Budget 2021 – a response to challenging times
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INTRODUCTION
Before the Minister for Finance, Paschal Donohue, and the Minister for Public Expenditure and Reform, Michael McGrath, had risen from their seats to deliver the joint Budget 2021, the media had already extensively reported on many of the measures included. Notwithstanding, for those of us who remember the budget of 10 years ago, the contrast between an austerity budget involving €6 billion being taken out of the economy and Budget 2021 – seeking to mitigate the Covid-19 shock and a no-deal Brexit - injecting €17.75 billion into the economy was still breath-taking.
Whilst the taxation measures only comprise of €270 million of the total package, we wish to focus on some of these measures and highlight some points and issues that arise.
In this Bulletin, we are therefore focusing on some taxation measures which may have an important impact on key sectors of our economy.
PROPERTY AND LAND DEVELOPMENT SECTOR
- Residential Property – stamp duty refund scheme on land purchases
The first change to note in Budget 2021 is that the refund scheme that allows persons, who buy land that is developed for housing purposes, to reduce the stamp duty rate on land purchases from 7.5% to an effective rate of 2%.
The refund scheme required, among other things, that the land commenced to be developed for housing by 31 December 2021 and also that the development of the housing be completed within 24 months of commencement. Budget 2021 has extended these deadlines by firstly extending the commencement date to 31 December 2022 and secondly allowing 30 months for the completion of the development.
Budget 2021 releases documentation containing a review of this refund scheme and highlights a number of other amendments to the refund scheme requested by sectoral interests. These include increasing the period of time during which land could be held prior to commencement of development and also relaxation of the requirement that 75% of the land be occupied by housing. All such requests were declined and rationale provided. The text can be viewed in the link below.
The review also highlights that the refund scheme has given rise to 1,984 claims for refunds to date with the cost being €17.2 million.
- Consanguinity Relief on Farm Land
The normal rate of stamp duty for the purchase of land, which is not residential property, is 7.5%. To offer a measure of relief for transfers of farmland within families, amended consanguinity relief was introduced in 2017 to offer a 1% rate of stamp duty for such transfers within families. Additional conditions must be met to obtain the relief including that the individual transferee must farm the land or alternatively put the land to farm use.
The relief was due to expire on 31 December 2020. Budget 2021 has indicated an extension of the relief to 31 December 2023.
Interestingly, a review of the relief also recommended the review of reimposing an age limit on the application of the relief to encourage early transfers of farmland – an age limit of 67 applied to the end of 2017 – and suggested this as something to consider for Finance Bill 2021. This would indicate that older farmers looking at such transfers might consider them sooner rather than later. A link to the review document is contained below.
TECHNOLOGY MEDIA AND TELECOMS / LIFE SCIENCES
- International Tax Strategy
Minister Donohue again confirmed that the 12.5% rate “remains the cornerstone” of Ireland’s corporate tax strategy. However, the Minister confirmed our commitment to international tax reform by confirming the continuation of the transposing of the EU Anti-Tax Avoidance Directive, or “ATAD” into 2021 with the introduction of interest limitation and anti-reverse-hybrid rules. He also confirmed a technical amendment this year to our ATAD-compliant Exit Tax rules to clarify the operation of interest on instalment payments with effect from tonight.
With the exception of the operation of interest on instalment payments, all of the above changes have been well flagged previously and have been the subject of extensive industry submissions to the Department of Finance and between taxpayer representative bodies and Revenue.
- Knowledge Development Box
A key part of the International Tax Strategy is the ‘Knowledge Development Box’ (KDB). This new regime, which was introduced some years ago, attracts a reduced tax rate of 6.25% on qualifying income. This regime was due to expire at the end of 2020 but is now to be extended to 31 December 2022.
- Digital Gaming Sector
Budget 2021 has announced that work will take place in 2021 on the development of a tax credit for the digital gaming sector, with a view to supporting qualifying activities from January 2022 onwards. This may be an attempt to follow the UK’s video games development tax relief which provides relief to games production companies in respect of the development of British video games.
Given the increasing importance of the sector in Ireland, this announcement is welcome.
A link to the UK relief is attached below.
https://www.gov.uk/hmrc-internal-manuals/video-games-development-company-manual/vgdc40000
HOSPITALITY AND LEISURE SECTOR
- VAT Rate for Hospitality and Tourism Activities
What will be welcomed by the hospitality sector is a reintroduction of the lower rate of 9% for the hospitality and tourism sectors. This is to apply from 1 November 2020 to December 2021. This is a measure that had been sought for some time by the sector which has been crippled by the Covid-19 restrictions.
When the incentive rate of 9% was last introduced, it also applied to newspapers and the personal services sector. It is not clear if this will be the case this time around.
- Covid Restrictions Support Scheme (CRSS)
What will also be a welcome addition to the sector – on top of the VAT rate reduction and the employee wage supports – will be the CRSS. This scheme is directed at businesses whose trade has been significantly impacted or temporarily closed under the Government’s ‘Living with Covid’ Plan. The CRSS is to operate when Level 3 or above measures are in place and is to operate from Budget Day to 31 March 2021. The hospitality, arts, recreation and entertainment sectors will potentially benefit from the CRSS. The payment due under the CRSS, to be administered by Revenue, will be based on turnover for 2019 and businesses will be required to show their turnover has dropped to not more than 20% of the corresponding level in 2019.
Payments under the CRSS will be calculated on the basis of 10% of the first €1 million of turnover and 5% thereafter based on the average VAT exclusive turnover for 2019 with a maximum weekly payment of €5,000.
It is not clear from the papers as to whether the payments will be limited where a company has a number of premises or where a group of companies has a number of premises.
SMES / ENTREPRENEURS
- Entrepreneur Relief
A revised CGT Entrepreneur’s relief which applies a lower CGT rate of 20% on the proceeds from the sale of a business (subject to a €1 million limit on such gains) was introduced in 2017. Whilst the limit in Ireland compared unfavourably with the UK limit of £10 million for many years, that ended this year with the UK limit dropping its limit to £1 million. That probably ended the demands for increasing the limit in this jurisdiction at least for the moment and the recent Tax Strategy Group papers floated the prospect of the relief being abolished in favour of a lower general CGT rate.
Neither suggestion has come to pass and the only amendment to the relief flagged is to allow for the requirement that 5% of the shares are held for 3 continuous years to occur at any time prior to sale. This is a sensible measure and should allow for individuals to claim relief in start-up enterprises even where subsequent fund-raising reduces the shareholding to below the threshold.
- Warehousing of Tax Debts
Minister Donohue has also announced that repayments due by businesses under the Temporary Wage Subsidy Scheme (TWSS) and also preliminary tax payments by self-employed individuals can be ‘warehoused’ with no interest arising for 12 months and 3% arising thereafter as it falls to be repaid.