HOW WILL BUDGET 2025 IMPACT INVESTORS & OWNERS?

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SUMMARY

The Budget includes a number of measures which will benefit owners or investors in start-ups, SMEs and some larger business as well expanding S481 Film Relief amongst other things.

These include:

• Increase in the relief available under the Start-up Relief for Entrepreneurs from €700k to €980k.
• Doubling in the investment limits under the Employment Investment Incentive scheme (EIIS) from €500k to €1m.
• Increase in the lifetime limit on gains liable for reduced Capital Gains Tax (for Angel Investors in innovative start-ups and SMEs) from €3m to €10m (Note: new 16% for individuals or 18% through Partnerships announced in Budget 2024).
• Boost in the limit of Retirement Relief from €3m to €10m.
• New relief for expenses incurred in connection with a first listing on an Irish or European stock exchange, subject to a cap of €1 million.
• Increase in the amount reimbursed in year one under the R&D Tax Credit scheme from €50k to €75k.
• Introduction of two new audio-visual incentives under S481 Film Relief.
• Subject to state aid rules, introduce Stamp Duty exemption for Irish SMEs to access equity via financial trading platforms designed to support their funding needs.
• Enhancement of the section 486C small company start-up corporation tax relief.
• Commitment to consider the recommendations of the report on share ownership schemes and the review of R&D tax credit next year.

Business owners will also be impacted by changes to the National Minimum Wage, increases in PRSI – from this month, increases in the amount and frequency of the Small Benefit Exemption as well as the launch of Automatic Enrolment for employee pensions later in 2025.

1 INVESTORS & OWNERS

1.1      Start-up Relief

Start Up Relief currently provides a Corporation Tax (CT) relief for new small companies in the first five years of trading with an annual CT liability of less than €40,000.  Marginal relief is available to Companies with a CT liability of between €40,000 and €60,000 to ensure Companies with a liability just over €40,000 do not lose the full value of the relief.

The relief, of up to €40,000 per year against CT liabilities, may be carried forward where not fully used in the five years. The relief is currently calculated by reference to employer PRSI paid of up to €5,000 per employee.  This does not encompass PRSI paid by owner-directors.  The measure announced proposes to extend the qualifying criteria to allow up to €1,000 of Class S PRSI per individual to count towards this cap. This will provide much needed support for small, owner-managed start-up companies.

1.2      Relief for Investment in Corporate Trades (EII, SURE, SCI)

Following a tax expenditure review, it is proposed to extend the Relief for Investment in Corporate Trades, which comprises the Employment Investment Incentive (EII), Start-Up Relief for Entrepreneurs (SURE) and the Start-Up Capital Incentive (SCI), for a further two years to 31 December 2026.

The EII/SURE/SCI provides income tax relief for risk capital investments in qualifying small and medium enterprises.

The limit on the amount that an investor can claim relief on for EII investments will be increased from €500,000 to €1,000,000.

It is proposed to increase the relief available to a maximum of €140,000 per year (€980,000 over 7 years) for SURE investments.

1.3      Participation Exemption Regime

It is proposed to introduce a new Participation Exemption for Foreign Dividends to simplify existing double taxation relief provisions. It provides an alternative method of double tax relief for dividends received from subsidiaries in EU/EEA and double tax treaty partner jurisdictions, with significantly lower administrative burden than the existing “tax and credit” method of relief.

Under the new rules, a company will have the option to claim the participation exemption or to continue to use existing tax-and-credit relief, by way of an election in the company’s annual corporation tax return.  Where a company elects to claim the participation exemption for a financial period, it must do so for all dividends potentially in scope of the exemption in that period.

The Participation exemption will be available for relevant distributions received on or after 1 January 2025 from subsidiaries in EU/EEA and tax treaty partner source jurisdictions.

The Minister also announced that next year will see consideration of a possible exemption for foreign branch profits.

1.4      Angel Investor Relief Capital Gains Tax Relief

The Angel Investor Capital Gains Tax Relief, which is targeted at encouraging business angel investment in innovative start-ups, was announced in Budget 2024, and will commence shortly.  It is proposed to increase the lifetime limit on gains, on which the reduced rate of Capital Gains Tax applies, from €3 million to €10 million.

The relief will be available to an individual who invests in an innovative start-up small and medium enterprise (SME) for a period of at least 3 years.  The investment by the individual must be in the form of fully paid-up newly issued shares costing at least €20,000 or €10,000 if acquiring between 5% and 49% of the ordinary issued share capital of the company.  Max ownership of 49%, the investor cannot control the company.

The amount on which the reduced rate of CGT of 16%, or 18% if through a partnership, will apply to the lower of:

• The chargeable gain.
• Twice the amount of the investment in the shares.
• €10m less the total of all other chargeable gains qualifying under this relief.

1.5      Retirement Relief

Retirement Relief is a relief from CGT that arises on the disposal of certain business assets and shares in certain companies.  To avail of the relief an individual has to have reached the age of 55 and satisfy various conditions.  Under the current legislation once an individual has reached the age 66 there is a €3 million limit on the relief where the qualifying assets are transferred to the individual’s children or certain others.

Budget 2024 proposed increasing the age limit from 66 to 70 and applying a €10m limit on transfers within the family when the disponer was between 66 and 70.

The Minister announced that this age limit will be applied, so, from 1 January 2025 this age limit condition for the transfer of chargeable assets to children and to others will increase from 66 to age 70.

However, the €10m limit will be subject to a new provision so that the CGT liability arising in respect of an individual aged 55 and over when transferring qualifying assets to a child where:

• the value of such assets exceeds the €10 million lifetime limit on CGT relief available in respect of such transfers and
• the transfer(s) takes place on or after 1 January 2025,

the CGT liability arising in such circumstances may be deferred by the individual making the transfer.

It was announced that there will be a clawback of the CGT liability deferred where the child, to whom the qualifying assets are transferred, disposes of the assets within 12 years of the transfer.

The CGT liability deferred will then be assessed and charged on the child. This will be in addition to any CGT liability arising on the gain accruing to the child on their disposal of the assets. Where the child retains ownership of the qualifying assets for 12 years, the CGT liability deferred may be abated in full.

1.6      Relief for Listing Expenses

It is proposed to introduce, as part of Budget 2025, a new measure giving relief for expenses incurred on an initial stock market listing. This measure will support businesses in the scale-up phase of their growth and development. It will also encourage more stock exchange listings – thereby providing wider positive benefits for the Irish economy.

The deduction will be for expenses incurred wholly and exclusively on a first listing (IPO) on a recognised stock exchange in Ireland or the EU/EEA area.

An overall cap of €1million of expenses per listing will apply and the relief will apply for successful listings completed on or after 1 January 2025.

1.7      Research and Development Tax (R&D) Credit

The R&D tax credit provides a 30% tax credit for qualifying R&D expenditure.  Under the current system a company has the option to call for payment of their eligible R&D tax credit or to request for it to be offset against other tax liabilities.

The first year payment threshold is being increased from €50,000 to €75,000.

1.8      Section 481 Film Relief

It is proposed to introduce two new audio-visual incentives as part of Budget 2025. The first is the Tax Credit for Unscripted Production, the development of which was originally announced as part of Budget 2024. The second is the Scéal Uplift for small to medium budget productions under the Section 481 Film Tax credit.

2 BUSINESS OWNERS & EMPLOYERS

2.1      PRSI

Whilst it was not mentioned in the Budget speech yesterday, Budget 2024 provided for an increase in all PRSI contribution rates, both employee and employer.  All classes of PRSI will increase by 0.1 percent from 1st October 2024. This will be followed by a further 0.1 percent in October 2025, 0.15 percent in October 2026 & 2027 and 0.2 percent in October 2028.

2.2      Small Benefit Exemption 

Currently an employer can make up to two small gifts (tax free) to an employee in a tax year so long as the combined value does not exceed €1,000 and it is given in cash.

From 1 January 2025 the “Small Benefit Exemption” is increasing to €1,500 and there is an increase the number of benefits that an employer can give, from two to five per year (cumulative total of first five benefits in a year shall not exceed €1,500).

2.3      Pension Changes

Finance Bill 2024 will provide for the taxation of the Automatic Enrolment Retirement Savings Scheme (referred to as AE). It is expected that AE will be introduced in September 2025.  The tax treatment aligns as much as possible with that of Personal Retirement Savings Accounts (PRSAs), other than for employee contributions. As the State is making a direct contribution for employees within the AE scheme, there is no tax relief being provided for employee contributions to AE.

2.4      National Minimum Wage

As of 1 January 2025, the national minimum wage will increase by €0.80 per hour to €13.50 per hour.

2.5      Increase in VAT Registration Thresholds

The existing VAT registration thresholds are being increased. From 1^st January 2025 the VAT registration thresholds will be €42,500 for services and €85,000 for goods.

This bulletin is intended as a general guide to the subject matter and should not be used as a basis for decisions.  Whilst every effort has been made to ensure the accuracy of the content, no liability can be taken for any omissions or errors.  Professional taxation advice should always be taken prior to proceeding with any transaction giving rise to tax consequences. Contact info@dhkn.ie if you would like further information or have questions.