Individuals and Entrepreneurs

Finance Bill 2021 introduces the legislative basis for many of the measures announced in the Minister for Finance’s Budget Speech on 12 October. In relation to the taxation of individuals, these measures include the following:

• Increase in the standard rate band for income tax.
• Increases to the personal tax credit, employment tax credit and the earned income credit.
• Increase to the second-rate band for USC.
• The extension of the pre-letting expenses deduction for landlords bringing previously vacant properties back to the market.
• Farming stock relief extension, plus an extension for stock relief for young trained farmer and registered farming partnerships.

The Bill introduces a change to the tax treatment for capital acquisitions tax purposes on the free use of money. Most commonly this might involve parents providing their children with interest free loans. Previously, where an annual gift was deemed to be taken, the quantum was determined by reference to the amount you would expect to earn if those funds were on deposit in a bank. Given the very low levels of interest payable on deposits over recent years this meant that the deemed gift was quite low. It is now proposed that the deemed gift in such circumstances will be the best rate available if those funds were borrowed on the open market. As such, given that lending rates are significantly higher than deposit rates, the deemed gift will increase significantly for relevant individuals.

Amendments are to be introduced in relation to the use of Approved Minimum Retirement Funds (AMRF). Going forward, anyone availing of the Approved Retirement Funds (ARF) from a pension scheme will not be required to avail of AMRF provisions. In addition, existing AMRFs shall become ARFs from 1 January 2022.

In relation to the area of taxation of entrepreneurs and scaling Irish businesses, the following measures have been provided for in the Bill:

• Relief from corporation tax for start ups is extended to 5 years.
• Introduction of digital gaming relief at a rate of 32% on relevant expenditure up to €25million per project.

In addition to the above, a number of changes have been outlined in relation to the schemes for investment in corporate trades, in particular Employment Investment Incentive Scheme (EIIS) and Start-up relief for entrepreneurs (SURE). The Minister announced in the Budget speech that reforms to these schemes would be forthcoming to make the scheme more attractive to investors. Part of the criteria for availing of these reliefs is for the relevant company to have spent 30% of the funds raised on a “qualifying purpose”. Until this target is met the company cannot issue a “statement of qualification” to the investors. The amendment to this section removes the 30% requirement and changes the timeframe in which such a statement can issue. The proposed change states that the company may not issue a statement more than 4 months after the end of the year of assessment in which the shares were issued. In addition, further amendments are provided to expand the range of investors who are eligible to participate in the scheme. The legislation will now enable Investment
Funds to raise investments that qualify for relief, specifically Investment Limited Partnerships and Limited Partnerships that meet relevant criteria.

Our view

Overall, the provisions of Finance Bill 2021 with regard to the taxation of individuals and entrepreneurs is largely in line with what was announced in the Budget. Our taxation system for individuals and entrepreneurs remains overly complex, with a significant tax burden applying personally. It is hoped in future Budgets and Finance Bills that consideration will be given to reforming the taxation system, as well as broadening the tax base generally as the tax burden continues to fall most heavily on a relatively small group of people.

In respect of finance raising measures for scaling Irish businesses, any reforms to make the measures more attractive and available to a wider pool of investors are welcome. However, as has been seen in prior years, modest changes to these schemes are unlikely to have a major impact on the availability of funding to relevant businesses. As such a focus on a wider range of measures to provide relevant funding to these scaling businesses is vital to support and enhance the sector.