Tax measures to help support an increase in the housing supply form a key part of KPMG’s Pre-Budget Submission published today. Designed to help reduce cost pressures, promote investment and encourage landlords to stay in or enter the market, the firm says that a multifaceted approach is needed to help ease housing supply challenges, ensure project viability and stem the exit of private landlords from the sector.
The proposed measures for Budget 2024 include:
- Reduce VAT on supply of new housing - changes to EU VAT rules present this opportunity.
- The reintroduction of mortgage interest relief.
- A targeted and controlled form of Section 23 style relief should be reintroduced to promote urgent investment in the rental sector.
- Tax relief for both employers and employees on the provision of property for employee occupation.
- Taxation of landlords should be reformed to discourage landlords from leaving the market.
- Residential Zoned Land Tax, the Land Value Sharing mechanism, and the Stamp Duty refund scheme should be amended to support residential development.
In addition to addressing housing issues, KPMG’s Pre-Budget Submission also says imminent global tax reform requires Ireland to remain competitive and calls for effective personal tax rates to be reduced by the introduction of a new intermediate rate of 30%. The firm also says that Budget 2024 provides a timely opportunity to support Irish entrepreneurs in accessing risk capital and talent.
Addressing the housing crisis
The KPMG Pre-Budget Submission highlights the social, economic and business costs of the current shortfall in housing provision. According to KPMG’s Head of Tax, Tom Woods; “The viability of building residential units is under pressure and urgent action is needed to address the cost challenges. Serious consideration should be given to the application of a much-reduced VAT rate on new housing as permitted by the recently adopted new EU VAT Directive.”
Reintroduce mortgage interest relief
KPMG calls for the reintroduction of mortgage interest relief. KPMG’s Head of Tax, Tom Woods, says; “Mortgage interest relief should be reintroduced to assist homeowners with mortgage repayments in the face of rising interest rates.”
Keeping private landlords in the market
The taxation of private landlords should be reformed to encourage them to stay in the market by putting them on the same footing as trading businesses. Furthermore, a controlled and targeted Section 23 style relief should be reintroduced to promote urgent investment in the rental sector.
Incentivising employers to provide employee accommodation
Employers should also be incentivised to develop housing for employees by allowing them avail of tax reliefs currently available on buildings used for trading purposes. Furthermore, a benefit-in-kind exemption should be available for the provision of such accommodation to employees earning not more than €50,000.
Addressing development challenges
Aspects of the Residential Zoned Land Tax (RZLT), the Land Value Sharing mechanism, and the Stamp Duty refund scheme risk undermining the economic viability of many residential developments. For example, the RZLT should be amended to introduce reliefs that reflect the practicalities of the development process.
The proposed new Land Value Sharing mechanism creates uncertainty and costs for existing landowners that need to be addressed before the enactment of this regime. The stamp duty refund scheme also imposes an unnecessary upfront cashflow burden on developers. This could be resolved by applying the 2% stamp duty rate on land purchased for residential development at the time of purchase.
Personal tax reform
KPMG calls for personal tax reforms to improve Ireland’s proposition as a location for global talent. Suggested reforms include graduated tax bands and a new intermediate rate of 30%, the automatic indexation of bands and credits to protect against the impact of inflation and simplifying the taxation of share-based compensation.
Promoting entrepreneurship and innovation
KPMG calls for the introduction of a special CGT rate of 20% and reforms to Entrepreneur Relief to drive capital investment in the SME sector. Reducing tax on SME dividends should also be considered to encourage long-term investment in SMEs so they can scale to their full potential. To further encourage investment in SMEs, the Employment and Investment Incentive Scheme requires simplification and a mechanism to provide tax relief certainty to participating companies and investors.
KPMG also suggests introducing targeted improvements to the R&D tax credit regime which includes an increased 35% credit for qualifying expenditure and an enhanced Special Assignment Relief Programme to attract skilled R&D professionals to live and work here.
Enhancing Ireland’s international competitiveness
KPMG says the corporation tax regime should be modernised by removing unnecessary complexity in the taxation of foreign dividends and branch profits, expanding the substantial shareholder CGT exemption, and reforming capital allowance rules to drive capital investment.
Supporting the green transition
KPMG recommends introducing tax supports to mobilise private finance for green investment via ESG bonds and pension funds. The R&D tax credit should be enhanced to incentivise the development and use of green technology.
Tax reliefs should also be used to accelerate the transition to electric and hybrid vehicles, the retrofitting of homes and commercial property, and to support the agri-sector transition to more sustainable practices. The Government should also explore opportunities to develop sustainable aviation fuel production facilities in Ireland.
Get in touch
The measures unveiled in Budget 2024 will have far-reaching implications for businesses across Ireland. If you have any inquiries, comments, or wish to explore further, we are here to assist.
Feel free to get in touch with Tom Woods, our Head of Tax - we'd be delighted to hear from you.
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