Pre-Budget Submission: addressing key business issues in Ireland

The Pre-Budget Submission 2024 tackles challenges in Ireland, from the ‘green’ transition to inflation and housing supply, offering recommendations to benefit businesses, says Gearóid O’Sullivan

Each year, Pre-Budget Submission is prepared under the auspices of the Consultative Committee of Accountancy Bodies – Ireland (CCAB-I). 

It is a particularly influential document as it represents not only the views of Chartered Accountants but also our peers in other professional accountancy organisations. The Pre-Budget Submission is overseen by the CCAB-I’s Tax Committee South, of which the membership is predominantly Chartered Accountants.

Pre-Budget Submission 2024

This year’s Pre-Budget Submission addresses several key issues impacting business in Ireland, from the so-called ‘green’ transition to the impact of inflationary pressures and, of course, ongoing supply issues on all sides of the residential property market. 

The aim of any tax measure is ultimately to support the economy and wider society. Therefore, to the extent a measure represents an initial cost to the Exchequer, the hope and intention is that there is a corresponding benefit that exceeds the cost. 

In some instances, the benefit is purely financial, e.g. our recommendation to permanently legislate for the Special Assignee Relief Program (SARP) and, in others, the benefit is a desired change in behaviour, e.g. our recommendation to introduce a ‘Help-to-Insulate’ scheme.

Measures to alleviate capacity issues in the residential property market

The residential property market faces issues on both the rental and retail sides. 
On the rental side, we continue to advocate for measures to make renting more attractive, particularly for small-scale and accidental landlords. 

Despite tax legislation recognising taxable profits in many cases, often small-scale and accidental landlords find themselves in a cash-flow negative position when the tax bill and any loans on the property are taken into account. 

While it is reasonable to mention the economic benefit achieved through property ownership over the longer term, the cash-flow impact is often driving these small-scale and accidental landlords out of the rental market. 

If this cohort of landlords were, in turn, selling their investment properties, there could be a sound basis from a policy perspective in maintaining the rules in their current iteration. 
However, landlords will often have to first seek to evict and then sell. As such, vacancy represents a key policy issue for government when designing appropriate taxation rules for landlords.

With the above in mind, CCAB-I has made several recommendations that we suggest will make letting sufficiently attractive for smaller-scale and accidental landlords:

• Local property tax should be available as a deduction against rental income.
• Expenses deductible under section 97 TCA 1997 should be aligned with Case I/II principles. Expenses that are revenue in nature and incurred wholly and exclusively for the purpose of the rental business should be deductible, and rental losses should be available for offset against other income.
• Capital allowance rates for fixtures and fittings should be increased from 12.5 percent to 25 percent per annum to facilitate landlords investing in the maintenance of properties, providing the works do not result in the termination of an existing tenancy.
• Landlords who retrofit a property to enhance the property’s energy rating should be able to claim a 100 percent capital allowance where the renovations do not result in the termination of an existing tenancy.
• The Government should introduce measures to bring parity to the taxation of corporate and individual professional landlords by introducing a flat rate of 25 percent on Case V income for small landlords who opted to become ‘professional landlords’ by waiving their rights under Section 34 of the Residential Tenancy Act (2014), giving additional security to their tenants.

We have also suggested a reasonable capital gains tax (CGT) relief to incentivise property sales with tenants in-situ:

• Professional landlords should be given access to succession reliefs (e.g. CGT retirement relief) to improve the long-term investment proposition of the residential rental business.
• To encourage landlords to remain in the private rental market, CGT relief of four percent per annum should accrue for the length of time the asset remains a rental property. (This was specifically examined in a 2017 Report of the Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers.)

In addition to the above, we are also recommending that Government increases ‘Rent-a-Room’ relief to match standardised average rents and to remove the ‘cliff-edge’ over which relief is completely removed.

Measures to combat inflationary pressures

The level of inflation in the Irish economy is putting significant pressure on households. 
The European Central Bank began increasing interest rates in a bid to dampen inflation. There is a balance to be struck between tax measures to combat inflation and the policy aim of reducing spending capacity.

With that said, there is scope for a reasonable change in the personal tax regime, which should not be incongruent with the policy objectives of the European Central Bank. 

Earlier this year, CCAB-I responded to the Department of Finance’s consultation on Ireland’s personal tax system. The Pre-Budget Submission includes many of the points raised in that earlier submission, including a recommendation to move to indexation of the income tax bands and credits. 

In Ireland, a taxpayer begins to pay tax at the higher rate from €40,000, although the average industrial wage is €46,800. Therefore, the application of an indexed approach to increasing bands and credits should ensure that tax bands and credits remain valuable year to year. Otherwise, while the Government may not raise bands and credits in a particular year, the real value of after-tax wage is likely to have decreased due to the impact of inflation.

We also recommend changes to other areas of the personal tax system, including several changes to the CGT and capital acquisition tax (CAT) regimes. These include:

• The CGT annual exempt amount available under section 601 TCA 1997 should be increased to €5,000. 
• The CGT indexation tables in section 556 TCA 1997 should be extended beyond 2003 to the present day.
• The rates of CGT and CAT should be reduced to 20 percent.
• The lifetime limit for claiming revised entrepreneur relief under section 597AA TCA 1997 should be increased to €5 million.
• The category A threshold for CAT should be increased to €350,000 in line with a rate reduction.
• The CAT small gift exemption should be increased to €5,000.
• Employers’ PRSI should not be increased at this time.

As in 2022, we are also recommending that further consideration is given to an intermediate rate of income tax. This is a longer-term ambition. 

However, the current system is complicated by the fact that we have three separate taxes on personal income (income tax, USC and PRSI). As such, all these taxes could be redesigned into a single tax, and in this scenario, an intermediate rate of tax becomes a key tool.

Further recommendations

Pre-Budget Submission includes further recommendations on measures to assist climate change, support foreign direct investment, SMEs and entrepreneurs, and enhance the tax system generally. 

The document is a key feature of the tax department’s annual output. It reflects the views of professional accountants across the country and is presented directly to the Department of Finance each year. 

While the Government faces several challenges in this year’s Budget as it balances a substantial surplus with increasing societal needs, it is hoped that our recommendations will be considered in terms of the benefit we believe they will bring to businesses in Ireland.

Gearóid O’Sullivan is a Tax Manager at Chartered Accountants Ireland