Budget 2021

Minister for Finance, Paschal Donohoe, today announced his Budget for 2021 in what is the first Budget of the current government. With the large deficit due to the ongoing Covid 19 pandemic and ongoing uncertainty about Brexit it was widely expected to be a neutral Budget, with the aim of keeping the economy stable in difficult times.

The budget delivered a wide range of expenditure and supports to assist businesses and individuals aswell as delivering additional investment in areas such as health, to assist with the pandemic, and housing.

Income Tax 
  • An increase in the Dependent Relative Credit from €70 to €245.
  • An increase in the Earned Income Credit from €1,500 to €1,650 thereby equalising it with the PAYE credit.
  • No other changes to income tax credits and bands.
  • Expansion of warehousing of tax liabilities to assist self-employed individuals who will have difficulty paying the balance of their 2019 tax liability and their preliminary tax for 2020.
USC 
The reduced rate of USC for medical card holders is, again, being extended for a further year.
The 2% rate of USC threshold has been increased by €203 to €20,687.

VAT
Temporary reduction of VAT for Tourism and Hospitality items from 13.5% to 9% from 1 November 2020 until 31 December 2021.
Increase in the Farmers Flat Rate Addition from 5.4% to 5.6%.

Measures to Support Enterprise

Knowledge Development Box
Two year extension of the Knowledge Development Box to 31/12/2022.
The KDB is an OECD-compliant intellectual property regime, introduced in 2016, that supports businesses in retaining and exploiting certain assets, such as patents and copyrighted software, developed through R&D activities carried out in Ireland. The extension provides certainty for businesses during the current challenging circumstances, in the context of Covid-19 and the end of the Brexit transition period.

Capital Allowances for Intangible Assets
Revised balancing charge rules with effect from 14 October 2020.
To ensure that it is consistent with international best practice for similar reliefs, provisions relating to capital allowances on intangible assets are being amended to provide that all intangible assets acquired from Budget night will be fully within the scope of balancing charge rules. While the new rules are not expected to result in significant additional tax revenue given the current profile of claims, they will ensure that Ireland’s tax regime for intellectual property, together with the broader corporation tax regime, remains competitive, legitimate and sustainable.

Film Relief
The Section 481 (Film Tax Credit) Regional Uplift scheme is being extended by one year by inserting an additional year of uplift at the rate of 5% in 2021. The uplift will then reduce to 3% in 2022, 2% in 2023, and Nil thereafter.

Employment and Investment Incentive Scheme
An assessment will commence in Q4 2020 of how the Employment and Investment Incentive Scheme can be enhanced in light of the impact of the current crisis with a particular focus on improved support for start-ups, the potential to attract capital from a broader range of investors and the potential to include energy-efficient projects within the remit of the scheme.

Digital Gaming Sector
Work will take place in 2021 on the development of a tax credit for the digital gaming sector, with a view to supporting qualifying activity from January 2022 onwards. Digital gaming is a sector that has seen exponential global growth in the past decade and there are potential synergies to exploit with the established film and animation sectors, to support quality employment in creative and digital arts in Ireland.

CGT Entrepreneurial Relief
Adjustments to the holding requirements to allow qualification for this relief. 
An amendment is being made to the holding requirement under the CGT Entrepreneur Relief so that an individual that held at least 5% of the shares for a continuous period of any three years qualifies, all other qualifying criteria remain unchanged. This measure will come into effect 1 January 2021.

Farm Consolidation (Stamp Duty) Relief
Extension in its present format until 31 December 2022.
This relief provides for a reduced stamp duty rate of 1% (as opposed to the general rate on non-residential property of 7.5%) to apply where a farmer disposes of and purchases and and/or exchanges land with another farmer in order to consolidate an existing farm. It is being extended so that it will next fall due for renewal at the same time as its CGT equivalent.

Consanguinity (Stamp Duty) Relief
Extension in its present format until 31 December 2023.
This relief provides, under certain conditions, for a 1% rate of stamp duty to be applicable where a transfer of agricultural land (by sale/purchase, exchange or gift) is made to certain close relations, such as a mother to son or uncle to niece. The standard rate of stamp duty applying to the transfer of agricultural land is 7.5%. It is designed to facilitate and encourage intergenerational farm transfers.

Housing

Help to Buy (HTB) 
HTB is an income tax incentive measure designed to assist first-time buyers with the deposit required to purchase or self-build a new house or apartment to live in as their home and was extended until 31 December 2021 in last budget. The Minister has confirmed it will cease on that date and will not be extended again.

Residential Development (Stamp Duty) Refund Scheme
Extension from 31 December 2021 to 31 December 2022 with minor amendments.
This scheme, introduced in Finance Act 2017 provides for the refunding of a portion of the Stamp Duty paid on the acquisition of non-residential land where that land is subsequently developed for residential purposes, so bringing the effective Stamp Duty rate down to a minimum of 2%.
This is of course subject to a number of conditions, including ones relating to the portion of the land involved given over to housing and the time taken to commence and complete the construction of the residential units involved. The 24 months currently allowed between commencement and completion of construction is being extended to 30 months, so that the last possible eligible completion date will be 30 June 2025.

Climate and Environmental Measures

Carbon Tax 
Increase the rate by €7.50 to €33.50 euro per tonne effective from 14 October 2020.

Vehicle Registration Tax
Changes to Vehicle Registration Tax for certain cars based on CO2 emissions from 1 January 2021.
A new rates table is introduced for Vehicle Registration Tax. The charging structure for the NOx surcharge is also adjusted so that 1-40 mg are charged at €5 per mg, and 41-80 mg are charged at €15 per mg. The €5,000 relief for Battery Electric vehicles is tapered for vehicles with an OMSP over €40,000, so that no amount of relief is available for BEVs with a value of over €50,000.

Motor Tax
Changes to Motor Tax for certain cars based on CO2 emissions from 1 January 2021.
Minor rates changes are implemented in the existing rates table for cars taxed on CO2 emissions (cars first registered in the State between July 2008 and end 2020). There are no changes to the rates table for cars taxed based on engine size (pre July 2008).

Accelerated Capital Allowances for Energy Efficient Equipment
The Accelerated Capital Allowance scheme for Energy Efficient Equipment is being extended for three years to 31/12/2023.
The Accelerated Capital Allowance (ACA) scheme is designed to improve energy efficiency among Irish companies and unincorporated businesses. The ACA scheme allows taxpayers to deduct the full cost of expenditure on eligible energy efficient equipment from taxable profits in the year of purchase. 

Anti-Avoidance

Amend Section 541 TCA 1991 to close an avoidance scheme.

Corporation Tax – BEPS/ATAD Implementation
Technical amendment to Exit Tax (ATAD).
The EU Anti-Tax Avoidance Directive (ATAD) implements five separate anti-avoidance measures in a coordinated way throughout the European Union, three of which are based on the OECD BEPS Package and two of which (the Exit Tax and General Anti-Abuse Rule) are additional. As part of the ATAD transposition process, an ATAD-compliant Exit Tax regime was introduced by Finance Act 2018. Finance Bill 2020 includes a technical amendment to the Exit Tax legislation to ensure that provisions relating to the calculation of interest on instalment payments of Exit Tax operate as intended.

Additional Taxation Measures

Tobacco Products Tax 
A further increase of 50c on pack of 20 cigarettes with pro-rata increase on other tobacco products.

Employer’s PRSI
From 1 January 2021 the weekly income threshold for the higher rate of employer’s PRSI will increase from €394 to €398.

Expenditure Items

An additional amount of almost €16¾ billion will be provided in 2020 for measures to support the delivery of key public services and to provide support to workers, businesses and communities who have been devastated by the impact of the pandemic. 
In this context the key priorities for Budget 2021, reflected in the expenditure allocations set out in this Expenditure Report, are:
  • continued significant funding of €8½ billion for public services to address the challenges of Covid-19. Reflecting the uncertainty in relation to the future path of the virus, this includes a Contingency Reserve of €2.1 billion that would fall to be allocated across next year to meet additional costs that could arise in key sectors; 
  • the provision in a Recovery Fund of €3.4 billion to be used for measures to support the economy as we respond to Brexit and Covid; 
  • to ensure that we continue to deliver incremental improvements in our core expenditure and put in place the building blocks for the delivery of meaningful improvements in key priority areas in particular Health and Housing, with an overall increase of €3.8 billion in core current expenditure; 
  • continuing with a substantial public capital programme. Expenditure on core capital programmes is to increase by €1.6 billion next year.