As widely reported the government took the position that there was little scope for wide-ranging spending or tax decreases in Budget 2018.
Understandably, there was a focus on housing. Some welcome reductions for middle-income earners were announced with slight cuts to Universal Social Charge (USC) and a slight increase in the standard income tax band. Overall the measures introduced were quite modest and there were also a number of surprising omissions.
We have set out our thoughts on the impact of the measures relating to investments, business, succession planning and pensions which we think are relevant to our clients. We have to wait for the Finance Bill (to be published on 19th October) for further details.
The following are the key changes for investors:
DAVY VIEW: Considering the shortage of homes, it comes as no surprise that the focus was on initiatives aimed at increasing the housing supply. We welcome the CGT relief changes and hope it will encourage the supply of property. It is, however, disappointing that there were no reductions in CGT rates or fund exit tax in line with the reduction in Deposit Interest Retention Tax (DIRT) from 39% to 37% as outlined in Finance Act 2016.
There was very little in the budget for our business owner and farming clients:
DAVY VIEW: The changes regarding share options are to be welcomed. The hope is that the changes will help SMEs to retain and attract key employees.
The absence of other measures, however, was disappointing. In particular, it was hoped that there would be an extension of the Entrepreneur Relief threshold for CGT purposes from €1 million. Given that the UK provides for a 10% CGT rate on gains up to £10 million and the criteria to qualify are less onerous than ours, we compare very unfavourably. There is an obvious rationale to increase the relief if we want to make Ireland more attractive to entrepreneurs.
Some easing of the CGT relief limits for older business owners or farmers who wish to pass on agricultural or business assets would have been welcomed. As things stand, certain limits on these reliefs apply to business owners or farmers who are 66 or over. We would like to see these limitations removed.
Succession planning continues to be a key area of interest for our clients and the budget had little to offer in this regard with thresholds remaining static.
DAVY VIEW: Given the government’s previous commitment to increase the Category A, or parent/child relationship threshold to €500,000 over the coming years, it is disappointing to see that there has been no increase to the present €310,000 level. As many asset values continue to increase, larger numbers of children are falling into the net of having to pay tax on gifts/inheritances from their parents. Furthermore the rate of CAT remains high at 33%. While the threshold increased in last year’s budget, it remains significantly lower than pre-recession levels.
There was no mention of pensions in the Minister’s speech apart from a €5 increase in State Pension (Contributory).
DAVY VIEW: Continually increasing the State pension is not the solution to achieving sufficient replacement income in retirement. Longevity gains, the decline of defined benefit (DB) schemes and relatively low take up of voluntary defined contribution (DC) schemes raises the risk of inadequate financial security for the majority of workers when they retire. The government have committed to increasing private pension through an auto-enrolment scheme with effect from 2021.
Our team of financial planning specialists are available to meet with you to discuss the impact the changes announced in Budget 2018 might have on your personal financial position. If you would like to arrange a meeting, please contact your private client adviser.