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Yesterday, Revenue eBrief No. 59/18 was published.

This comprehensive nine page document outlines the tax treatment for income arising from the provision of short-term accommodation:

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-01-20.pdf

A short term letting is defined as a letting of all or part of a house, apartment or other similar establishment:

– to a tourist, holidaymaker or other visitor
– for a period which does not exceed or is unlikely to exceed 8 consecutive weeks

There are a number of different circumstances which will be covered by this new guidance material including

(i) persons staying in hotels, guesthouses, B&Bs, hostels, etc.,
(ii) persons either sharing a property with the owner or occupying the whole property for a short period of stay or
(iii) persons occupying self-catering holiday accommodation for short periods

If your rental income meets the criteria outlined in this document, you could be looking at an obligation to register for VAT depending on your turnover as well compliance obligations under Cases I or IV Schedule D.  In addition to the annual tax on the rental profits and the potential VAT exposure, you could encounter a Capital Gains Tax liability on the sale of the property generating this rental income which might otherwise have been tax exempt.

This document has clarified situations where Rent-a-Room Relief will not be available.  Specifically if you are someone who rents out one or more rooms in your home through online accommodation booking sites you will not be entitled to the Rent-a-Room Relief.  Instead you may be treated as if you are carrying on a trade with an obligation to register and account for Income Tax and/or VAT.

If you provide short term rentals to tourists, guests or visitors where the room or property is available for rent on a regular or frequent basis with a view to making a profit and involves you, the owner, carrying out some or all of  the following activities then you may be deemed to be carrying on a trade and if so, this document is relevant to you:

1. Advertising the property online on accommodation booking websites
2. Dealing with booking enquiries, reservations and payments
3. Arranging for cleaning, laundry and maintenance during and between lets
4. Providing meals
5. Providing information to visitors about local tourist attractions, restaurants etc.
6. paying staff to provide such services, etc.

According to this document:

“The provision of traditional short-term guest accommodation in hotels, guesthouses, B&Bs and hostels will generally constitute a trade. Persons who provide short-term guest accommodation, either in their home or in another property owned by them, will only be trading to the extent the activity is sufficiently frequent and regular and is carried on a commercial basis and with a view to the realisation of profit.”

If you are renting out a room in your own home or an entire property using an online accommodation booking site and you are unsure of the correct tax treatment pertaining to your situation, why not contact us to discuss the matter further.

On Budget Day, 21^st February 2018, the South African Minister for Finance released updated draft regulations in relation to VAT levied on electronic services provided by foreign businesses.  The aim is to extend the definition of “electronic services” to include “any service supplied by means of an electronic agent, electronic communication or the internet…”

If enacted, the amended draft regulations could result in a significant overhaul of the VAT treatment electronic services.

In 2014 Section 89 of the Value Added Tax Act 1991 was amended.  From 1^st June 2014 on-wards the definition of “enterprise” was to include in the supply of electronic services provided by foreign suppliers to recipients within South Africa. As a result, non-resident suppliers of these services were required to register for VAT where their supplies exceeded the threshold amount of R50 000 in a twelve month period.

The amendments proposed in this Budget, which should take effect from 1^st October 2018, include the following:

• Repealing the current Regulation – This would allow for the deletion of the specific types of services currently outlined as “electronic services” and

• Revising the definition of “electronic services” to effectively include any type of service supplied electronically with the exception of telecommunication services and educational services provided by a person who is regulated by an educational authority in a foreign jurisdiction.

This new definition will bring into the South African VAT regime; foreign suppliers whose services were previously outside its scope including online advertising, broadcasting, cloud computing, access to databases and information systems, etc.

The VAT Act does not, however, distinguish between Business to Business (B2B) supplies and supplies made directly to South African consumers (B2C). This will have a significant impact on the tax compliance burden for foreign suppliers who supply services electronically into South Africa as well as for the South African Revenue Service.

Amendments have been proposed for intermediaries and platforms to be allowed to register as vendors.  This will enable them to account for the VAT arising on sales made through such platforms providing the platform or intermediary facilitates the supply and assumes responsibility for the issuing of invoices and collection of the associated payments.

The National Treasury has allowed until 22^nd March to provide comments.  Following which, if the proposed amendments are enacted they will become effective from 1^st October 2018.

VAT. Tax Appeal. UK Taxes. International Tax Advice. Expat Taxes.

Nestlé has lost its appeal against the original 2016 ruling by the UK’s First Tier Tribunal over the VAT treatment that should apply to its strawberry and banana flavoured Nesquik powders.  The First Tier Tribunal found in favour of the HMRC not repaying the £4 million of output VAT which had been over declared by Nestlé on these products.  Nestlé’s grounds for seeking this repayment were that the fruit flavoured powders were liable to the zero VAT rate as they were deemed to be “a powder for the preparation of beverages.”

The Tribunal held in favour of the HMRC that the products in question should remain at the standard VAT rate and as a result, no claim for the over declared output VAT is to be allowed.

Nestlé argued that strawberry and banana Nesquik should be zero rated. The reason being that they encourage milk drinking and milk is zero rated.

Nestlé also argued that these flavours should have the same VAT treatment as the chocolate flavour powder because they are in essence, the same product.

Both Nestlé and the HMRC agree that the chocolate flavoured Nesquik should be zero rated on the basis that this product contains cocoa thereby allowing it to fall within the list of “exceptions to the excepted items” according to the UK’s zero rating provisions.

The Upper Tribunal pointed out that there are number of other anomalies within the VAT system. For example, the fact fruit salad is zero rated while fruit smoothies are liable to VAT at the standard rate.

This case is likely to be appealed by Nestlé.

The lesson to be learnt from this case is that VAT advice should always be sought in advance, especially with regard to new supplies, to ensure that the correct VAT treatment is always applied.

The full ruling can be found here:  Nestlé UK Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2018] UKUT 29, Appeal number: UT/2016/120 

For up-to-date Irish, UK and International VAT advice, please contact us on queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

A stamp duty refund scheme in respect of land purchased to develop residential property was signed into the 2017 Finance Act on 25^th December 2017.

The Act provides that where stamp duty, at the new higher rate of 6%. is paid on the acquisition of land which is subsequently used to build residential property, the purchaser will be entitled to a rebate of 4% being 2/3rds of the duty paid.

It is important to keep in mind that the refund of stamp duty is only applicable in relation to the proportion of the land used for residential development.

The Main Points of the Scheme are:

• The scheme only applies where the residential development begins within thirty months of the date the land was acquired but before 1^st January 2022.

• It only applies to the construction of dwelling units.

• It does not apply to the refurbishment or completion of existing or partially constructed units.

• The time taken to conclude any planning appeal may be added to this 30 month period.

• The development must commence on foot of a Commencement Notice served in compliance with the Building Control Regulations and must be completed within two years of the relevant Local Authority’s acknowledgement of the Commencement Notice.

• There is a four year time limit on claiming a repayment.  Please be aware that the repayment does not carry interest and must be claimed using Revenue’s e-Stamping system.

• The 4% duty refund can be claimed following the commencement of the works

• Where the residential development is being carried out in phases, repayments can be sought on a phased basis i.e. the refund can be reclaimed on the commencement of each phase but only in proportion to the area of the land in each phase.

•  75% of the land, for which the refund claim is made, must comprise of dwelling units.

• If the legislative conditions are not met or if the works have not been completed within the 2 year deadline then Clawback Provisions will apply to this refund.

Despite the fact that this scheme has been signed into legislation there are still areas of uncertainty.  It is expected that Revenue will issue guidance material to clarify matters in due course.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

It’s very difficult to keep up to date with all the amendments to the Irish tax system so here is a summary of some of the changes to be mindful of in 2018:

1. Annual Membership Fees paid to a professional body (Revenue eBrief 04/18 published on 9^th January 2018)

 https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0042018.aspx

The updated Revenue guidance notes allow an employee to claim a deduction for professional membership fees only in circumstances where:

1. There is a statutory requirement for that employee to be a member of a specific professional organisation or body or to hold a practicing certificate in order to carry out the duties of his/her employment or
2. In the absence of that professional membership or practicing certificate the individual cannot legally fulfill the full duties of his/her employment.

Where the employer pays the membership fee on the employee’s behalf and either of the above two conditions apply then no Benefit-in-Kind is deemed to have arisen.  Subsequently no payroll taxes will arise.

We would advise all employers to ensure the payment of professional membership fees on behalf of employees can be supported in the event of a Revenue Audit.

2. Increase in Employer’s Pay Related Social Insurance from 10.75% to 10.85% from 1^st January 2018.

 3. Benefit-in-Kind Exemption of Electric Vehicles for 2018. 

Finance Act 2017 introduced this exemption for electric vehicles which were available for private use for employees during the 2018 tax year.  It is not clear whether or not this scheme will be extended into 2019 which may result in a low uptake in purchasing electric vehicles by employers.

The exemption applies to cars and vans deriving their power from an electric motor.

It does not apply to hybrid vehicles.

4. PAYE Modernisation or Real Time Reporting

From 1^st January 2019 all employers will be required to accurately provide PAYE data to Revenue on a Real Time basis.

This effectively means:

• Revenue will be able to automatically review employees’ payroll information and immediately identify any discrepancies and errors.
• The PAYE information submitted to Revenue must be 100% correct.  In other words, the opportunity to amend errors at the end of the year has been elimited.

For further information, please follow the link:

https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-892017.aspx

We would advise all employers to take the time, sooner rather than later, to ensure their payroll processes will be adequate to handle the increased obligations of the Real Time Reporting.

 Here is a list of other relevant Revenue eBriefs:

Home Carer Tax Credit – Revenue eBrief No. 009/18 (29 January 2018) https://www.revenue.ie/en/tax-professionals/ebrief/2018/no-0092018.aspx

Change in Basis of Assessment – Schedule E – Revenue eBrief No. 127/17 (29 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1272017.aspx

Taxation of payments to craft apprentices by Education and Training Boards –Revenue eBrief No. 126/17 (29 December 2017)

Benefit-in-Kind on use of Company Vans – Revenue eBrief No. 124/17 (28^th December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1242017.aspx

Exemption from Income Tax in respect of certain payments made under employment law – Revenue eBrief No. 118/17 (20 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1182017.aspx

PAYE Services: Tax and Duty Manual Updates – Revenue eBrief No. 111/17 (01 December 2017) https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-1112017.aspx

Amendments to the Employment and Investment Incentive on 2^nd November 2017 – Revenue eBrief No. 99/17 (02 November 2017)
 https://www.revenue.ie/en/tax-professionals/ebrief/2017/no-992017.aspx

As you are aware, Finance Act 2017 increased the rate of stamp duty on the transfer of non-residential property from 2% to 6% with effect from midnight on Budget Day.

The change applied to instruments executed on or after 11^th October 2017.

This dramatic increase will, most likely, reduce the number of commercial property transactions carried out in Ireland in 2018.

On 27^th October 2017, The Irish Revenue Commissioners published Revenue eBrief No. 94/2017 outlining the transactions eligible for the 2% Stamp Duty rate under Transitional Relief Measures:

In circumstances where a binding contract has been entered into before 11^th October 2017 the rate of stamp duty will remain at 2%, provided the following two conditions are met:

1. the instrument was executed before 1^st January 2018, and

1. the instrument contained certification that the instrument was executed on foot of a binding contract entered into before 11^th October 2017.

A person who filed a stamp duty return before the enactment of the Finance Bill and who was satisfied that the transitional measures would have applied if the Finance Bill had been enacted, had two options:

1. To file a return through the e-stamping system, pay stamp duty of 6% and be issued with a stamp certificate.  Now that the Finance Act has been enacted the filer can amend the Return, submit the relevant documents to Revenue thereby requesting a refund of 4% (i.e. the difference between the 6% and 2% rate). Please follow attached link for detailed instructions:

 https://www.revenue.ie/en/online-services/support/documents/help-guides/stamp-duty/amending-stamp-duty-return-on-ros.pdf or

2. To file a return through the e-stamping system and pay the stamp duty at the lower rate of 2%.  In this situation a stamp certificate was not be issued at this stage.

On 4^th January Revenue published guidelines on how this postponed stamp certificate can be obtained. To receive the certificate, you must amend the Stamp Duty Return by following the link:

https://www.revenue.ie/en/online-services/support/documents/help-guides/stamp-duty/amending-stamp-duty-return-on-ros.pdf

For those who filed their Returns but did not pay the correct amount of Stamp Duty at the 2% rate, you will not have received a Stamp Certificate.

In order to obtain the stamp certificate you must amend the Stamp Duty Return, pay the Stamp Duty of 2%, pay any Interest accruing on the late payment of Stamp Duty and pay any surcharge arising on the late filing of the Return, if relevant.

Once the payments have been processed your Stamp Certificate will issue automatically.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Finance Act 2017 increased the rate of Stamp Duty on all non-residential properties from 2% to 6% and includes non-residential lease premiums.  This 6% rate applies to documents executed on/after 11^th October 2017.

Although transitional measures have been introduced, this higher Stamp Duty rate will apply for conveyances executed from 1st January 2018.

To be able to avail of the previous 2% rate on commercial property (i.e. where contracts were entered into before 11th October 2017), the two following conditions must be met:

1. a binding contract must have been in place before 11th October 2017 and
2. the instrument for the transfer must have been executed before 1^st January 2018.

The increased Stamp Duty rate also applies to certain shares which derive their value or the greater part of their value, directly or indirectly, from Irish non-residential land and buildings.  The 6% Stamp Duty Charge was introduced by Section 31C SDCA 1999 on conveyances/transfers of shares in Irish and non-Irish companies.  The provision also applies to units in an Irish real estate fund, interests in foreign collective investments schemes as well as to interests in a partnership.

This 6% Stamp Duty rate will apply if the result of the transfer is a change in the person/persons having direct/indirect control over the non-residential property and where it would be reasonable to consider that the immovable property concerned was:

1. acquired by the company, IREF or partnership with the sole or main object of realising a gain from its disposal,
2. being developed by the company, IREF or partnership with the sole/main object of realising a gain from its disposal when developed, or
3. held as trading stock by the company, IREF or partnership.

Although the legislation applies to any instrument executed on or after 6^th December 2017, there are transitional provisions, which will limit the Stamp Duty rate to its existing rate (i.e. 1% or qualifying for an exemption) where:

1. A binding contract was entered into before 6^th December 2017,
2. the instrument is executed or the binding contract is completed before 1st March 2018 and
3. the instrument contains a statement certifying that the instrument was solely executed in pursuance of said binding contract which was entered into prior to 6^th December 2017.

The new rate will apply to contracts for sale of such shares as well as actual transfers of shares.

As the 6% rate applies to all non-residential property, this means the disposal of goodwill or the transfer of Debtors, as part of the sale of a business, could also give rise to a 6% Stamp Duty charge.

The rates of stamp duty on residential property remain at a rate of 1% up to the first €1,000,000 with 2% payable on the excess over €1,000,000.

The Stamp Duty rate on leases of commercial property will continue to be charged at a rate of 1% on the average annual rent.  However, where the landlord receives a premium from the tenant at the commencement of the lease, this will be subject to Stamp Duty at 6%.

Finance Act 2017 (Section 83D SDCA 1999) introduced a Stamp Duty Rebate Scheme in relation to land purchased for the purpose of developing residential property.  The Act provides that where Stamp Duty at the new higher rate of 6% is paid on the acquisition of land which is subsequently used to develop residential property, then the purchaser will be entitled to a rebate of 2/3 of the 6% upfront duty paid i.e. a potential refund of up to 4% can be claimed provided the following conditions are satisfied:

• The Stamp Duty Rebate Scheme is limited to the proportion of land used for residential development.
• The Scheme only applies where construction operations for residential property commence before 1^st January 2022 and construction must begin within thirty months of the date the land was acquired.
• The time required to conclude any planning appeal can be added to this thirty month period.
• The repayment cannot be claimed in advance of the commencement of construction operations.
• There is a four year time limit on claiming a repayment. The supporting documentation required to substantiate the claim include (i) a certified copy of the deed of transfer, (ii) a statutory declaration stating that building work commenced within the thirty month period immediately after the date the instrument was executed and (iii) written consent by all the accountable persons to the person making the claim.
• Where the Stamp Duty rebate claims relates to only part of the land, the Statutory Declaration must clearly state the specific part of the land to which the claim relates.
• The rebate will not carry interest.
• The refund can only be claimed via Revenue’s e-Stamping system.
• In situations where the residential development is being carried out in phases, repayments can be sought on a phased basis.
• The Rebate will be clawed back in two situations: (i) where the residential development is not completed within two years of acknowledgement, by the relevant building control authority, of the commencement notice or (ii) where at least 75% of the units or a minimum of 75% the total area of the land in question is not occupied.

Construction operations” is defined as the construction of buildings or structures including the preparatory operations of site clearance, drainage, earth-moving, excavation, laying of foundations and provision of roadways and other access works.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

The Minister for Finance, Public Expenditure and Reform Paschal Donohoe T.D delivered his first Budget today, on 10^th October 2017, which concentrated more on expenditure than on tax changes.

The Minister announced a number of positive measures to assist small and medium sized enterprises prepare for “Brexit” as well as confirming Ireland’s commitment to the 12½% corporation tax rate.

We are pleased to bring you our summary of the tax measures set out in Budget 2018.

PERSONAL TAXATION

Universal Social Charge

The USC has been cut for lower and middle income earners.

The 2.5% USC rate has been reduced by 0.5% to 2% and the band has been increased to €19,372 from €18,772 which will benefit employees earning the minimum wage.

The 5% USC rate has been reduced by 0.25% to 4.75%

Medical card holders and individuals aged 70 years and over whose combined income does not exceed €60,000 per annum will only be liable to pay a maximum USC rate of 2%.

For self-employed individuals with income of over €100,000 the 11% rate will continue to apply

Income Tax

The higher or marginal tax rate will remain at 40% for 2018.

The income tax standard rate band, however, will be increased by €750 to €34,550 i.e. the entry point at which the 40% income tax rate applies has been increased from €33,800 to €34,550 for a single person and from €42,800 to €43,550 for married couples with one income.

The marginal rate of tax for individuals earning between €34,551 and €70,044 will be 48.75%.

The marginal rate of tax for individuals earning in excess of €70,044 will remain at 52% for employees.

The marginal rate of tax for self-employed individuals earning in excess of €100,000 will remain at 55%.

Earned Income Credit

For self-employed individuals, the earned income tax credit will increase by €200 to €1,150.

No reference was made in today’s Budget speech as to when future increases to this tax credit would arise to bring it in line with the PAYE Tax Credit of €1,650.

Home Carer Tax Credit

The Home Carer Tax Credit will increase by €100 from €1,100 to €1,200.

The €7,200 income threshold remains

This tax credit can be claimed by a jointly-assessed couple where a spouse/civil partner cares for one or more dependents regardless of the number of individuals cared for.

Deposit Interest Retention Tax (DIRT)

The rate for Deposit Interest Retention Tax for 2018 will be charged at 37%.

PRSI

The National Training Fund Levy will be increased over the next three years and will apply to employees under Classes A and H by increasing Employer’s PRSI as follows:

a)      10.85% in 2018

b)      10.95% in 2019

c)      11.05% in 2020

Mortgage interest relief 

Mortgage Interest Relief for residential property owners which was scheduled to be abolished from the end of this year will continue until 2020.

This relates to home owners who took out qualifying mortgages between 2004 and 2012.

The relief will be reduced as follows:

a)      to 75% in 2018

b)      to 50% in 2019

c)      to 25% in 2020

Following a change in last year’s Finance Act, the amount of mortgage interest allowable against taxable rental income will increase to 85% with effect from 1^st January 2018.  However, there was no reference, in today’s Budget speech, to the expected increase from 80% to 85% mortgage interest relief on rented residential property.

As you may remember, in Budget 2017, it had been announced that100% mortgage interest relief for rental properties would be restored on a phased basis by 2020.

 Deductibility of pre-letting expenses

Expenses incurred prior to the first letting of a property are not deductible against rental income, with a few exceptions.

Following today’s Budget, property owners who rent out residential properties which have been vacant for a period of twelve months or more will be entitled to a tax deduction of up to €5,000 per property.

These expenses must be revenue in nature and not capital expenditure.

The relief will be subject to a clawback of the property is withdrawn from the rental market within a four year period.

This relief will be available for qualifying expenditure between now and the end of 2021.

Benefit-in-kind on motor vehicles

The minister announced a number of measures to incentivise the purchase of electric cars including:

a)      a 0% rate of Benefit-in-Kind for electric cars and the electricity used at to charge these vehicles while at work.

b)      a VRT Relief measure

CAPITAL ACQUISITIONS TAX

No changes were announced to the CAT tax-free thresholds in the Budget.

CAPITAL GAINS TAX

No changes were announced to CGT rates in the Budget.

Seven Year Exemption

The Minister relaxed the “Seven Year Exemption” which applied to land or buildings purchased between 7^th December and 31^st December 2014.

Disposals of qualifying assets between years four and seven will now qualify for the full Capital Gains Tax Exemption

VAT

VAT Compensation Scheme

A VAT refund scheme was introduced in order to compensate charities for input VAT incurred on expenditure.

This scheme will take effect from 1^st January 2018 but will be paid one year in arrears. In other words charities will be entitled to claim an input VAT credit in 2019 in relation to expenses incurred in 2018.

Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive.

The Minister also confirmed that a capped fund of €5 million will be available to fund the scheme in 2019.

For further information please visit:

http://www.budget.gov.ie/Budgets/2018/Documents/VAT_Compensation_Scheme_For_Charities.pdf

9% VAT Rate

The reduced VAT rate of 9% for goods and services, mainly related to the tourism and hospitality industry, has been retained.

VAT on Sunbed Sessions

 In line with the Irish Government’s National Cancer Strategy, the VAT rate on sunbed services will increase from 13.5% to 23% from 1^st January 2018.

BUSINESS TAXES

Corporation tax rate

The government has made a firm commitment to retaining the 12½% Corporation Tax rate to attract foreign direct investment.

 Capital Allowances for Intangible Assets

The Minister confirmed that he would be limiting the amount of capital allowances that can be claimed for intangible assets.

A tax deduction for capital allowances under Section 291A TCA 1997 on intangible assets and any associated interest cost will now be limited to 80% of the relevant income arising from the intangible asset in the accounting period from midnight of 10^th October 2017.

Key Employee Engagement Programme (KEEP)

The Minister announced plans for a new share based remuneration incentive for unquoted SME companies aimed at improving the ability of SMEs to attract and retain key staff.

This incentive will be available for qualifying KEEP share options granted between 1^st January 2018 and 31^st December 2023.

No income tax, PRSI or USC will be charged on the exercise of the share options. Instead gains from exercising these share options will only be liable to CGT @ 33%.

The tax becomes payable when the shares are sold.

State Aid approval will be required to introduce this scheme.

Accelerated capital allowances for expenditure on energy-efficient equipment

Following a review of the accelerated capital allowances scheme for energy efficient equipment, the current scheme is being extended for a further three years to the end of 2020.

STAMP DUTY

Stamp Duty on commercial property

The rate of stamp duty on commercial property transactions will have increased from 2% to 6% with effect from midnight of 10^th October 2017.

A stamp duty refund scheme is also being introduced for commercial land acquired for the development of housing, on condition that the development must begin within 30 months of the purchase of the land.

It is expected that further details of the relief and the conditions will be outlined in the Finance Bill.

FARMING AND THE AGRI-SECTOR

Stamp duty

The Stamp duty rate of 1% remains for inter-family farm transfers for a further three years.

The Stamp Duty exemption for Young Trained Farmers on agricultural land transactions will also be retained.

Leasing land for solar panels

The leasing of agricultural land for the use of solar panels will continue to be classified as agricultural land for the purposes of the CAT Agricultural Relief and the CGT Retirement Relief providing the solar panel infrastructure does not exceed 50% of the total land holding..

BREXIT

Brexit Loan Scheme 

A new Brexit Loan Scheme has been announced. A loan scheme of up to €300 million will be available at competitive rates to SMEs to assist them with their short-term working capital needs, with particular attention given to food industry businesses.

Details of this scheme will be provided by the Tánaiste and Minister for Business, Enterprise and Innovation, and the Minister for Agriculture, Food and the Marine.

Plans were also announced to hire over 40 additional staff across the Department of Business, Enterprise and Innovation and enterprise agencies in 2018 to respond to the issues arising from Brexit.

Increased funding

The Minister announced increased funding of €64 million to support the agri-sector. Of this, a further €25 million is to be provided to the Minister for Agriculture, Food and the Marine to develop further Brexit loan schemes for the agri-food sector in addition to the loan scheme discussed above.

OTHER CHANGES

Sugar Tax

 From 1^st April 2018 two rates of tax on sugar-sweetened drinks will be introduced subject to State Aid approval.

The first will apply at a rate of 30 cent per litre where the sugar content is above 8g per 100ml.

The second rate of 20 cent per litre will apply where the sugar content is between 5g and 8g per 100ml.

Drinks with less than five grams of sugar won’t attract a sugar tax.

Vacant site levy

The vacant site levy has been increased from the current 3% levy in the first year to 7% in second and subsequent years to encourage land owners to develop vacant sites rather than “hoarding” land.

The vacant site levy is due to come into effect in 2018.

An owner of a property on a vacant site register who does not develop their land in 2018 will be liable to the 3% levy in 2019 and a further 7% levy in 2020 and each year thereafter until the land is developed.

From 1^st January 2017, each local authority is obliged to maintain a register of vacant sites to include on the register, details of any site, which they believe, has been vacant for the previous twelve month period.

What is Rental Income?

According to the Revenue’s website, Rental income includes:

• “the renting out of a house, flat, apartment, office or farmland.
• payments you receive for allowing advertising signs or communication transmitters to be put up on your property
• payments you receive for allowing a right of way through your property
• payments you receive for allowing sporting rights such as fishing or shooting rights on your property
• payments you receive from your tenant to cover the cost of work to your rental property. Your tenant must not be required to pay for this work per the lease
• certain lease premiums, as well as deemed and reverse premiums
• Conacre lettings
• service charges for services connected to the occupation of the property
• payments from insurance policies that cover against the non-payment of rent.”

What about Local Property Tax?

According to Revenue, LPT is not a deductible expense against rental income under Section 97 TCA 1997.

According to the Thornhill Group, for Income Tax and Corporation Tax purposes, Local Property Tax should be deductible in a similar manner to commercial rates.  Despite the fact that the Government has accepted this recommendation in principle no further details of when and how this deduction will take effect have been made available.

What is liable to Tax? 

The net profit arising from a rental property is taxed at an individual’s marginal rate of tax being Income Tax plus PRSI plus Universal Social Charge.

In other words, tax is charged on the gross rents receivable less a deduction for all allowable expenses.

It is important to remember that a profit or loss computation must be carried out for each source of rental income.

The rental income on which tax is levied equals the total rental profits less the total losses from all rental sources combined.

Deductions in arriving at net profit include:

• Rates,
• Management Fees,
• Repairs & Maintenance
• Ground Rents
• Certain Mortgage Protection Policy Premiums
• Insurance,
• Legal, Accountancy and Advertising Fees,
• The cost of services provided that weren’t repaid by the tenant including electricity, water charges, refuse charges, etc.
• Wear & Tear on Furniture and Fittings, etc.

A deduction is also available for interest on monies borrowed for the purchase, or repair of the rental property.

For rented residential property, the allowable mortgage interest relief is restricted to 75% for the 2016 year of assessment and is dependent on the landlord registering the tenancy with the Residential Tenancy Board.

For the 2017 tax year, the mortgage interest deduction has increased from 75% to 80%.

The deductible amount will be increased by 5% every year from then on so that by 2021 100% of the mortgage interest will be deductable against the rental income received from qualifying residential lettings.  In other words, the allowable rate will be 85% in 2018, 90% in 2019, 95% in 2020 and 100% in 2021.

The landlord may be able to claim 100% mortgage interest relief. To qualify he/she must:

a)       rent out the residential property for three years to tenants receiving certain social housing supports and

b)       be registered with the Private Residential Tenancies Board (RTB)

In situations where the rented residential property was purchased from the taxpayer’s spouse or civil partner, the interest will not be allowed as a deduction in computing the rental profits. This measure is aimed at preventing married couples and civil partners from generating interest by selling properties to each other and borrowing the necessary funds to do so.

How are Irish Rental Losses Treated?

In situations where a rental loss arises, it can be offset against the rental profit from another property.  If there are insufficient profits for offset then it can be carried forward against future rental profits only.

The order of offset is very important.  The landlord must use Capital Allowances first before offsetting the rental losses carried forward from an earlier year and it is not possible to carry rental losses back to a preceding tax year.

It is not possible to offset rental losses made by one spouse or civil partner against the rental profits of the other.

Losses arising from uneconomic rentals cannot be offset against other rental profits. Uneconomic rentals are defined as those where the expenses will always exceed the income of a particular rental source.

It is not possible to offset rental losses against income generated from other sources including salary, trade income, dividends, deposit interest, etc.

Please keep in mind that foreign rental losses can only be written off against foreign rental income.

What about Pre-Letting Expenses?

The general rule in tax legislation is that any expense incurred prior to the first letting of a rental property is not allowable. The reason being, that such expenses are not deemed to be expenses that relate to a particular lease.  Therefore expenses incurred on buying furniture, painting and decorating the property, etc. before the first letting by its current owner and before the first occupancy by the tenant will not be allowable deductions.

There are, however, two exceptions based on the decision in Stephen Court Limited v Brown (HC 198/2 No 293 S.S.):

a)       Advertising or marketing costs connected with the first rental of the property and

b)       The legal costs incurred in drawing up the first tenancy lease for the rental property.

What is Rent-a-Room Relief?

If an individual rents a room or rooms in his/her sole or main residence and the gross income received does not exceed €12,000 for the 2016 year of assessment or €14,000 for 2017 onwards then no Income Tax, Universal Social Charge or Pay Related Social Insurance will be payable by that individual. In other words, if the rental income does not exceed the annual exemption limit in the year of assessment then the profit or loss arising on the rent will be deemed to be NIL.

Included in the annual exemption limits are payments from the renter/tenant for food, laundry or similar goods and services.

Where the income exceeds €12,000 in 2016 or €14,000 in 2017, the entire amount is taxable.

In situations where more than one individual is entitled to the rent, the annual exemption limit is divided between all the individuals concerned.

It is important to keep in mind that this relief is only available to individuals. In other words it does not apply to companies or partnerships which rent out residential properties.

This relief is available for both individuals who rent as well as individuals who own their own home.

Claiming Rent-a-Room Relief will not affect an individual’s entitlement to mortgage interest relief or Principal Private Residence Relief on the disposal of his/her sole or main residence.

Income from Rent-a-Room must be included in an individual’s annual Tax Return under “Exempt Income.”

The Rent-a-Room Relief will not apply where a child pays rent to a parent.

The Rent-a-Room Exemption is not compulsory.  An individual may elect to have any rental profits or losses from this source assessed under the normal Case V Schedule D rules for rental income.

Filing a Tax Return

All individuals in receipt of rental income must declare this information in his/her annual tax return on or before 31^st October in the year following the year of assessment.

If the rental profit is less than €5,000 it can be declared through the Form 12.

If, on the other hand, the net rental income is over €5,000 the individual will be obliged to register for Income Tax and declare his/her rental income in a Form 11 under the self assessment rules.

Where the landlord is non-resident and in the absence of an Irish resident Agent, the tenant(s) should deduct tax from the rent at the standard rate and pay this tax over to Revenue.  The landlord will be entitled to a credit for the tax deducted by the tenant(s) and must file a Form R185 along with either a Form 11 or Form 12 depending on the amount of rental profit generated.

If, however, the landlord has engaged the services of a Tax Collection Agent in Ireland, this Irish resident individual will be responsible for filing the relevant tax return and submitting the appropriate tax payment on the landlord’s behalf.

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