Budget 2023 – Supporting Individuals, Families and Business

Introduction

The UK chancellor Kwasi Kwarteng’s mini-budget sending the pound to a historical low (for a while at least) and increasing the cost of borrowing for the UK government by 100 basis points was certainly at the forefront of thinking when the Budget was being set over the last few days. It clearly showed the dangers of procyclical measures that are unfunded.

Over here, on the back of a bumper year for Corporation Tax receipts at least for now, Budget 2023 sought to provide a buffer against the rising cost of living over the encroaching winter months to match many of the promises of the opposition parties but in a way that would not spook the financial markets through having the veneer of financial prudence. A delicate balance indeed when one is looking at a Budget package of over €11 billion being given out in recurring and once-off measures!

In this Bulletin, we highlight some of the substantive taxation measures, amounting to just over €1.1bn, introduced by Budget 2023.

Income tax

• The most significant income tax change announced today is the increase in the 20% income tax band. This will increase of the band by €3,200 with effect from 1 January 2023, from €36,800 to €40,000 for single individuals and from €45,800 to €49,000 for married couples and civil partners.

• While no third rate of income tax is to be introduced as part of Budget 2023, the Department of Finance together with Revenue Commissioners are examining the feasibility of introducing such a band over the coming months. Their findings will be available by the publication of the Summer Economic Statement in 2023, though its ultimate implementation will be subject to government policy decisions next year.[1]

• Several of the individual income tax credits will be increased by €75 with effect from 1 January 2023, including the Personal Tax Credit, Employee Tax Credit and Earned Income Tax Credit. The Home Carer Tax Credit will be increased by €100.

• The 2% USC rate band ceiling will be increased to €22,920 to match the increase to the minimum wage while the reduced USC rate of 3% for individuals who earn less than €60,000 per year and hold a medical card will continue for another year.

• The tax-exempt limit on small benefit awards for employees is to be increased from €500 to €1,000 with effect from midnight tonight. Two qualifying vouchers may be granted in any tax year.

Business Measures – Energy Supports

• For SMEs, the Temporary Business Energy Support Scheme has been introduced to mitigate higher energy costs. Under this scheme, a business may qualify for relief where it is trading and has experienced a significant increase in its energy costs. The scheme operates by comparing energy unit prices in a reference period in 2021 to that same period in 2022 and 2023. Where there is an increase of over 50% in energy costs for the reference period, the business will be eligible for relief of 40% of the increase experienced. Business will need to register to participate in the scheme, which will be subject to both a monthly cap of €10,000 and an overall cap on participating businesses.

• Notwithstanding the introduction of new carbon taxes in October 2022, as intended, diesel and petrol prices at the pumps will remain unchanged.

Business Measures – Material Taxation Changes

• Knowledge Development Box: The Knowledge Development Box is to be extended for 4 more years, though the existing rate of 6.25% will be increased to 10% in light of the terms of the OECD Pillar Two agreement. The effective date for the changes will be subject to a ministerial commencement order;
• R&D Tax Credit: The R&D Tax Credit will be amended by Finance Bill 2022. These changes appear to be mainly to the payment provisions (as opposed to the quantum of the credit which is claimable) to tie in with international developments. In certain cases, the changes may accelerate the benefit of the claims made;
• KEEP: The Key Employee Engagement Programme is extended until the end of 2025. Importantly, amendments are being introduced to allow for employer companies to buy back shares from participants in the scheme. This is a significant and positive change that will improve the attractiveness of these arrangements among private companies through the provision of liquidity. Additionally, the provisions expanding the scheme which were introduced by Finance Act 2019 now seem set to be finally introduced in Finance Bill 2022;
• SARP: The Special Assignee Relief Programme is set to be extended to 31 December 2025. The minimum income limit for new entrants will now be set at €100,000 (an increase from the existing €75,000). The extension of this relief, which is critically important to encourage high value executives to locate to Ireland, is most welcome in the continuing competition to bring foreign direct investment into Ireland;
• Film Relief will be extended to 31 December 2028, in order to support additional investment into this sector.

Housing Measures

• A new Vacant Home Tax will be introduced in 2023. The tax will apply to residential properties which are occupied for less than 30 days per year, with a rate equal to three times the property’s existing base LPT liability. The tax will operate on a self-assessed basis. The exemptions and the fact it is unlikely to apply to holiday homes mean the levy will have limited impact. Indeed, the Department of Finance has estimated €3 million in receipts.

• A rent credit of €500 per annum is to be introduced for renters in the private rented sector for 2022 and 2023. In order to be eligible for the credit, the renter must not be in receipt of any other State housing support. Conspicuous in its absence is any real measure to encourage landlords to remain in the sector, though the cap on eligible expenditure for landlord pre-letting expenses is to be doubled to €10,000. It should be noted that the vacancy period in respect of such claims is also to be halved, from 12 months to 6 months.

• An independent report on the Help-to-Buy Scheme for first-time buyers was also published today, together with several recommendations for amendments to the scheme (including removing self-builds from the scope of the scheme and increasing the minimum mortgage LTV to 80% from 70%).[2] While changes to the scheme may be introduced on foot of this report, the scheme in its current form will be extended to 31 December 2024.

• Preparations for the Residential Zoned Land Tax continue to progress, with the first draft of local area maps due to be published on 1 November 2022.

• The Residential Development Stamp Duty Refund Scheme which was due to end this year is to be extended to 31 December 2025.

• Of particular note to the building sector, a new Defective Concrete Products Levy of 10% will apply at the point of the first supply of 18 specific concrete products. The levy, which will also be applied to the pouring of concrete, is set to be introduced on 3 April 2023.[3]

Farming

• From a farming perspective, an accelerated capital allowance scheme is to be introduced for the construction of slurry treatment plants to allow 50% of the expenditure to be claimed over two years.

• In addition, five agricultural reliefs will be extended, being:
  • Young Trained Farmers’ Relief
  • Consolidation Relief
  • Farm Restructuring Relief
  • Young Trained Farmers’ stock relief
  • Registered farm partnerships’ stock relief.

Additional Points of Note

• While no windfall tax has been introduced on energy companies at this time, the position will be kept under review. Areas which have been highlighted as possible targets for future intervention include:
  • The Bank Levy, though the current form of the levy has been extended to the end of 2023;
  • PRSI, following recommendations from the Commission on Taxation;
  • REIT and IREF structures;
  • Taxation of funds;
  • Section 110 companies.

• The rate of Carbon Tax will be increased from €41 to €48.50 per tonne of CO2. This change comes into effect for auto fuels with effect from 12 October 2022 and all other fuels from 1 May 2023. The impact on the increase on auto fuels will be offset through a reduction of 2c per litre in the National Oil Reserves Agency levy.

• After all the giveaway measures, financial prudence is being shown through announcements to inject excess receipts into the National Pension Reserve Fund this year and next. Perhaps this will keep the financial markets focused across the water.

[1] The measures outlined above form part of the medium term road-map for income tax reform outlined in the report by the Commission on Taxation, available here: https://assets.gov.ie/234316/b4db38b0-1daa-4f7a-a309-fcce4811828c.pdf

[2] The report may be viewed in full here: https://assets.gov.ie/235748/3b8ca22f-969c-40ab-a278-08583d533b48.pdf

[3] Details of these products may be found at Annex C here: https://assets.gov.ie/235689/d0f4387c-47d7-459a-a9e4-c9fa190ea8f9.pdf#page=20