- Standard rate income tax band increased by €750 for 2018, giving a tax saving in 2018 of €150 for higher rate taxpayers.
- Earned income tax credit for the self-employed and proprietary directors increased by €200 to €1,150 for 2018.
- The lower USC bands and tax rates will be reduced in 2018. The maximum saving for higher earners is €178 pa.
- DIRT rate reduced to 37% in 2018 but no change announced in the exit tax rate of 41%.
- All State Pensions to increase by €5 pw from the end of March 2018. This will make the maximum State Pension €12,695 pa, or just €5 pa under the €12,700 pa specified income limit for the ARF option.
- Stamp Duty on the purchase of commercial (i.e. non-residential) property is increased from 2% to 6% with effect from midnight 10th October 2017.
- Mortgage interest tax relief for those who bought their homes between 2004 and 2012 is being phased out between 2018 and 2020. The relief will finish for these borrowers at the end of 2020.
- No change in CAT thresholds.
- New tax efficient share option scheme (called KEEP) will be introduced in 2018 for employees of unquoted SMEs.
- No changes announced in private pension tax reliefs or taxation of benefits.
- It is possible that other taxation and pension changes not announced in the
Budget could be introduced in the Finance Bill, either at publication on 19th October 2017, or at the Committee Stage, scheduled for 7th to 9th November 2017.
Standard rate income tax band increased
The standard rate income tax band will be increased in 2018 by €750:
|Band 2017||Band 2018|
|Single / Widowed without||€33,800||€34,550|
|One Parent Family||€37,800||€38,550|
|Married / Civil Partners, one earner||€42,800||€43,550|
|Married / Civil Partners, two||€42,800 + increase max||€43,550 + increase max|
- The increase is the lower of €24,800 and the amount of income of the spouse / civil partner with the lower income. The increase is not transferable between spouses / civil partners.
For higher rate taxpayers, the €750 increase in the standard rate band amount to an effective tax saving of 20% x €750 = €150 pa.
Increase in the earned income tax credit for the self-employed and proprietary directors
The self-employed and proprietary directors (and their spouse/civil partner working in the business) are not entitled to the €1,650 PAYE tax credit, available to all other taxpayers.
In Budget 2016, a tax credit at standard was introduced for the self -employed and working proprietary directors and their working spouses/civil partners on their earned income, up to a current maximum credit of €950 per person. This maximum tax credit is being increased by €200 to €1,150 per person for 2018.
Lower USC rates
The lower USC rates and bands have been reduced for 2018 as follows:
|Income band||USC rate||Income band||USC rate|
|Up to €12,012||0.5%||Up to €12,012||0.5%|
|Next €6,760||2.5%||Next €7,360||2.0%|
|Next €51,272||5.0%||Next €50,672||4.75%|
The change in USC bands and rates leads to the following change in USC liability as between 2018 and 2017 at different levels of gross income:
- The self-employed with non-PAYE earned income in excess of €100,000 pay additional (to the 8% rate above) USC of 3.0% on such income in excess of €100,000; this continues for 2018.
- The 2.5% maximum rate applying in 2017 to the over 70s (and under 70s holding a medical card) with income (excluding Social Welfare pensions) of less than €60,000 will be reduced to 2.0% in 2018.
DIRT rate reduced to 37% for 2018
Last year’s Budget provided for a phased reduction in the DIRT rate from 41% in 2016 to 33% by 2020:
In 2018 the DIRT rate will therefore fall to 37%.
The Budget speech made no mention of a reduction in the exit tax rate from its current 41%.
State Pension increases by €5 pw from end March 2018
There is a general €5 pw increase to all Social Welfare pensions, including the State Pensions (Contributory and Non Contributory) from the end of March 2018:
|Benefit||Current maximum pension
||Maximum weekly rate of benefit fromMarch 2018
|State Pension (Contributory)||€243.30|
|Personal Rate (Under 80)||€238.30|
|Person + qualified adult (Over 66)||€451.80||€461.30|
|Person + qualified adult (Under 66)||€397.10||€405.40|
The new maximum State Pension (Contributory) from March 2018 will be €243.30 pw, or some €12,695 pa on an annualised basis, just €5 pa short of the €12,700 specified income test for the ARF option, to avoid having to invest or hold €63,500 in an AMRF.
A further increase in the State Pension in 2018 will bring it over the €12,700 pa specified income limit, hence in effect removing the AMRF requirement from those getting the maximum rate of State Pension. However, the specified income limit could yet be increased in this year’s Finance Bill (to be published on 19th October 2017) or in next year’s Budget. It remains to be seen.
The main Social Welfare benefit rates for 2018 are set out in the Tax & Social Insurance Rates Table at the end of this update.
Stamp Duty on commercial property increased
The Stamp Duty rate on the purchase of commercial (i.e. non-residential) property is being increased from 2% to 6% with effect from midnight 10th October 2017.
Mortgage interest relief continues to be phased out
Those who bought their home between 2004 and 2012 will continue to get mortgage interest tax relief at standard rate on 75% of their allowable interest (subject to a monetary limit) in 2018.
However, the relief will be reduced to 50% of allowable interest in 2018, 25% in 2020, and ending from 2021 onwards.
The monetary limits applying to qualifying interest are also being reduced over the period to 2020, as follows:
No change in CAT thresholds
Despite expectations that the CAT thresholds would be increased, in fact no change was announced in Budget 2018, so therefore the current thresholds will apply unchanged for 2018:
|Threshold Class||Applies to||Threshold|
|B||Inheriting from other||€32,500|
The CAT rate stays the same at 33%.
The Inheritance Tax payable on a €1m inheritance by a child has reduced in recent years as follows:
The CAT payable on a gift or inheritance of the following amount received by a child from a parent is as follows:
New tax efficient share option scheme for employees of unquoted SMEs
A share-based remuneration tax incentive scheme, called KEEP, is being introduced to facilitate the use of tax efficient share-based remuneration by unquoted SME companies to attract key employees.
Gains arising to employees on the exercise of share options obtained under the KEEP scheme will be liable to Capital Gains Tax on disposal of the shares, in place of the current liability to income tax, USC and PRSI on exercise.
This incentive applies to qualifying share options granted between 1st January 2018 and 31st December 2023.
No private pension changes
The Budget speech and related documents made no reference to changes in private pension tax reliefs or taxation of benefits.
Finance Bill 2017
The Finance Bill implementing Budget 2018 will be published on 19th October 2017.
It is possible that other taxation and pension changes not announced in the Budget could be introduced in the Bill, either at publication of the Bill or as it goes through the Committee Stage which is scheduled for 7th – 9th November 2017.
Tax and Social Insurance Rates 2018
Standard Rate Band
The increase is the lower of €24,800 and the amount of income of the spouse / civil partner with the lower income. The increase is not transferable between spouses / civil partners.
Income Tax Exemption Limits
Universal Social Charge (USC)
- Individuals whose total income subject to USC for the year is less than €13,000 are exempt from USC.
- The following pay a reduced rate of 0% on all income subject to USC over €12,012:
- Individuals over age 70 whose total income subject to USC for the year is €60,000 or less.
- Individuals under age 70 who hold a full medical card (i.e. not a GP-only card) and whose total income subject to USC for the year is €60,000 or less.
*A 3% additional USC rate (i.e. on top of the 8% rate) applies to non-PAYE income in excess of €100,000.
PRSI Contribution Rates
Social Insurance Benefits
Income Tax Relief on Personal Contributions
The 30% limit above also applies to certain professional sportspeople (e.g. professional golfers) under 50 in relation to their income from their sports occupation.
Taxation of Pension Lump Sums
Chargeable Excess Tax
* Threshold is the Standard Fund Threshold (€2m) or Personal Fund Threshold, if greater.
** Tax reduced by a credit for any standard rate tax deducted from pension lump sums taken since 1st January 2011 and not previously offset against a chargeable excess tax charge.
Tax Free Limits
Capital Acquisitions Tax
Thresholds – with effect from 12th October 2016
Inheritance Tax – child inheriting from parent from 12thOctober 2016
* assuming full Class A Threshold of €310,000 is available.