Finance Act 2022: Residential Property Measures
Brendan Murphy, Tax Partner at Roberts Nathan, recently contributed an article to the latest edition of the Irish Tax Institute's Irish Tax Review. Brendan outlines the residential property measures which were introduced in the latest Finance Act 2022, and how they affect landlords. Click here to read full article.
April 3, 2023
Registration Deadline for UK Properties
Taking effect from 11 August 2022, any overseas entity including Irish companies, that holds UK property must register with the UK Companies House before 31 January 2023. This also applies to entities who buy, sell or transfer property or land in the UK. This means that they must declare who their registered beneficial owners are before this date. Entities that disposed of property or land after 28 February 2022 will also need to register and give details of that disposal. The relevant properties included are properties acquired in:
- England and Wales since 1 January 1999
- Scotland since 8 December 2014
- Northern Ireland since 1 August 2022
January 26, 2023
Finance Act 2022 Webinar
Be prepared for upcoming changes in Finance Act 2022. Our own Brendan Murphy, Tax Partner, and Emma Arlow from Deloitte are presenting a webinar with Irish Tax Institute Thursday 2nd February, 08.30am – 10am on the Finance Act 2022. Click here to register for the webinar https://lnkd.in/ezjFWiU3
January 26, 2023
Rewarding Your Key Employees – What are the Most Tax Efficient Share Schemes?
Following on from a previous blog in March which highlighted the compliance reporting obligations for share, we will now look at two of the more tax efficient methods of providing shares to your key employees. The specific schemes which can provide a more tax efficient event for the employee are the Key Employee Engagement Programme (“KEEP”) and the concept of Growth Shares. We have looked at the advantages of both of these share schemes below and the tax implications associated with them. 1. KEEP Scheme
OverviewUnder the KEEP scheme, an employee will be given an option to acquire shares at a future date, at a fixed price which is the market value at date of grant. This allows the growth in value of the company shares between date of grant and date of exercise to not be taxable as a benefit in kind for the employee. KEEP applies to qualifying share options granted on or after 1 January 2018 and before 1 January 2024.
Taxation of KEEP sharesThe shares must be new ordinary fully paid-up shares which carry no present or future preferential rights regarding dividends, assets on winding up or redemption. The option price at the date of grant cannot be less than the market value of the shares at the date of grant and the option must be exercised within the period commencing 12 months after grant and ending 10 years later. The incentive associated with KEEP is that the uplift in market value from date of grant to date of exercise of the KEEP shares is not brought into the income tax net and will only be taxable on a future sale of the shares. The employee will pay Capital Gains Tax (“CGT”) on any future disposal of shares with the amount paid at the exercise date being the base cost of acquisition. 2. Growth Shares
OverviewGrowth shares are a very popular approach to reward one or more key employees who will be important to the future growth of the business. The shares are generally created as a new share class which allows the individual share in the future uplift in value of the company. A hurdle is set into the share class to only allow the individual share in value above that hurdle. When this hurdle is set at the market value on granting of the share, the value of the share should be minimal as all value is hope value.
Taxation of Growth SharesIncome Tax Once the shares are issued to the employee, PAYE would need to be operated on the market value of the share. However, if the employee pays the market value for the share no tax should arise. Given that a hurdle is included on the value of the share, this should decrease the current value being provided to the employee. Where the hurdle exceeds the current market value of the shares, it is likely that the value of the share is minimal, and no income tax would arise. Capital Gains Tax (CGT) If the shares are disposed of the gain will be subject to CGT. The base cost for the shares is the initial market value of the shares at the date they were awarded to the employee. Growth shares are a popular mechanism to ensure an employee is incentivised while also creating an efficient exit event from a tax perspective as the uplift will be subject to CGT rather than income tax. It can also be a more straight forward and simpler mechanism to implement than some of the more onerous share schemes. If you are looking to incentivise your employees through a share award you should talk to our tax team at Roberts Nathan to ensure you implement the most appropriate scheme for your needs.
The content of this blog is intended to convey general information and educational advice. It should not be relied upon as professional advice. We have done our best to ensure that the information provided by Roberts Nathan is accurate and up-to-date but unintended errors or misprints may occur.
If you wish to obtain business advice or taxation advice please do not hesitate to get in contact with a member of our team.
June 14, 2022
Share Option Schemes
31 March is an important deadline for companies who have provided share option schemes to their employees. A Form RSS1 is required to be completed and filed with Revenue where share options are either granted, exercised or sold. The Form RSS1 must be sent to Revenue on or before 31 March in the following year of assessment i.e., for 2021 this would be due on the 31st of March 2022. This form is required to be returned to Revenue electronically by using their online system. Where the share option scheme is operated under the Key Employee Engagement Programme (“KEEP”) a KEEP 1 return is also required to be filed by the employer by 31 March for any KEEP options granted, exercised, assigned or released. As companies begin to see the light at the end of the Covid-19 tunnel we have seen an increased interest in looking at rewarding key management with an interest in the company. We have outlined below the reporting requirements for employees who obtain unapproved share options. As you will note, unapproved share options can often lead to a significant income tax bill for the employee and if not exercised at a point of sale can have cash flow implications. Two common alternatives to unapproved share options which can have a more positive tax impact are both the KEEP mentioned above and growth shares which are popular to incentivise key staff to grow the business. We will look at the advantages of these share award options in our next article. In the meantime, below are the key considerations for employees obtaining unapproved share options from their employer.
Grant of Share Option SchemeThe granting of share options would not be subject to tax in Ireland provided the share option is not capable of being exercised more than seven years after the date on which it is granted. If it is capable of being exercised more than seven years after the date of it being granted, you will only pay tax if the option price is less than the market value of the shares at the grant date. The tax is due on the difference between the:
- market value of the shares on the grant date
- amount you pay when you exercise the option.
Exercise of Share Option SchemeOnce share options are exercised, an individual will be subject to Income Tax, USC and PRSI at a rate of 52% on the gain arising on the exercise of the shares. The gain arising on the shares will be calculated as the difference between: (a) the market value of the shares at the date of exercise; and (b) the amount you paid for the shares at the time of exercise. Once a share option scheme is exercised, an individual is required to file an RTSO1 and remit the tax to Revenue within 30 days of exercising. You will also be required to register for income tax and a Form 11 will be required to be filed. If you exercise shares in 2021, you will be required to file a Form 11 by 31 October 2022.
Sale of SharesIf you exercise your share options and then subsequently dispose of the share you acquired you may be liable to Capital Gains Tax (CGT). You must report this disposal to Revenue, even if no tax is due. The CGT would be calculated as the difference between the sales proceeds and the base cost of the shares. The base cost would compromise the cost paid for the share options (if any), the price paid for the shares on the exercise of the share options and the gain arising on the exercise of the share option. The gain arising would then be subject to CGT at a rate of 33%. If the shares are disposed of between 1st of January and 30th of November, the CGT would be due on the 15th of December. If the shares are disposed of between 1st of December and 31st of December, the CGT would be due on the 31st of January. The disposal will be required to be reported in your income tax return for the year the shares were disposed. We have set out above a high-level overview of the compliance obligations for employers and employees on unapproved share schemes. As discussed, we will look in our next article at the benefits or alternative share option scheme such as KEEP and growth shares. If you are offering a share option scheme to your employees or have a share award you wish to exercise or sell you should talk to our tax team at Roberts Nathan.
March 3, 2022
2021 Exchequer Results
As we kick off 2022, our tax team review the 2021 exchequer figures recently published by the Department of Finance. Overall, the exchequer results are exceptionally strong given the continued impact of the Covid-19 pandemic on many businesses during 2021, with an overall reduction in the exchequer deficit of €5bn compared to 2020. The exchequer results figures released by the Department of Finance show an increase in tax revenues across almost all tax heads, giving rise to a total increase in tax revenues of 19.7% compared to 2020. Corporation tax receipts have continued to increase at unexpected levels, which has led to corporation tax revenues coming within €100m of VAT revenues for the first time. However, recent comments from the Minister of Finance suggests corporation tax receipts are expected to decline from 2023 when the new 15% corporation tax rate for large multinationals takes effect. Understandably, given the major impact of Brexit from a VAT and customs perspective, customs duties increased by over 90% in 2021 compared to 2020. However, it is worth noting that customs receipts would generally have been at a very low level prior to Brexit and therefore this level of increase is unsurprising. Most notable from the exchequer results released is the significant increase in capital gains tax receipts. CGT receipts for 2021 increased by 72.6% in 2021 compared to 2020. Considering CGT is a well-established tax base, and no major legislative changes were made in 2021 compared to 2020, this increase in revenues is most likely attributed to rising property prices, along with the significant increase in activity and prices obtained in the merger and acquisition (“M&A”) sphere which has been evident over the past 12 months. Derek Dervan, Partner in Roberts Nathan, leads the firm’s corporate finance function and has observed this increase in M&A activity first-hand in 2021. Derek expects the transactions market to remain strong, with 2022 starting where 2021 left off. If you are considering a sale of your business, the acquisition of a new business or a restructuring of your current operations, Derek and Roberts Nathan’s Tax Partner, Brendan Murphy, would be delighted to speak to you to ensure that your business is structured and transaction-ready, to ensure that the best results can be achieved.
January 12, 2022
Artists Exemption (Income Tax and VAT Implications)
Background - Income Tax Income earned by writers, composers, visual artists and sculptors from the publication, production or sale of their works is exempt from income tax in Ireland in certain circumstances. For the year 2015 and subsequent years the maximum amount of income which is exempt is €50,000 per annum. The exemption applies to certain artistic works which are original and creative and generally recognised as having cultural or artistic merit. Earnings derived from such works are exempt from income tax from the year in which the application was made. The exemption does not apply to PRSI and USC. In addition to income from the sale of works, the following payments also qualify as exempt income, subject to the overall maximum relief figure:
member/brendan-murphy/ or Amy Hartnett 021-4217940 who would both be happy to hear from you.
- Arts Council Bursaries when paid directly to individuals by the Arts Council.
- Residencies when paid directly to the individual by the Arts Council for the purposes of producing a qualifying work. (Income from residencies which relate to teaching art or facilitating other individuals to create works of art or similar type practices do not qualify for exemption.)
- Cnuas payments under the Aosdana Scheme.
- Payments from the sale of qualifying works abroad, which fall within the guidelines.
- Advance royalties.
October 6, 2021
Business Succession Planning
Business Succession Planning As many Irish businesses reopen following the lifting of Covid restrictions, the discussion around the succession of the business may be back on the table for many business owners and their families. Obviously tax plays a major role in these discussions and we have touched on some of the key areas of tax to consider in this regard below. However, a commercial decision also needs to be made around what the future plans for family members are and their desire to be involved in the business. Not all situations result in the next generation being actively involved in the business and sometimes an external sale may be considered as a more appropriate solution for everyone involved. We will look at business sales to external purchasers in a later article but for now we will focus on the situation where a business will be passed onto the next generation. The first thing which needs to be considered when passing over a business is the market value that would be attributed to the business or the shares in the company running the business if it has been incorporated. This value will then be used for capital gains tax, capital acquisition tax and stamp duty considerations as outlined below. Capital Gains Tax Capital gains tax is deemed to arise at market value to the vendor when passing on assets but retirement relief may be available to mitigate the liability in many instances. The thresholds for retirement relief change from the age of 66 therefore, owners are generally encouraged to consider their plans in advance of reaching this milestone. However, the threshold for passing on business assets or shares to your children after 66 is €3m so can still be useful for businesses not valued above this level. In advance of reaching 66 there is no upper cap on value hence for larger businesses the age of 66 is an important timeline in relation to planning. Should the conditions of retirement relief not be met, entrepreneur relief may still be available to limit the capital gains tax to 10% on the first €1m of consideration. Capital Acquisitions Tax A child has a tax free lifetime gift limit from their parents of €335,000 currently. However, for many children involved in a business, a relief may be available which reduces the value being received to 10% of the market value. This is referred to as business asset relief and has a number of conditions around ownership and involvement in the business to qualify. Given this reduction and the current lifetime gift limit, this could result in a business valued as high as €3.35m being passed onto a qualifying child free from capital acquisitions tax. For the successor of the business another major advantage of the relief is that they will have a base cost for a future sale of the market value transferred before any relief is applied. This can help significantly reduce their capital gains tax charge on a future sale.
Interaction of CGT and CATThere is a requirement in both retirement relief and business asset relief for the assets to be held by the successor for 6 years, otherwise these reliefs may be subject to a clawback. It is also important to note that where both CGT and CAT apply on a transfer, a tax credit may be available for the CGT suffered against the CAT due. This is referred to as same event credit and is only available where the assets are held for two years by the successor from the date of gift. Stamp Duty A recipient of a gift may suffer stamp duty at market value of the assets. Stamp duty on business assets is generally applied at 7.5% whereas shares in a trading company would be subject to stamp duty at 1%. Conclusion Where there is a plan to allow a new generation take over a business it is important to consider the tax implications in advance. Retirement relief and business asset relief may result in value passing without a significant tax leakage. Now may be an opportune time to consider such a transfer. Many businesses which have had limited trade in the past 18 months may have a lower market valuation and it is always a fear that there may be changes to capital taxes in future budgets as the government try to ensure a strong exchequer take given the cost of covid reliefs. In Roberts Nathan we have experienced teams in both tax advisory and corporate finance advisory to help you with such business decisions. Please use the link to contact Brendan Murphy for any questions on any part of the above: https://www.robertsnathan.com/member/brendan-murphy/
August 19, 2021
Returning or Relocating to Ireland (Tax Implications)
With the Covid pandemic hopefully nearing an end, we have seen an increased interest in expats looking to return home to Ireland. Perhaps it is the long absence from being home during the last 18 months or the new flexibility around home working for many industries which has led to this. If you are someone returning or relocating to Ireland from abroad, it is important to look at the rules regarding your residency position from a tax perspective and also your employer should consider any employment tax considerations. We have outlined an overview of the key considerations for anybody in this position below. Residency and Domicile There are two basic tests of residence in Ireland: 1)The current year test: If you are present in Ireland for 183 days in a calendar year, you will be regarded as Irish tax resident for the year. 2)The two-year test: If you are present in Ireland for 280 days taking the current and preceding calendar years together, you will be regarded as a tax resident in that year. However, if you are present in Ireland for 30 days or less in the second of these years, you will not be regarded as a tax resident in Ireland for that particular tax year, even if you breach the 280 days over both years. Based on different tax rules in different jurisdictions, individuals arriving in Ireland during the year may be regarded under domestic law as resident in two jurisdictions. If this is the case, the Double Tax Agreement provides a tie breaker test to determine where the individual is regarded as resident. One of the key features of the tie breaker test is where the individual intends to settle and where their permanent home is located. If you are resident in Ireland for 3 consecutive tax years, you will be considered an ordinarily tax resident on the 4th year. Domicile is a concept of general law. A person can only have one domicile at any particular time but cannot be without a domicile. Everyone is born with a domicile of origin, normally the domicile of their father. In most scenarios this does not change but you may have acquired a domicile of choice or domicile of dependence in some situations. Your domicile can have an impact on how you are taxed and is important to examine in detail when moving between countries. Tax Consequences As mentioned, domicile can have an effect on the tax treatment of resident individuals. An individual who is Irish tax resident and Irish domiciled will be subject to tax on their worldwide income, however, if an individual is Irish tax resident and non-Irish domiciled, they will only be subject to tax on Irish source income and foreign income to the extent it is remitted to Ireland. This can allow individuals to plan around what income they may wish to remit to Ireland. Employment Income If an individual relocates to Ireland and is in receipt of employment income, there may be some reliefs available.
- Split Year
- Special Assignee Relief Programme (SARP)
- Payroll Obligations
August 10, 2021
Updates to EWSS scheme
The Revenue Commissioners recently issued new guidelines in relation to the eligibility of EWSS from 1 July 2021. The main change announced by Revenue was extending the turnover reference checks to 12 months rather than a 6 month period. This means that businesses whose trade was severely impacted due to government restrictions in the first half of 2021 can trade at higher levels for the second half of 2021 and still avail of the scheme, subject to meeting the scheme conditions which were already in place. This adjustment means that a business would be looking at their turnover for the calendar year 2021 in full rather than on a 6 monthly basis. Businesses will need to review their actual monthly turnover for January to June 2021 and projected turnover for the months July to December 2021. The business is expected to experience a 30% reduction in turnover or customer orders due to the pandemic in the period from 1 January to 31 December 2021 compared to 2019 for pay dates on or between 1 July and 31 December 2021. Therefore, in order to avail of the EWSS, you will need to provide the following;
- Actual monthly turnover details for January to December 2019,
- Actual monthly turnover details for Jan to June 2021 and
- Monthly projections for July to December 2021.
July 21, 2021