Budget 2017 – a construction perspective

Following on Maria Hewson’s article in the September/October 2016 Edition, Elaine Kiernan looks at some of the tax aspects of Budget 2017.

In a year that marked the announcement of Brexit, the widely reported housing shortage in Ireland and the slow, but steady, recovery of the Irish economy, Budget 2017 was widely anticipated.

Housing

Given the current housing situation, it is not surprising that this topic featured heavily in Budget 2017. Minister Michael Noonan unveiled a number of measures in an attempt to ease the burden
that affects so many families in Ireland at present. Minister Paschal Donohoe also outlined his commitment to increase the level of housing units available with an announcement to deliver 47,000
new social housing units by 2021.

For first-time buyers, the prospect of owning a home can seem like a remote possibility due to the large deposit required to secure a mortgage. The issue was addressed in Budget 2017 by the introduction of a Help to Buy Scheme which provides relief to first-time buyers of newly built houses in the form of a rebate of income tax paid over the previous four tax years, up to a maximum of 5% of the purchase price of a new home up to a value of €400,000. The rebate will be capped at a maximum of €20,000. No rebate will be available on house purchases in excess of €600,000. The relief applies to new homes purchased from 19th July, 2016 until the end of 2019 and is not extended to second-hand properties.

In an effort to assist those individuals not buying new homes, the Home Renovation Incentive Scheme (HRI) was extended by a further two years to the end of 2018. This scheme provides for
tax relief by way of an income tax credit of 13.5% of qualifying expenditure on refurbishment works carried out on a main home or rental property by tax-compliant contractors. There are a wide
range of works that qualify for the relief. The tax credit can be set against an individual’s income over two years. There has been no change to the minimum spend required to avail of the scheme
which remains at €4,405 (before VAT).

Rental Properties

The knock-on effect of the housing shortage on the rental sector was also highlighted in Budget 2017 by the announcement to improve existing measures. The mortgage interest deduction available to landlords of residential property was increased from 75% to 80%. Restoration of full deductibility for mortgage interest is expected by 1st January, 2021. The mortgage interest deduction available for commercial properties remains at 100%. The annual limit on exempt income generated from the Rent-A-Room Relief was increased by €2,000 from €12,000 to €14,000.

Rent-A-Room Relief allows rental income generated from the letting of rooms in an individual’s sole residence to be exempt from income tax.

Other Measures

Although the housing crisis dominated many aspects of Budget 2017, other widely anticipated changes were also included. One such issue is the topical Universal Social Charge (USC). The three
lower USC rates were reduced by 0.5%. In addition, there was an increase in the entry point to the 5% band from €18,668 to €18,772. The Government reiterated their intention to phase out
the USC in the future subject to resources being available.

The gap between PAYE earners and the self-employed was further narrowed in Budget 2017 by increasing the earned income tax credit by €400 from €550 to €950. Although this measure will be
welcomed by the self-employed, one could argue that not enough is being done to bridge the gap between PAYE earners and the self-employed due to the fact that the maximum rate of USC  payable by PAYE earners remains at 8%. Where a self-employed individual earns over €100,000, USC at a rate of 11% is payable.

Conclusion

Whether the measures announced in Budget 2017 will make a significant difference to our economy remains to be seen given the possible impact of Brexit. There is no doubt that the impact of the budget measures relating to the construction and DIY sector will have a continued positive effect on the sector in the year ahead.

This information takes account of the Finance Bill which was published on Thursday, 20th October. There may be further amendments prior to the passing of the Finance Act which is anticipated to take place at the end of the year. Please consult your own financial/tax adviser to see how this information affects you personally.

Elaine Kiernan recently joined Byrne Casey & Associates as a tax consultant having previously worked in the tax department of KPMG. Elaine is a Chartered Accountant and a member of the Irish Tax Institute. Elaine specialises in personal taxes.

This Business Support article featured in the November/December 2016 edition of The Hardware Journal.