Summary of Finance Act 2013 Changes
The Finance Act 2013 has now come into effect, with the enactment of various changes. See our highlighted commentaries below.
Deposit Interest Retention Tax (DIRT), effective from 1 January 2013:
- Annual DIRT charges have increased from 30% to 33%.
DIRT charges which are paid more frequently than annually have increased from 33% to 36%.
Universal Social Charge (USC), effective from 1 January 2013:
- Those who are aged 70 years and over and those who are entitled to a medical card, with an income of at least €60,000, will be liable to the full rates of USC at 7% (€60,000 - €100,000) or at 10% (>€100,000).
- Amounts paid as a result of early or pre-retirement access to Additional Voluntary Contributions (AVCs) are not liable to USC.
USC is payable on a balancing charge that arises in respect of a capital allowance that was deducted while calculating a liability to USC.
- The Act has introduced simplified procedures for claiming tax relief on charitable donations. Donors can now complete an “enduring certificate” which will last for up to 5 years and provide it to the relevant charity. This means that the charitable body will no longer require an annual document from the donor for claim purposes.
- The donations that a donor can claim relief on are limited to €1,000,000.
A single rate of relief of 31% applies.
Personal Insolvency Act:
- If an insolvent person transfers assets to a personal insolvency practitioner this will not be treated as a disposal of assets for capital gains tax purposes.
- All tax liabilities due during the arrangement of debts must be paid to other creditors.
All maternity benefits will be subject to tax effective from 1 July 2013.
- The Act gives individuals the option of an early or pre-retirement access, of up to 30% of their total AVC funds.
- Tax will be deducted at the marginal income tax rate of 41% unless the individual has unused 20% standard rate tax band, in which case the individual will pay tax at less than 41%.
As mentioned previously, these amounts will not be liable to USC.
Companies are entitled to corporation tax relief in the first three years of their existence. This has been amended to allow companies to carry forward any unused credits after the three year period if they haven’t used up the reliefs they were entitled to, based on the profits they earned.
- To qualify for R&D tax credit a “key employee” now only has to spend 50% of their time, reduced from 75%, working on R&D.
The amount of expenditure on which a R&D tax credit can be claimed for, on a full volume basis, has been increased from €100,000 to €200,000.
Foreign Earnings Deduction (FED):
The original legislation which was introduced in 2012 has been amended to cover named African countries including Algeria, the Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal and Tanzania. The amendment is aimed at encouraging employees to travel and work abroad
Close Company Surcharge:
- The amount of investment and rental income that a company can earn before they are liable to a close company surcharge has been increased from €635 to €2,000.
Double taxation relief for foreign dividends, effective from 1 January 2013:
There has been an increase in the double taxation relief on certain dividends from EU and EEA sources. The credit for foreign tax can now be calculated by using the nominal rate of tax in the source country which in turn gives a larger double tax credit.
In determining whether a company is a member of a “group” for the purposes of surrendering tax loses, any share capital of a company which is not resident in a country within the EU, the EEA, nor a country with which Ireland has a Double Taxation Agreement, will be excluded.
Capital Gains Tax (CGT):
It was confirmed in the Act that CGT would be increased from 30% to 33% in relation to disposals made on or after 6 December 2012.
Capital Acquisitions Tax (CAT):
CAT has increased from 30% to 33% and the tax free thresholds have reduced as follows:
- Group A - €250,000 to €225,000
- Group B - €33,500 to €30,150
- Group C - €16,750 to €15,075
Relief is available from capital gains tax for individuals aged 66 and over who retire from their business or their farm and pass their business/farm on to their children. The relief will only apply where the consideration is less than €3m, effective from 1 January 2014.
Living City Relief:
- Introduced in the Act is a new incentive to encourage the refurbishment of Georgian buildings (1714-1830). The incentive will be initially piloted in Limerick and Waterford.
Owner occupiers of a residential property and owner occupiers or landlords of commercial properties will be entitled to relief on refurbishment and conversion expenditure under certain conditions.
Stamp Duty – Resting on Contract:
- New “resting in contract” provisions have been introduced to replace existing provisions; however these new measures don’t apply to situations where there is a binding written contract in place before 13 February.
- If payment, or payments, which amount to 25%, or more, of the consideration for the sale have been paid to the holder of the estate or interest, then the contract or agreement shall be chargeable with stamp duty to be paid by the other person.
- In licence agreements, payments which are 25% or more of the value of the land subject to the licence will be liable for stamp duty on sale of that land.
Lease agreements which are for a period of greater than 35 years and where 25% of the lease has been paid will be liable to stamp duty.
Trading Land – Debt Release, effective from 13 February 2013:
- When debt has been incurred and released or written off in the trading of land it will be taxed under income tax or corporation tax.
A debt is considered forgiven if in the original loan agreement it stated that the debt would be non-collectible under certain circumstances.
Trading Land – Losses, effective from 13 February 2013:
- The new restrictions introduced in the Act apply to those where, for the tax year concerned and for the two years previously, less than 50% of their income comes from developing or dealing in land.
Losses that result from interest accrued on loans or a write down in the value of trading stock, cannot be set against any other income of the loss bearer in the same tax year. They can only be used against taxable income of that trade or carried forward to the following tax year.
Local Property Tax (LPT):
- The Finance Act made a number of amendments to the LPT as follows:
- The vendor of a property is now required to disclose to the purchaser the value of the property that was declared to the Revenue.
- There are exemptions from LPT available to certain properties owned by charitable bodies, properties that have pyrite damage and properties that were purchased or amended for sole use of an incapacitated individual.
Disabled Persons can also claim relief on LPT if their property has been adapted for their use.
Cash Receipts Threshold:
For value-added tax (VAT) the threshold has increased from €1,000,000 to €1,250,000 for the use of the cash receipts basis of accounting.
Real Estate Investment Trusts (REITS):
- Ireland is introducing a tax regime for Real Estate Investment Trust (REIT) companies. It’s hoped that the introduction of REITs will attract foreign investment into the Irish real estate market.
- A REIT must be company which was incorporated under the Irish Companies Act, have shares listed on a recognised stock exchange, be resident in the state and not resident anywhere else, and must not be a close company.
- A REIT will not be liable to pay taxes within the company as long as they meet the following conditions within the three year period commencing on the date on which the company or group becomes a REIT/group REIT:
- At least 75% of the company’s total income must come from property rental.
- It must maintain the property financing costs ratio at 1.25:1.
- The REIT must distribute at least 85% of its property income in the form of dividends to shareholders for each accounting period.
- Taxation of shareholders:
- Irish resident individual shareholders will pay income tax on the dividends they receive under Schedule F.
- Irish resident corporate shareholders will be liable to corporation tax under Case IV, Schedule D.
- The property rental business must consist of at least three properties, none of which can be more than 40% of the total market value of the properties.