Finance Bill - Personal tax measures

Oct 23, 2017

The Bill gives us the details of the new employee share option scheme, known as the Key Employee Engagement Programme or KEEP, which was first promised in Budget 2017 and confirmed in Budget 2018.  The Bill also includes details on the new tax treatment of electric vehicles provided to employees.  New provisions to tax any free or discounted health or dental insurance policy given to certain employees are in the Bill.  As expected, reductions to the USC charge and the increase in the standard rate band as well as changes to the Earned Income Credit and the Home Carer credits are legislated for in the Bill. 

KEEP

The aim of this new share option incentive is to enable SMEs reward, motivate, and retain employees in a tax efficient manner. 

The main conditions to avail of the incentive are:

  • The company must be an unquoted, trading company, Irish incorporated and Irish resident or resident in the EEA but carry on a business in Ireland through a branch or agency.
  • The company must come within the definition of an SME:
    • employ fewer than 250 people,
    • have an annual turnover not exceeding €50 million, and/or
    • an annual balance sheet total not exceeding €43 million.
  • Share options up to a total market value of €3m can be granted with the total market value of the share options granted to any one individual not exceeding €100k in any one tax year, €250k over three consecutive years or 50 percent of the individual’s annual emoluments.
  • Employees must be full time or directors who spend a minimum of 30 hours per week working for the company. The individual (either alone or with connected persons) must not control directly or indirectly more than 15 percent of the ordinary share capital of the company.
  • The share options must be granted to the employees at market value and the main purpose of the scheme must be to recruit or retain employees.
  • The share options must be held for a minimum of 12 months before being exercised (with limited exceptions e.g. on death or a sale of the company), and must be exercised within 10 years of the date of grant.
  • The shares received on the exercise of the options must be ordinary shares and they must not carry any preferential rights.

    The tax treatment of the share options will be:

  • Any gain realised on the exercise of an option granted on or after 1 January 2018 and before 1 January 2024 will be exempt from income tax.
  • Capital Gains Tax will apply on any gain arising on the disposal of the shares.   The gain will be the difference between the amount paid for the shares on exercise and the market value on disposal. 

The Bill inserts a new section into the Taxes Consolidation Act (TCA 1997) after section 128E TCA 1997 to provide for the introduction of the KEEP. 

Provision of electric motor vehicles to employees

An exemption from the general benefit in kind is being introduced for employer provided electric vehicles (cars and vans) for next year only.

Any expense incurred by the employer in providing electrical charging points for use in the workplace for charging electric vehicles will also be exempt from a BIK charge, provided all employees and directors of the company can avail of the facility.

The Minister for Finance told us as part of Budget 2018 that these interim measures are intended to allow time for a comprehensive review of the taxation of employer provided vehicles. We may see further changes to the tax treatment of motor vehicles provided to employees in next year’s Finance Bill.

Employees of health or dental insurer

Under a new section 112AA inserted into the TCA 1997, employees of health or dental insurers who are provided with a free or discounted health or dental insurance policy will now be taxable on the market value of the policy.  Any tax relief at source that would have been available and any amount paid by the employee will reduce the taxable value.   Where a family member of an employee receives a similar free or discounted policy, the value of such will be a taxable emolument for the employee.  

Preferential loans to employees

The Bill introduces a technical amendment to ensure that a loan given to an employee where no interest is paid is regarded as a preferential loan and thereby treated as a benefit in kind under section 122 TCA 1997

Domicile Levy

The Bill amends the legislation contained in Section 531AA TCA 1997 which deals with the domicile levy. The domicile levy applies to Irish domiciled individuals who own Irish assets valued in excess of €5 million, have a world-wide income in excess of €1 million and how have paid less than €200,000 in income tax in the relevant year.  A new subsection is introduced to clarify that worldwide income for the purposes of the domicile levy is income before deducting capital allowances and losses. This could potentially increase the number of taxpayers who fall within the bracket of the domicile levy. The definition of ‘final decision’ has also been removed and this has consequences for the definition of “liability to income tax”.