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Budget 2018 - Talking Points

Monday, 23rd October, 2017

Now that the dust has settled following last week’s budget announcement, we take a closer look at the main talking points arising from Budget 2018:

 

Has the cost of buying land got more expensive?

That is the question being asked by many owners of farmland following the announcement of an increase in Commercial Stamp Duty.

In his first budget speech, Minister Donohoe announced an increase in Commercial Stamp Duty from 2pc to 6pc with effect from midnight on 10 October 2017.

He said that this new rate for non-residential property transactions will “get the commercial property market moving again”.

However, unbeknown to many, farmland is classed as ‘commercial property’. This announcement has therefore left owners of agricultural land concerned that those intending to purchase land will now be subject to the new higher rate of Stamp Duty.

When asked at a post-Budget press conference, the Minister for Agriculture, Michael Creed is reported to have told journalists that farmland would not be included in the new measure. However, the Minister of Finance, Paschal Donohoe did not announce any exemptions for the new measure and therefore it looks likely that farmland will continue to be classed as ‘commercial property’ and Stamp Duty calculated using this new rate.

We expect further clarification on this matter in the publication of the Finance Bill but until such time, please seek professional advice before completing any commercial property transactions.

Stamp Duty relief for inter-family transfers (Consanguinity Relief) is to be retained at 1pc for a further 3 years. The exemption from Stamp Duty for young trained farmers is to be continued.

 

Build now or pay more taxes, landowners warned

Minister Donohoe announced a raft of measures designed to stimulate the construction and property sector, in particular, the housing market.

A number of these measures sent out a clear warning to landowners urging them to build faster and not leave land vacant, or be subject to higher taxes. Here are just some of those measures that should be taken note of:

  • The introduction of a Stamp Duty Refund Scheme on land purchased for the development of housing. In order to qualify for this scheme, developers will have to commence construction within 30 months of the land purchase.
  • The Vacant Sites Levy is to increase to 7pc in the second and subsequent years. Therefore, if the landowner does not develop the land in 2018, they will pay 3pc in 2018 and then 7pc from 1 January 2020 and so on.

 

Relief for Irish tourism as lower VAT rate is retained

In 2011, the former Minister for Finance, Michael Noonan introduced a lower rate of VAT for the hospitality sector – reducing it from 15pc to 9pc – which at the time was adversely affected by the economic downturn.

Minister Donohoe confirmed that the lower 9pc VAT rate for the hospitality industry would be retained which comes as a welcome relief, particularly for some hoteliers and restaurant owners outside of Dublin whose businesses continue to struggle.

 

USC and PAYE changes benefit low-income earners

Whether you’re a low-income or a high-income earner, there was very little to shout about in this year’s budget. Other than moderate changes to the USC rates and the PAYE bands, there were no other personal tax measures announced that will make a real difference to your take-home pay or disposable income. We expect the changes announced to USC and PAYE to benefit those on low income:

USC

  • The 2.5pc rate is to reduce to 2pc.
  • The 5pc rate is to reduce to 4.75pc.

PAYE

  • The Standard Rate Cut-Off Point – the point at which income attracts the higher rate of income tax – will rise in 2018 by €750.
  • The cut-off point for a single earner will be €34,550 and for a married couple (single income) will be €43,550.

 

Capital Gains Tax for property owners

In 2011, Minister Noonan introduced a tax relief that allowed property owners who retained qualifying assets for 7 years to receive full relief from Capital Gaines Tax. In Budget 2018, Minister Donohoe announced that they can get relief if they sell after 4 years but obviously can still hold for 7 years and get the relief.

 

New tax incentive for owners of vacant residential property

A new, time-limited tax reduction for pre-letting expenses is being introduced to encourage owners of vacant residential property to bring it into the rental market for a minimum period of 4 years. In order to qualify, the property must have been vacant for at least 12 months. A cap on allowable expenses of €5,000 per property will apply. The relief will be available for qualifying expenses incurred up to the end of 2021. In the event that the property is withdrawn from the rental market within 4 years, the expenses will be subject to clawback.

 

Seek professional tax advice

As with any budget, there are always measures announced that require further clarification and this budget was no exception. If you are affected by any of the tax measures announced in Budget 2018, we strongly advise you to seek professional advice from your DBASS advisor or one of our tax advisors before taking any action.

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