There will be huge disappointment in the property sector that Stamp Duty has been increased to 7.5%. This has the effect of making Ireland a very expensive place to acquire property and is likely to slow down the interest of foreign buyers who could see our regime treating property as an easy target. It is hard to see how the expected €141m increase in yield will actually materialise as transactions will surely fall off as a result of this.
Irish business owners will be disappointed that the Minister didn’t see fit to increase CGT relief for entrepreneurs. Ireland’s entrepreneurs continue to be at a competitive disadvantage in this regard, for example, the current ceiling in Ireland of €1m compares with the UK ceiling of €10m. We need to do more to recognise the connection between risk and reward to realise the potential of domestically owned businesses.
Budget 2020 announced a number of positive changes to the R&D tax credit regime that will help address challenges faced by innovators in accessing Government supports. The rate increase from 25%-30% and improvements in cash back mechanisms for small and micro companies should make the credit work better for Ireland’s emerging innovators, as will the confirmation made by the Minister that such companies will be able to claim the R&D tax credit on pre-trading expenditure.
I welcome the budget’s focus on decarbonisation as a positive step in the right direction but we can’t underestimate the urgency required. We also recognise that responsibility should be fairly shared and the most vulnerable in our society protected. Therefore, in addition to carbon taxes, there are other legislative changes that Government should consider to enable this country to move to zero net carbon by 2050. Many of the potential solutions can provide positive socio economic benefits for society such as accelerating our offshore wind ambition.
This year's ‘No Deal Brexit budget’ provides for a response package of €1.2 billion. The cost to Irish business of the UK leaving the EU without a deal is impossible to quantify. In this environment our strong advice for businesses is to continue to address the ongoing uncertainty by preparing as much as possible for a No Deal outcome.
The majority of PAYE workers will not be any better off as a result of today’s budget as unlike previous budgets the tax and USC rates remain unchanged. The main winners are self-employed workers who will see the earned income tax credit increase by €150. The increase in this credit has reduced the gap between self-employed and PAYE workers in relation to the tax-credit differential. The annual trend to increase the Home Carer’s Credit has continued. Stay at home parents will be €100 better off compared to 2019 with a rise in the home career tax credit from €1,500 to €1,600.
The Special Assignee Relief Programme (SARP) currently applies to qualifying employees who come to Ireland between 2015 and 2020. Extending the relief to new arrivals in 2020 and 2021 is welcome. However, despite a public consultation on SARP, it is disappointing that no other changes, such as permitting external new hires to qualify for SARP, have been introduced. Making SARP more accessible would support Ireland as an attractive employment location for mobile talent.
While not explicitly mentioned today, Employer PRSI for Class A and Class H employees will continue to increase by 0.1% next year. With Class A Employer PRSI to be charged at 11.05%, reward strategies which deliver remuneration in the form of shares in the employer or parent company continues to offer real savings in Employer PRSI. A variety of equity arrangements can be considered which also deliver savings for the employee once certain conditions are met such as APSS, Clog Schemes and KEEP options arrangements.
KEEP provisions allow an employee to avoid paying income tax, USC and Employee PRSI (generally 52%) at time of purchase of qualifying company shares and instead pay capital gains tax (33%) only when those shares are sold. A number of conditions need to be met by the company and the employee in order to qualify for KEEP. Proposals to extend the relief to employees who do not work full time in the business and also to those whose employments have transferred between group companies during the relevant period is welcome but will require State Aid approval before becoming effective.
This Budget is about supporting and retaining business investment in Ireland. Key tax changes were focused on climate related measures regarding carbon tax, investment in decarbonising the economy, anti-avoidance measures for property funds and increasing stamp duty by 1.5% on commercial property transactions. On the international tax front, the Minister’s unwavering commitment to Ireland’s 12.5% corporation tax rate is welcome. Ireland has also committed to adopting various OECD and EU measures - the introduction of a mandatory disclosure regime, adoption of anti-hybrid rules and adoption of the 2017 OECD transfer pricing guidelines into Irish tax legislation. One thing that is clear from this Budget - the real issue for both domestic and international businesses continues to be the prolonged uncertainty around Brexit. From a KPMG perspective our advice to clients is to plan for all possible outcomes.