FINANCE BILL 2013 – UPDATE TO BUDGET 2013
On 13 February Minister for Finance, Michael Noonan T.D., published Finance Bill 2013 (“FB13”). FB13 sets out legislation enacting the provisions of last December’s 6th austerity budget (“Budget13”), including:
- Option for individuals to withdraw max 30% of pension AVC’s (taxed at marginal rate)
- Increase of Capital Gains Tax and Capital Acquisitions Tax rates to 33%
- 10% decrease in tax free thresholds for gifts/inheritance
- Increase in DIRT to 33%
- Abolition of exemption from PRSI for first €127 per week for employees
- 7% USC for individuals over 70 with income >€60k
- 31% relief on individual’s charitable donations – charity receives tax credit; annual donation cap of €1m per individual
- Threshold for qualification for VAT cash receipts basis increased to €1.25m
- Start-up companies may carry forward any unused credits from 3 year start-up business relief
- Extension of carbon tax to solid fuels; €10 per tonne from 1 May 2013; €20 per tonne from 1 May 2014
However, FB13 does more than legislate for Budget13; it also includes legislation regarding matters not previously announced by government. So what’s new in FB13?
LIVING CITY INITIATIVE
Announced in Budget13, the Living City Initiative aims to complement the efforts of public and private bodies in encouraging people and business back to city centres. FB13 confirms Limerick and Waterford as the cities participating in the pilot phase (special regeneration areas within cities to be formalised). The initiative provides tax relief in two ways:
- 10% deduction p.a., against individual’s total income, of cost of the substantial refurbishment of Georgian houses (over 10 years). After refurbishment the property must be used as individual’s main residence. If the property is sold within 10 years the relief ceases. The purchaser will not be entitled to claim any remaining relief. The cost of refurbishment will be certified by Local Authorities.
- Relief will be available to retailers on works undertaken to upgrade or refit their shops over a 7 year period; capital allowances of 15% years 1-6 and 10% year 7.
Both reliefs are subject to EU approval.
EMPLOYMENT AND INVESTMENT INCENTIVE SCHEME (“EIIS”)
FB13 extends the qualifying activities eligible under EIIS to include the operation of:
- Guest houses
- Other self-catering accommodation
Budget13 announced the extension of EIIS to 31 December 2020 (subject to EU approval).
RESTING ON CONTRACT
FB13 legislates for the charging of Stamp Duty on contracts, licences and agreements for lease where 25% or more of the consideration has been paid and the instrument’s executed on or after 13 February 2013 (except where relates to binding contract entered into before that date). This was previously proposed in Finance (No.2) Act 2008 but was never implemented.
REAL ESTATE INVESTMENT TRUSTS (“REIT”)
REIT’s are used internationally to provide an after-tax return for individual’s similar to that of a direct investment in property while also supplying the benefits of risk diversification. The introduction of REITs in Ireland was announced in Budget13. FB13 provides that a REIT must:
- Be an Irish company (new or existing) listed on EU stock exchange
- Derive at least 75% of income from its property assets
- Maintain property financing ratio of at least 1.25:1.00
- Own min. 3 properties
- Distribute at least 85% of rental income annually (“property income dividend”)
- Withhold tax at 20% on such dividends. Dividend taxed at individual’s marginal rate
If the conditions are met the REIT should be exempt from corporation tax on income and gains related to its property investments.
PERSONAL INSOLVENCY ACT 2012
Under FB13 any write off/reduction of debt under the debt settlement arrangements of the above Act will not constitute a gift/inheritance.
Unannounced previously, FB13 includes provisions which subject individuals to income tax on any debt released on or after 13 February 2013 (including under bankruptcy/insolvency proceedings), where that debt was originally incurred to purchase land held as trading stock. Carried forward losses of the same trade may be used to shelter this deemed income.
FB13 also limits the use of certain current year losses by individuals not actively engaged in a trade of dealing in or developing land. Such losses are those arising on or after 13 February 2013 from a decline in the value of land acquired as trading stock, or due to interest payable on loans used to acquire such land. The developer must economically realise such a loss for it to be available for use.
LIQUIDATORS & RECEIVERS
FB13 provides that where a liquidator/receiver has been appointed over a property they are now responsible for remitting VAT to Revenue where:
- They supply services using assets of the borrower e.g. renting property
- A clawback of VAT arises under the capital goods scheme
FINANCE (LOCAL PROPERTY TAX) (AMENDMENT) BILL 2013 (“Bill”)
The Bill was also published on 13 February 2013. It provides some welcome changes to the 2012 Act, which set out details of the Local Property Tax (“LPT”) (rates, payment, scope etc.). Under the Bill the following will now be exempt from LPT:
- Residential properties owned by charity/public body and used to provide accommodation and support for community living for elderly and disabled
- Properties affected by “Pyritic heave”
- Increase in value of property due to alterations required to accommodate a disabled person
The Bill also allows for deferred payment, as follows:
- Personal representatives: Max 3 years to facilitate administration of estates
- Persons under debt settlement/insolvency arrangements: Defer payment for duration of arrangement
- Hardship: At Revenue’s discretion. Interest of f 4% p.a. (normally c.8% p.a.)
The Bill also provides that where a property is sold LPT is payable at the time of sale. The seller must disclose the value declared to Revenue for LPT purposes and the purchaser must inform Revenue if they believe the seller has under-valued the property. Lastly, the Bill provides that properties owned by local authorities/approved housing bodies will be deemed valued at <€100k for LPT purposes for periods 2013-2016.
As FB13 and the LPT Bill have not yet been enacted they may be amended prior to being enacted (expected by 6 April 2013). Currently any such changes are expected to be minor.
A shortened version of this article appeared in the print edition of the Limerick Leader on 6 April 2013.