Individuals and Entrepreneurs
Finance Bill 2018
Finance Bill 2018 makes provision for the measures announced in Budget 2019 in the area of personal taxation and entrepreneurs in a manner that has resulted in few surprises. These measures are included in our Budget summary.
There were however a number of measures that have been included in the Finance Bill that were not announced on Budget day. As was flagged in the Budget, detailed changes to the Employment and Investment Incentive (EII) and Start-up Relief for Entrepreneurs (SURE) schemes are being introduced with a view to addressing a number of issues, namely:
An on-going criticism in recent years has been that the legislation and administration were not seen as being user friendly and prolonged delays in obtaining approvals from Revenue were often reported. With a view to streamlining the operation of the scheme, a self-certification process for companies and investors is being introduced. Where it is found that a company has incorrectly self-certified, any clawback of the relief would apply at the company, rather than the investor, level. Whereas, to the extent that an investor incorrectly self-certifies then any tax recouped would be from the individual investor. These appear to be sensible changes and should simplify matters in many cases.
In respect of the operation of the scheme, there have been a number of further changes, including:
- The scheme will now allow for the issuance of preference shares to investors,
- Anti-avoidance provisions will apply to deny relief where there are mechanisms put in place to limit the risk of the investor in making the investment,
- The trigger point at which claims can be made are to be tied to the use of at least 30% of the funds for relevant
- Where a company raises funds via EII, the limitation on that company being able to list its shares publicly is to be removed,
- Certain restrictions on investors in the form of designated funds or non-resident individuals from investing in such companies operating an EII scheme are to be removed to allow a greater scope for company investment even where such investors may not benefit from tax relief.
- The revised legislation provides more detail on the requirement that both initial and follow on investments must be based on a business plan. Although the specific qualifying criteria have not been altered, current legislation refers the reader to the relevant EU Directive, whereas the revised legislation specifically includes the condition that investment must have been foreseen in the original business plan. The revised legislation also goes one step further than the Directive and sets out what should be included in this original business plan.
Finally, provision is also being made to allow for relief for certain investments in micro companies/small start-up enterprises by certain connected persons. A lifetime limit of €500,000 is to be applied to such companies under this provision.
Any measures to simplify and increase the efficiency of these schemes to make investment easier are welcomed. In particular, the introduction of self-certification is a positive development which should now avoid the time delays which many were experiencing under the current approval process. However, although there is a significant body of new legislation in the Bill, there do not appear to be any significant inherent changes. Given the frequent comparisons which are made with the UK equivalent schemes, there is still much work to be done to bring the Irish regime in-line with those across the water.
On the area of individual taxation the following additional points should be noted:
- Changes have been announced in respect of the Capital Acquisitions Tax dwelling house exemption. The exemption was hugely curtailed in recent years and broadly only applies to inheritances of homes where the beneficiary was residing with the owner of the property at the time of their death (with some minor exceptions). A further, albeit much more minor restriction is now proposed. In order to avail of the relief the beneficiary cannot have an interest in another dwelling at the date of an inheritance of the home. The proposed change will deem the individual to have a beneficial interest of a house that is held on a discretionary trust, where the individual is a settlor and beneficiary under the trust. Legally a beneficiary under a discretionary trust would not ordinarily be so entitled to the assets but this legislation deems them to be.
- Changes are to be made to the rent a room relief provisions. Currently relief of up to €14,000 for rental income on the letting of a room in your home is available, subject to certain conditions being met. As a result of the change, restrictions on the relief are to apply in the case of short term lettings of less than 29 consecutive days. This is seen as a measure to target short term leisure type lettings, largely arranged via online booking sites. There are certain exemptions from the short term lettings provisions to allow for respite care arrangements, foreign students and “digs” arrangements.
- A lifetime cap of €70,000 is to apply to young trained farmers who avail of stamp duty relief, stock relief for income tax purposes and relief under the Succession Farm Partnership provisions in line with EU legislation.
- In the case of CAT reliefs and exemptions, the 4 year time limit for raising additional assessments is to change such that the 4 years will run from the latest date on which the conditions necessary to avail of the relief or exemption have been satisfied. This is a considerable departure from the current position and puts a much greater obligation on taxpayers to retain relevant records should they need to challenge any such additional Revenue assessment. In effect for taxpayers where relief is claimed it extends the time limit to 10 years after the benefit.
- In certain cases where a CGT liability and a CAT liability arise on the same event, (e.g. a parent making a gift of shares to a child) a credit for the parent’s CGT is available as an offset against the CAT liability of the child. The relief is clawed back if the asset is disposed of within 2 years of the transfer. This restriction will now not apply in the case of a gift of a life assurance policy where that policy must be encashed within the 2 year period.
- CGT relief on the disposal of a site to a child for the purposes of that child constructing a principal residence is to be extended to include spouses or civil partners of that child. This amendments is to deal with a practical issue where a couple are likely to need to raise a mortgage to build a house on the site. Banks would require such mortgages to be taken out in joint names, and thus require the site to be held in joint names.
The additional matters provided for in the Finance Bill that were not announced in the Budget will not impact a great number of people but could have significant consequences for those to whom they do apply. The extension of powers to Revenue to raise assessments in the area of capital acquisitions tax beyond the normal 4 year limit puts further restrictions on the ability of families to transition wealth and add to the significant restrictions imposed in recent years. By granting Revenue the ability to raise additional assessments beyond the standard 4 years puts an additional burden on taxpayers and will require such individuals to retain records for much greater periods.
The purpose of young trained farmers’ relief is to incentivise young farmers to get involved in farming and support them in the earlier years. It is also to encourage the early transfer of lands to the next generation. With the change in the commercial rate of stamp duty to 6% last year, this lifetime threshold will mean the transfer of an average sized farm to a young trained farmer will use up most or all of the threshold in one transaction making transition much more challenging.
The Budget and subsequent Finance Bill made a number of minor provisions to the area of personal taxation. However, most of the measures have limited impact. There has been no movement in relation to key personal taxation areas such as CAT thresholds, CGT entrepreneur relief and the additional USC levy for self-employed individuals. The failure to introduce changes in these areas is disappointing but it is hoped measures might be introduced in the near future perhaps following the conclusion of the USC/PRSI review.