. Most the changes have little impact. The help to buy scheme is probably the most significant new initiative, though it will benefit only first-time buyers of new houses. It takes the form of a rebate of tax paid over the previous four years and is capped at €20,000.
Other changes include the following:
USC rate cuts: USC for low and middle income earners is reduced by 0.5% from 1st January 2017 to:
- First €12,012 @ 0.5%
- Next €6,760 @ 2.5%
- Next €51,272 @ 5%
PRSI: Entitlement to the Invalidity pension as well as dental and optical benefits will be extended to the self-employed.
Income tax credit for self-employed and proprietary directors: For 2016 this was €550; for 2017 it will be €950 and hopefully for 2018 it may be increased to the same level as the PAYE credit of €1,650 for employees.
DIRT reduction: The rate of DIRT is being reduced to 39% in 2017 and by 2% each year until it reduces to 33% in 2020. Deposit interest rates are now so low that this will make little difference to anyone.
Mortgage interest restriction for landlords: Only 75% of interest paid by landlords on rented residential accomodation is currently deductible on rental income. The deduction is being increased by 5% per annum until eventually full deductibility is restored.
Comment: Many landlords with high borrowings experience negative cash flow as, following the crash, banks took the earliest opportunity to put people on a capital repayment basis, having sold them “interest-only” products a few years earlier. Those landlords who hadn’t sufficient alternative income or capital were then forced to sell, inevitably at a loss and often leaving a debt shortfall. Many are still negotiating repayment of these shortfalls with their banks or with the “vulture funds” which bought the loans from the banks at a discount. Government took a “hands-off” approach and allowed the banks to engage directly with customers who were largely at their mercy. Until recently, the Insolvency Act permitted banks to veto proposals submitted by insolvency practitioners, without an appeals process.
Introduced in 2009, the 75% interest restriction is only now beginning to be reduced.
Rent a Room exemption: For those prepared to rent a room in their home to third parties, the tax-free rental income threshold of €12,000 is being increased to €14,000.
Comment: We don’t recall having heard much of an outcry for this increase so the generosity was unexpected by most! AirBnb hosts don’t benefit however.
Home Renovation Incentive: This has been a popular incentive even though it only enables householders and landlords to reclaim the 13.5% VAT charged on expenditure in excess of €4,050, limited to expenditure of €30,000, by way of an income tax refund – deductible over a period of two years.
Comment: There is an element of self-financing involved as it removes the incentive for contractors and customers to operate in the “black” economy.
Entrepreneur’s relief: Gains on disposal of qualifying businesses and shares in trading companies will be taxed at 10% (previously 20%) from 1st January 2017. The maximum potential benefit of the relief is now €230,000.
Comment: This brings us into line with the UK equivalent relief.
CAT (Gift and Inheritance taxes): The lifetime tax-free group thresholds are being increased. With effect from 12th October 2016 the thresholds are:
- Class A €310,000
- Class B €32,500
- Class C €16,250
Comment: The Class A threshold in 2009 was €542,000.
Income averaging step-out: With effect from 2016, farmers may now opt out for a single year. Tax thus deferred will be payable over the following four years.
Comment: Slightly improves the scheme.
CGT relief for farm restructuring: The relief is extended to 31st December 2019.
Comment: Useful relief but limited numbers will benefit
Energy-efficient equipment: The scheme is being extended to sole traders. It grants 100% write-off against tax in the year of purchase of energy-efficient equipment.
Comment: A useful deduction
Flat rate Farmers: The flat rate addition for farmers who are not registered for VAT is increased from 5.2% to 5.4% with effect from 1st January 2017
Comment: Why bother?