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Ministers Donohoe and McGrath presented Budget 2023 today as the “Cost of Living Budget”.

The Budget contains a series of tax measures and additional expenditure to help families and businesses deal with rising costs. The Budget includes one-off measures worth €4.1 billion and budgetary measures for 2023 worth €6.9 billion.

TAXATION MEASURES

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INCOME TAX

Personal Taxation

There is an increase of €3,200 in the income tax standard rate band cut-off point for all earners in 2023.  The increases are as follows:

• Single, widowed or surviving civil partner from €36,800 to €40,000;
• Single, widowed or surviving civil partners, qualifying for the Single Person Child Carer Credit from €40,800 to €44,000;
• Married couples or civil partners (one income) from €45,800 to €49,000;
• Married couples or civil partners (two incomes) from €45,800 to €49,000 (with an increase of €31,000 or the second income if lower)

The Personal Tax Credit will increase by €75 from €1,700 to €1,775.

The Employee Tax Credit will increase by €75 from €1,700 to €1,775.

The Earned Income Credit will increase by €75 from €1,700 to €1,775.

An increase of €100 in the Home Carer Tax Credit from €1,600 to €1,700.

The Sea-going Naval Personnel Tax Credit of €1,500 is extended to 31 December 2022.

Third Rate of Income Tax

The recent Tax Strategy Group (TSG) Income Tax Paper examined the impact of introducing a third rate of income tax. Minister Donohoe noted that further analysis of the TSG paper will commence immediately and be considered next year. As it would take time to introduce a third rate of income tax, the Department of Finance will engage with Revenue on the necessary preparatory work required in advance of a policy decision being made.

Universal Social Charge (USC)

The 2% band of USC increases by €1,625 to €22,920.

The reduced rate of 2% USC that currently applies to full medical card holders and those aged over 70, whose aggregate income does not exceed €60,000, will be extended for one year to the end of 2023.

Help to Buy

The HTB scheme is being extended in its current form for a further two years until 31 December 2024.

Living City Initiative (LCI)

The Living City Initiative is being extended for a further five year period to 31 December 2027. In addition, the relief available to owner-occupiers is being accelerated so that it may be claimed over seven years in place of the existing ten years. It is also proposed to allow carry-forward of any excess relief by owner-occupiers where it cannot be absorbed, up to a maximum of ten years.

Pre-letting Expenses for Landlords

This measure is being amended to increase the eligible expenditure cap from €5,000 to €10,000 per property with effect from 1 January 2023 and by reducing the period for which the property is vacant from twelve to six months.

Rent Tax Credit

A new tax credit of €500 per annum for renters in the private rented sector is being introduced for those who are not in receipt of any other State housing support. Only one credit may be claimed per person per year, however it is proposed that the value of the credit will be doubled in the case of married couples and civil partners. It is proposed that the credit may be claimed for the years 2023 to 2025 and that, in addition, it may be claimed for 2022 from early in 2023.

Vacant Homes Tax (VHT)

A new Vacant Homes Tax (VHT) will be introduced in 2023. The VHT will be self-assessed and administered by the Revenue Commissioners. The measure aims to increase the supply of homes for rent or purchase to meet demand, rather than raise revenue. The tax will apply to residential properties which are unoccupied for twelve months or more. A property will be considered vacant for the purposes of the tax if it is occupied for less than 30 days in a 12-month period.

The tax will be charged at a rate equal to three times the property’s existing base Local Property Tax liability. There will be a number of exemptions to ensure property owners are not unfairly charged for temporary vacancy arising from genuine reasons. This will include properties recently sold or currently listed for sale or rent; properties vacant due to the occupier’s illness or long-term care; and properties vacant as a result of significant refurbishment work.

This measure seeks to achieve an appropriate balance between incentivising owners of vacant homes to bring their properties back into use and not penalising home-owners for normal, temporary vacancy, with the primary objective of the tax being to change behaviour rather than raise revenue.

BUSINESS MATTERS

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Corporation Tax Rates

There is no change to the Corporation Tax Rates announced.

Small Benefit Exemption – Employee Vouchers

It is proposed to increase the limit of the “Small Benefit Exemption” to €1,000 and an increase in the number of benefits in a year that an employer can give from one to two per year (to a maximum annual total of €1,000).

Temporary Business Energy Support Scheme (TBESS)

A TBESS is being introduced to assist businesses with energy costs over the winter months. The scheme will be open to businesses carrying on a Case I trade that are tax compliant and have experienced a significant increase in their natural gas and electricity costs.

Based on the details announced, the scheme will operate by comparing the average unit price for the relevant period in 2022 with the average unit price for the corresponding period in 2021. If the increase in the average unit price exceeds 50%, the business will qualify for support under the scheme.

The quantum of support received will be calculated as 40% of the amount of the increase in the gas/electricity bill, capped at €10,000 per month per trade. An overall cap on the total amount of support a business can claim will also apply. The TBESS will be administered by Revenue and will operate on a self-assessment basis. Claimants will have to register for the scheme and submit claims within specified time limits.

It is understood that the TBESS will be backdated to September 2022 and will run until at least February 2023.

Foreign Earnings Deduction (FED)

This scheme is being extended for a further three years to 31^st December 2025. It provides relief from income tax on up to €35,000 of income for employees tax-resident in Ireland who travel out of the State to temporarily carry out duties of employment in certain qualifying countries. 

Key Employee Engagement Programme (KEEP)

KEEP is being further extended following a review until 31 December 2025. It is also being modified to provide for the buy-back of KEEP shares by the company from the relevant employee.  Also, the lifetime company limit for KEEP shares is being raised from €3 million to €6 million.

Previously the Minister announced changes for KEEP to apply to company group structures, for greater flexibility from employees to move within such groups and allow for part-time and family friendly working arrangements for KEEP employees.  Following a period of consultation with the European Commission (DG COMP), changes to KEEP rules made in Finance Act 2019 about group structures and qualifying employees are being brought into effect.

Special Assignee Relief Programme (SARP)

This Programme is being extended for a further three years until 31 December 2025. The threshold income to avail of the scheme is being increased from €75,000 to €100,000 for new entrants and existing claimants are not affected by the change.

Section 481 Film Relief

This scheme provides relief in the form of a corporation tax credit related to the cost of production of certain audiovisual productions and is intended to act as a stimulus to the creation of an indigenous film industry in the State.

Following a review of the relief it will be extended from its current end date of 31 December 2024 to 31 December 2028.

Research and Development Tax (R&D) Credit

The R&D tax credit provides a 25% tax credit for all qualifying R&D expenditure. A number of changes to the operation of the R&D tax credit were announced in Budget 2023. The changes are all adjustments to the timing of payment of the credit, no changes are being made to the quantum of credit that a company may earn.

The current system of offset against corporation tax liabilities and payment in three payable instalments is being changed to a new fixed three-year payment system. A company will have an option to call for payment of their eligible R&D tax credit or to request for it to be offset against other tax liabilities. The existing caps (based on Corporation Tax and payroll taxes paid) on the payable element of the credit are being removed. Also, the first €25,000 of a claim will now be payable in the first year, to provide a cash-flow benefit for smaller R&D projects which should encourage more companies to engage with the regime.

Knowledge Development Box (KDB)

The Knowledge Development Box (KDB) is an intellectual property (IP) regime which provides for an effective 6.25% rate of corporation tax on certain income from qualifying IP assets. It is currently available for accounting periods commencing before 1 January 2023 and will be extended to allow the relief to be available for accounting periods commencing before 1 January 2027.

The KDB will be impacted by changes in the international tax environment, specifically the Subject to Tax Rule (STTR), which is part of the OECD Pillar Two agreement. In order to prepare for implementation of the agreement, legislation for an increase in the effective rate of the KDB to 10% is being introduced, to be brought into effect by Ministerial commencement order once agreement is reached at the OECD/G20 Inclusive Framework on STTR implementation.

Agricultural Reliefs

A three-year scheme of accelerated capital allowances for farmers for the construction of slurry storage facilities is being introduced. Under the scheme, the capital cost of the facilities may be written off over two years rather than seven years.

The extension of the following four measures are contingent on the update of the Agricultural Block Exemption Regulation (ABER)

• Stock Reliefs

Two special stock relief measures, for registered farm partnerships and for young trained farmers are being extended until end-2024.

• Extension of the Young Trained Farmer (stamp duty) Relief

This relief, which applies a full exemption from stamp duty to young trained farmers when they acquire (by gift or purchase) farmland, and associated buildings, including farmhouses, and which is due to expire at the end of this year, is planned to be extended so that it expires on 31 December 2025.

• Extension of the Farm Consolidation (stamp duty) Relief

This relief, which provides that a 1% rate of stamp duty (as opposed to the general rate on non-residential property of 7.5%) can apply to instruments giving effect to acquisitions and disposals of agricultural land where the land transactions involved qualify for a ‘Farm Restructuring Certificate’ from Teagasc, is due to expire at the end of this year. It is planned this be extended so that it expires on 31 December 2025.

• Farm restructuring (Capital Gains Tax) relief

It is intended the CGT Farm restructuring relief, which provides relief from CGT for land transactions qualifying for a ‘Farm Restructuring Certificate’ from Teagasc, and is currently due to expire at end 2022, will be extended to end December 2025.

CAPITAL TAXES

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Capital Gains Tax (CGT)/Capital Acquisitions Tax (CAT)

The current rates of 33% remain unchanged.

CAT lifetime tax-free thresholds

There were no changes in any of the tax-free thresholds announced.

Revised Capital Gains Tax Entrepreneur Relief

No changes were announced.

Stamp Duty

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Stamp Duty Rates

There is no change in the rate of Stamp Duty applicable to residential or non-residential property.

Zoned Land Tax

Budget 2022 announced a new residential Zoned Land Tax to encourage the use of land for building homes.  The Minister announced that the primary objective is to increase the supply of residential accommodation rather than to raise revenue.

By 1^st November 2022 the Local Authorities will publish the first draft maps to identify zoned land. The tax will be based on the market value of the land and will be applied at a 3% rate from the outset.  Landowners will have an opportunity to apply to their Land Authority to have the zoning status of their land amended.  Once the tax is introduced it will replace the vacant site levy.

Extension of Residential Development Stamp Duty Refund Scheme

The date at which projects wishing to avail of this scheme must commence construction is being extended from 31 December 2022 to 31 December 2025.  This is a refund scheme whereby portion of the stamp duty paid on the acquisition of non-residential land is refunded where that land is subsequently developed for residential purposes. The net minimum stamp duty payable after a refund is 2% (the normal rate for non-residential property is 7.5%).

Extension of the Bank Levy

This levy, due to expire at the end of 2022, is being extended to the end of 2023.

INDIRECT TAXES

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VAT

In his Budget the Minister announced that the 9% VAT rate for the hospitality and tourism sector will remain in place to 28 February 2023.

The Farmers’ flat-rate will decrease from 5.5% to 5.0%.  This rate compensates un-registered farmers on an overall basis for VAT incurred on their farming inputs.

The VAT rate on newspapers and news periodicals will be reduced to zero from 9%. This measure will apply to digital editions of these publications. This change will be introduced from  January 2023.

The zero VAT rate will now apply to Automatic External Defibrillators, a small number of period products, non-oral Hormone Replacement Therapy medicine and non-oral Nicotine Replacement Therapy medicine.  These rate changes will be introduced from 1 January 2023.

The 9% VAT rate was previously introduced for gas and electricity on 1 May 2022 and was due to expire on 31 October 2022. This rate has now been extended to 28 February 2023 which will provide for a lower VAT rate from November to February.

EXCISE DUTIES

Tobacco Products Tax                                                                       

The excise duty on a packet of 20 cigarettes is being increased by 50 cents (including VAT) with a pro-rata increase on the other tobacco products.

There was no change to excise duty on alcohol products announced.

Mineral Oil Tax Excise Reduction Extension

Excise rate reductions in the order of 5, 16 and 21 cents per litre VAT inclusive currently apply to Marked Gas Oil, diesel and petrol respectively. These rate reductions are due to expire on 12 October 2022. This measure provides for their extension until 28 February 2023.

Special Exemption Order licence fee reduction

The excise fees for an application for a special exemption order are being reduced by 50% in support of the night time economy. The excise fee of €110 per application is reduced to €55.

Small Cider Producer Excise Relief Scheme

An alcohol excise relief scheme is being provided for small producers of cider and perry. A 50% excise relief will be available on up to 8,000 hectolitres of cider produced by microproducers with an annual production threshold of up to 10,000 hectolitres.

Microbrewery relief production threshold

The qualifying production threshold for microbreweries is being increased to allow the industry more scope to expand. The current production ceiling of 50,000 hectolitres will increase to 75,000 hectolitres.

CLIMATE CHANGE TAXES

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Carbon Tax

The Carbon Tax rate will increase from the current rate of €41 to €48.50 per tonne of CO2. This will apply to auto fuels with effect from 12 October 2022 and all other fuels from 1 May 2023.

The impact of the carbon tax increase on auto-fuels will be offset with a reduction in the National Oil Reserves Agency (NORA) levy from 2 cent per litre to 0 cent per litre which will be provided for by the Minister for the Environment, Climate and Communications.

OTHER TAXATION MEASURES

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New Defective Concrete Products Levy

Following from a Government decision November 2021 that a levy intended to contribute towards meeting the substantial cost of the Mica Redress Scheme should be imposed on the construction sector, a new levy applying at the rate of 10% at the point of first supply in the State, will be applied to certain concrete products which fall within one of 18 harmonised EU Standards, which have been identified as meeting certain criteria.

Revenue Compliance

Revenue will conduct a range of targeted projects which will include PAYE compliance interventions involving a further focus on share schemes, and increased debt management activity. It is expected that these projects will yield additional Exchequer receipts arising from increased taxpayer compliance

Warehousing of tax liabilities

In September 2022, Revenue issued a Level 1 Compliance Intervention notification offering taxpayers an opportunity to self-review returns eligible for debt warehousing and, if additional undisclosed relevant liabilities arise, these can benefit from the provisions of the Debt Warehousing Scheme (DWS).  By making an Unprompted Qualifying Disclosure in relation to previously undisclosed Period 1 liabilities on or before 31 January 2023, the taxpayer has an opportunity to have those additional liabilities warehoused under the terms of the DWS.

Windfall Energy Tax

Minister Donohoe noted that Ireland aims to be part of the EU-wide response to high energy prices and capturing the windfall gains of energy companies. If this is not possible at EU level, “this Government will bring forward our own measures.”

EXPENDITURE WELFARE AND BENEFITS

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Once-off payments

• Electricity Credit of €600 paid in three parts, with the first instalment before Christmas.
• Living Alone Allowance, an additional €200 payment before Christmas.
• Fuel Allowance, an additional €400 payment before Christmas.
• Carer Support Grant, additional €500 payment in November.
• Disability Allowance, Invalidity & Blind pensions €500 payment in November.
• Social Welfare payment recipients to receive a double week in October.
• Child Benefit double payment in November.
• 3rd Level students: Student Contribution €1k reduction; Susi Grant + 1 month; Graduate Grant + €1k

Recurring payments

• Social Protection payments to increase by €12 per week.
• Working Family payment threshold increasing by €40 per week.
• Fuel Allowance income threshold will increase from €120 to €200 per week; and for Over-70’s it increases to €500 per week.
• Contribution to Child Care costs for those availing of the National Childcare Scheme.  This measure is worth €175 per month.
• Free schoolbooks for primary school children.
• In-patient charges at public hospitals removed from 2023

This is intended as a general guide to the subject matter and should not be used as a basis for decisions.  Whilst every effort has been made to ensure the accuracy of the content, no liability can be taken for any omissions or errors.  Professional taxation advice should always be taken prior to proceeding with any transaction giving rise to tax consequences.