Minister McGrath publishes Finance (No. 2) Bill 2023

The Minister for Finance Michael McGrath has today (Thursday) published the Finance (No. 2) Bill 2023 following approval by Government earlier this week.

The Finance (No. 2) Bill 2023, which runs to 98 sections and 270 pages, implements the taxation changes announced on Budget Day as well as introducing some necessary administrative and technical changes to the tax code. This is one of the largest Finance Bills in recent years, primarily owing to the large volume of new legislation required to transpose the EU Minimum Tax Directive and OECD Model Rules and guidance in respect of the implementation of the Pillar Two minimum effective tax rate for large groups and companies.

As announced on Budget Day, the Bill also provides for the Income tax changes; the extension of Cost-of-Living supports such as the reduced 9% VAT rate for gas and electricity and the temporary excise rate reductions on auto diesel, petrol and marked gas oil; the introduction of new measures such as a temporary Mortgage Interest Tax Relief and Rented Residential Tax Relief.

The Bill provides for changes to existing measures to support Enterprises and Farming, the Housing Market, as well as individuals and households. These include the Rent Tax Credit, Help to Buy Scheme, Vacant Homes Tax, Residential Zoned Land Tax, Benefit-in-Kind on motor vehicles, the R&D Tax Credit, the Employment Investment Incentive, Retirement Relief and a revised Bank Levy. It also contains a number of additional taxation-related changes that were not announced on Budget Day, these include changes considered necessary for the effective administration of the tax code as well as other minor or technical changes which have been identified.

Commenting on the publication of the Finance Bill, Minister McGrath stated:

The Finance (No. 2) Bill 2023 includes provisions to legislate for the 2024 income tax package announced by the Minister for Finance on Budget Day, which will cost almost €1.3 billion.

Personal Income Tax packages

The key elements of the personal income tax package, will see the main personal tax credits (Personal, Employee/PAYE and Earned Income) being increased by €100 each to €1,875, and the standard rate income tax cut-off point for a single person being increased by €2,000 to €42,000, with commensurate increases in the bands applying to married persons and persons in civil partnerships.

The Home Carer Tax Credit will also be increased by €100 to €1,800.

Additionally, the Incapacitated Child Tax Credit will be increased by €200 and the Single Person Child Carer Credit by €100.

USC changes

Regarding the USC, the Finance (No. 2) Bill provides for an increase in the 2% rate band ceiling by €2,840 to €25,760 to take account of the National Minimum Wage increase that will apply from 1 January 2024. The Bill also provides that the 4.5% rate of USC will be reduced to 4%, a reduction of 0.5%. This rate will be applicable to an income band between €25,761 and €70,044 per annum.

Furthermore, the reduced rate of USC for medical card holders will also be extended for a further two years until 31 December 2025.

Extension of the VAT reduction for gas and electricity

Finance (No. 2) Bill confirms the extension of the 9% reduced VAT rate for gas and electricity which was introduced with effect from midnight on Budget night for an additional 12 months, until 31 October 2024.

Extension of Temporary Excise Rate reduction

Finance (No. 2) Bill confirms the extension of the temporary excise rate reductions on auto diesel, petrol and marked gas oil which were introduced with effect from midnight on Budget night until 31 March 2024 with a phased restoration taking place in two phases on 1 April 2024 and 1 August 2024.

Benefit-in-Kind (BIK) relief for Battery Electric Vehicles (BEVs)

The Bill provides for the extension of the tapering mechanism applied to BIK relief for BEVs by maintaining the current Original Market Value deduction of €35,000 until 2025, followed by a reduction to €20,000 in 2026 and €10,000 in 2027.

It also extends the temporary universal relief of €10,000 applied to the Original Market Value of a vehicle (including vans) for vehicles in Category A-D and the amendment to the lower limit of the highest mileage band (52,001 to 48,001) to 31 December 2024.

Vehicle Registration Relief (VRT) for BEVs

The Bill extends the Vehicle Registration Tax (VRT) Relief for BEVs by two years to 31 December 2025. BEVs with an Open Market Selling Price (OMSP) of up to €40,000 are granted VRT relief of up to €5,000. Vehicles with an OMSP of greater than €40,000 but less than €50,000 receive a reduced level of relief.

Increase to VAT registration thresholds

From 1 January 2024, the Bill increases the existing VAT Registration Thresholds from €37,500 to €40,000 for services and from €75,000 to €80,000 for goods.

0% VAT rate to apply to audiobooks, e-books and the supply and installation of solar panels in schools

The Bill provides that, from 1 January 2024, the VAT rate for audiobooks, e-books and the supply and installation of solar panels installed in schools will be reduced to zero.

The Bill introduces a temporary one-year Mortgage Interest Tax Relief. Home owners with an outstanding mortgage balance on their primary dwelling house of between €80,000 and €500,000 on 31 December 2022 will be eligible for the relief in respect of the increased interest paid on that loan between the calendar year 2022 compared to the calendar year 2023 at the standard rate of income tax (20%), capped at €1,250 per property.

The Bill provides for the introduction of an Income Tax disregard at the standard rate, for residential rental income chargeable under Schedule D Case V. The disregard will be as follows: €3,000 in the tax year 2024; €4,000 in the tax year 2025; €5,000 in the tax year 2026 and €5,000 in the tax year 2027. This will equate to a tax credit of up to €600 in year one, €800 in year two and €1,000 in years three and four. A full clawback of the benefit of the disregard will apply in the event the landlord removes any property from the rental market in the four year period.

This measure relates only to tenancies registered with the Residential Tenancies Board (RTB) or where a landlord lets a residential property to a Public Authority (including Local Authorities). In the case of joint ownership of a property the relief will be divided in proportion to the percentage of the rental income to which they are entitled.

The Finance (No. 2) Bill 2023 provides for the amendment to the Rent Tax Credit to increase the amount of the credit from €500 to €750, or, in the case of jointly assessed taxpayer units, from €1,000 to €1,500.

The Bill also extends eligibility for the credit to parents who pay for their student children’s rental accommodation in the case of Rent a Room accommodation or “digs”. This amendment will apply to the years of assessment 2024 and 2025 and retrospectively to the years of assessment 2022 and 2023.

A further amendment to the existing credit restricts claims for the Rent Tax Credit by members of the Oireachtas.

The extension of the HTB scheme to 31 December 2025 is provided for in Finance (No. 2) Bill 2023.

The Bill also amends the scheme in relation to its interaction with the Local Authority Affordable Purchase Scheme (LAAP). The purpose of this amendment is to enable the use of the affordable dwelling contribution, the shared equity finance received through the LAAP scheme, for the purposes of calculating the 70% loan-to-value requirement, thereby facilitating access for all LAAP purchasers to the HTB scheme.

The Bill provides for an increase to the rate at which the Vacant Homes Tax is charged from three times to five times a property’s existing base Local Property Tax liability. The increase will take effect from the next chargeable period, commencing 1 November 2023.

The RZLT was introduced in Finance Act 2021 and seeks to increase housing supply by encouraging the activation of development on lands which are suitably zoned and appropriately serviced. The tax is charged annually at a rate of 3% of the market value of the land in scope.

The legislation currently provides that sites which are included on a final map published on 1 December 2023 will be chargeable for RZLT from 2024 onwards. The Bill provides for amendments to extend the liability date of RZLT by one year from February 2024 to February 2025. The purpose of this deferral is to allow for the annual mapping cycle to complete and afford landowners another opportunity to make submissions if their land is included on the maps prepared by local authorities.

Existing provisions in the Taxes Consolidation Act 1997 impose an upper age limit of 75 years on accessing funds in a PRSA. When a PRSA holder does not commence taking benefits from their PRSA before reaching age 75, the fund is deemed to “vest”, and the individual is not permitted to draw down funds in any form, although the funds may pass to beneficiaries after the holder’s death. The Bill provides for the removal of the upper age limit, allowing for drawdowns by a PRSA holder after they reach the age of 75 years.

Section 216D of the Taxes Consolidation Act 1997 provides for an exemption of up to €200 from income tax, USC and PRSI for certain profits arising to a qualifying individual who generates energy from renewable, sustainable or alternative energy sources for their own consumption and sell the excess residual energy back to the national grid.

The Bill provides that the amount of the exemption will be increased to €400 and the measure will be extended to 31 December 2025.

Section 1003 of the Taxes Consolidation Act 1997 provides for a tax relief to taxpayers who donate heritage items to Irish national collections. A credit equal to 80% of the market value of the item donated can be set against taxpayers’ liabilities for certain taxes.

Currently, the aggregate value of items that can be donated under the scheme in any one year cannot exceed €6 million. The Bill provides for an increase of this aggregate value to €8 million.

The Bill provides for the increase in excise duty on tobacco products which came into effect from midnight on Budget night. The increase amounts to 75 cent, inclusive of VAT, on a pack of 20 cigarettes in the most popular price category together with pro rata increases for other tobacco products.

As the existing (DIRT based) bank levy expires this year, the Bill provides for a revised form of the bank levy for 2024 (to apply only in that year). This revised levy will continue to apply to AIB/EBS, Bank of Ireland and PTSB. It will have a revenue target of €200 million, and will be apportioned based on a measure of deposits held by each liable institution.

Farm-related measures included in the Bill are:

• Extension of Stamp Duty Consanguinity Relief to 31 December 2028.
• Extension of Accelerated Capital Allowances for Farm Safety Equipment to 31 December 2026.
• Amendments to the amounts of relief available under Young Trained Farmers Stamp Duty Relief, Young Trained Farmers Stock Relief, Succession Farm Partnerships Relief, and Registered Farm Partnerships Stock Relief in line with EU Regulations - further detail is set out in the Explanatory Memo accompanying the Bill.

Retirement relief is available for gains arising on the disposal of a business (including a farm) to a child and to others.

The Bill provides for two changes to take effect from 1 January 2025, to allow for a suitable transition period. The age limit for more beneficial relief is proposed to increase from 66 to 70. In addition, a new limit of €10 million will apply to disposals to a child made from the age of 55 until the age of 70.

A requirement to submit a claim to be eligible for the relief will also be introduced.

Section 481 of the Taxes Consolidation Act 1997 provides for Film Relief in the form of a corporation tax credit related to the cost of production of certain audio-visual productions. The maximum qualifying expenditure on which the 32% credit can currently be calculated is €70 million. The Bill provides for an increases of this cap to €125 million.

The Bill provides for amendments to Part 16 of the Taxes Consolidation Act 1997 to provide that the minimum holding period required to obtain relief under the EII, will be standardised to four years for all investments made from 1 January 2024, and the limit on the amount that an investor can claim relief on for such investments will be increased to €500,000.

The Bill further provides for amendments to ensure that the EII, the Start-up Capital Incentive (SCI) and the Start-Up Relief for Entrepreneurs (SURE) are compatible with the amended General Block Exemption Regulation (GBER) which takes effect from 1 January 2024.

The R&D Tax Credit provides for a 25% tax credit for all qualifying R&D expenditure and the Bill provides for an increase to the rate of the credit to 30%. This will maintain the current net benefit of the credit for companies subject to Pillar Two and will deliver a net benefit to companies not subject to the new minimum tax rules.

The Bill also provides for and increase to the first year payment threshold from €25,000 to €50,000. This threshold is the amount up to which a claim can be paid in full in the first year, rather than paid in instalments over three years.

A number of technical amendments are also being introduced to ensure that the legislation operates as intended.

The Bill implements the Pillar Two minimum effective tax rate for large groups and companies by transposing the EU Minimum Tax Directive (Council Directive (EU) 2022/2523 of 15 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union) into Irish law.

Further details are set out in the Explanatory Memorandum accompanying the Bill.

The Bill includes legislative measures to introduce new defensive measures applying to outbound payments of interest, royalties and distributions (including dividends) towards jurisdictions on the EU list of non-cooperative jurisdictions, no-tax, and zero-tax jurisdictions. These measures are aimed at the prevention of double non-taxation and to meet commitments contained in Ireland's National Recovery and Resilience Plan (NRRP).

Due to the nature and extent of issues for which provision is being made in the Finance (No. 2) Bill 2023, the complex nature of certain drafting requirements, and the need to align certain provisions with existing legislation, the draft legislative provisions relating to a number of issues are being held over for introduction at Committee Stage of the Bill.

These include the provisions announced by the Minister in Budget 2024 relating to the new Capital Gains Tax relief for Angel Investors and amendments to the exemption from income tax of certain income arising from leasing of farm land.

As indicated at Budget time, it is proposed to introduce a new targeted relief for angel investors who invest in innovative start-ups. This relief will provide a reduced rate of CGT for qualifying investment in innovative start-ups, for gains up to twice the value of their investment.

Certain income arising from leasing of farm land is currently exempt from income tax. As also mentioned at Budget time, the relevant provision in the Taxes Consolidation Act will be amended so that the relief only becomes available when the land has been owned for seven years so that it is better targeted to active farmers.

Details on where to find additional material on the key provisions in the Bill are set out in the accompanying Notes to Editors.