Press release
Minister Donohoe publishes Finance Bill 2021 underpinning measures to support economy and society in Budget 2022
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The Minister for Finance, Paschal Donohoe TD, has today (Thursday) published the Finance Bill 2021 following approval by Government earlier this week.
Finance Bill 2021 runs to 83 sections and over 200 pages. The Bill underpins the Government’s ongoing support for the economy, particularly in response to the impact of Covid-19. It also reflects significant taxation responses to the key challenges of housing and climate change.
The Bill includes the necessary legislative provisions to provide for the tax changes announced in the Budget as well as introducing some necessary anti-avoidance and technical changes to the tax code.
Commenting on the publication of the Finance Bill, Minister Donohoe stated:
“The Government wants to ease the cost of living pressures that many are feeling at present. I am pleased therefore to be able to introduce changes to the income tax system that will benefit everyone who pays income tax. Budget 2022 will put the public finances on a sustainable path and meet the twin goals of investing in our future and meeting the needs of today.
The Bill further extends some of the pandemic supports provided for business in keeping with the Government commitment that there would be no cliff-edge to these supports.
The EWSS has played a central role in supporting businesses, encouraging employment and helping to maintain the link between employers and their employees. The measures contained in the Finance Bill will ensure that this support is phased out in a gradual manner and provides some certainty to employers in planning ahead.
The extension of Help to Buy into 2022 will be of assistance to first time buyers and will allow us to make further progress under the Housing for All Strategy. The scheme will be reviewed in the course of 2022.
An important element of this Strategy is to boost supply and to that end, I am confident that the Zoned Land Tax will have the desired impact of increasing residential development.
We made significant changes to the VRT system last year in line with Government commitments to radically reduce emissions. The Finance Bill 2021 will continue this important work in a number of different and significant ways to address one of the most important challenges facing us, the issue of climate change.”
In Budget 2022, the Minister for Finance announced an income tax package amounting to an estimated €520m in 2022 and €597m on a full year basis.
The main elements of the personal income tax package, will see the main personal tax credits (personal credit, PAYE credit and Earned Income credit) being increased by €50 each to €1,700, broadly a 3% increase, and the standard rate cut-off point for a single person being increased by €1,500 to €36,800 (4% increase), with commensurate increases in the bands applying to married persons and persons in civil partnerships.
USC Changes
In relation to USC, the 2% rate band ceiling will be increased to take account of the National Minimum Wage increase that will apply from 1 January 2022. This will ensure that the 2% rate remains the highest rate of USC that is charged on the income of full-time minimum wage workers.
The reduced rate of USC for Medical card holders will also be extended for a further year until the end of 2022.
Remote Working Relief
In light of Government policy to facilitate and support remote working, the Minister announced that the current tax arrangements for working from home will be enhanced and formalised through the Finance Bill, so that an income tax deduction amounting to 30% of the cost of vouched expenses for heat, electricity and internet services in respect of those incurred while working from home can be claimed by taxpayers.
The Employment Wage Subsidy Scheme (EWSS) has been at the heart of the Government’s response to the pandemic and a successful policy instrument in maintaining the link between employers and employees.
The EWSS will continue in operation, in a graduated form until 30 April 2022.
The revised arrangements for EWSS as announced on Budget Day provides clarity and certainty to businesses while also striking the appropriate balance between helping those businesses which continue to need support and recalibrating the scheme in light of the wider economic recovery.
Help to Buy
The Bill extends the Help to Buy scheme in its current enhanced form for a further year to the end of 2022. The scheme will be reviewed in the course of next year.
Zoned Land Tax
The Bill makes provision for a new Zoned Land Tax (ZLT), the objective of which is to facilitate the public policy requirement that when suitable land is zoned and serviced for housing, it should be made available for residential development at the earliest opportunity.
Local Authorities will prepare and publish maps which will identify the land that will come within the scope of this tax. There will be a two year lead-in time for land zoned before January 2022, and a three-year lead-in time for land zoned after January 2022.
The Bill will provide for a rate of 3% to be applied to the market value of land.
In relation to climate change, the Bill introduces measures in relation to VRT to reinforce the environmental rationale behind the VRT system by increasing the rates above band 8. In addition, the VRT relief for Battery Electric Vehicles is extended for a further 2 years.
In consideration of the Government’s commitments to reducing emissions, the Accelerated Capital Allowance scheme for Energy Efficient Equipment is being amended to prohibit equipment directly operated by fossil fuels from qualifying for the accelerated capital allowances.
The Accelerated Capital Allowance scheme for Gas Vehicles and Refuelling Equipment is being extended until 31 December 2024 and the scheme is being amended to allow hydrogen powered vehicles and refuelling equipment to qualify for the accelerated capital allowances.
In addition, the first €200 received by householders participating the Micro-generation Support Scheme will be exempted from income tax.
The Finance Bill also includes new measures which will complete transposition of the Anti-Tax Avoidance Directives, through the introduction of Anti-Reverse-Hybrid rules and a new interest limitation ratio to supplement our long standing domestic interest rules. As was announced in the January 2021 Update to the Corporate Tax Roadmap, the Finance Bill will introduce the Authorised OECD Approach for Transfer Pricing of Branches. This is another step in aligning our tax code with new international norms. The Finance Bill will also transpose a recent EU Directive in respect to important new tax transparency rules for digital platforms.
The Bill will introduce a new tax credit for the digital gaming sector. The relief will support digital games development companies by providing a refundable corporation tax credit for qualifying expenditure incurred on the design, production and testing of a game. The relief will be available at a rate of 32%, on eligible expenditure of up to a maximum limit of €25 million per project. As European State aid approval is required for the credit, it will be introduced subject to a commencement order.
The EII is being extended for a further three years to the end of 2024 and it will be opened up to a wider range of collective investment funds to broaden the sources of financing for SMEs under the scheme in order to encourage greater investment in start-up enterprises.
In addition, the Bill relaxes the rules around the so called “capital redemption window” so that investors with a number investments in a company over multiple years may redeem an investment for a year where that year is outside the compliance period even though other investments may still be within their compliance periods. It also removes the 30% expenditure rule which requires that an EII investee spends 30% of the investment on qualifying purposes before relief can be claimed by the investor.
The Bill extends a number of tax concessions for farmers including extending General Stock Relief measures for a further three years to the end of 2024. Young Farmers Stock Relief, Young Trained Farmer Stamp Duty Relief and the Registered Farm Partnership measures will be extended for one year to the end of 2022. This shortened period is necessary pending the outcome of CAP and related State Aid negotiations at EU level.
The Finance (No.2) Act 2013 introduced the Financial Institutions Levy for the three-year period 2014 to 2016 with the purpose of enabling the banking sector to contribute to economic recovery. The annual yield of this levy has been approximately €150 million. Finance Act 2016 extended the levy to 2021.
It was announced in Budget 2022 that the bank levy will be extended for another year and to apply it only to those banks that will continue to operate in the Irish market going forward. This means that the levy is expected to generate in the region of €87 million in 2022.
Details on the key provisions in the Bill are set out in the accompanying Notes to Editors.
