BUDGET 2025 INCLUDES BENEFITS FOR (ALMOST) EVERYONE

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Ministers Jack Chambers and Paschal Donohoe presented Budget 2025 on Tuesday 1 October 2023 as one which aims to put the country on a “firm-footing for the future”.

The Budget contains a series of tax measures and additional expenditure to help families and businesses deal with rising costs. In addition, it includes significant investments in infrastructure utilising the recent windfall gains from AIB and Apple.

In this summary report the tax team at DHKN reports the key points set out in the Budget by both ministers as they impact taxation and welfare payments.

TAXATION MEASURES

1.1 PERSONAL TAXATION

Tax Bands & Tax Credits

There is an increase of €2,000 in the income tax standard rate band cut-off point for all earners in 2025.  The increases are as follows:

• Single, widowed or surviving civil partner from €42,000 to €44,000
• Single, widowed or surviving civil partners, qualifying for the Single Person Child Carer Credit from €46,000 to €48,000
• Married couples or civil partners (one income) from €51,000 to €53,000
• Married couples or civil partners (two incomes) from €51,000 to €53,000 (with an increase of €35,000 or the second income if lower)
• The Personal Tax Credit will increase by €125 from €1,875 to €2,000.
• The Employee Tax Credit will increase by €125 from €1,875 to €2,000.
• The Earned Income Tax Credit will increase by €125 from €1,875 to €2,000.
• The Home Carer Tax Credit will increase by €150 from €1,800 to €1,950.
• The Incapacitated Child Tax Credit will increase by €300 from €3,500 to €3,800.
• The Blind Person’s Tax Credit will increase by €300 from €1,650 to €1,950.
• The Dependent Relative Tax Credit will increase by €60 from €245 to €305.
• The Sea-going Naval Personnel Tax Credit of €1,500 is extended to 31 December 2024.

Universal Social Charge

The 2.0% band of USC increases by €1,622 to €27,382 and the 4.0% rate is reduced to 3.0%.

*The reduced rate of 2% USC that currently applies to full medical card holders, whose aggregate income does not exceed €60,000, applies to the end of 2025.

Rent Tax Credit 

The rent tax credit is being amended to increase the amount that can be claimed from €750 to €1,000.  One credit may be claimed per person per year, and the credit will be doubled in the case of married couples and civil partners.   This increase will apply in respect of the 2025 year of assessment.

In recognition of the cost of living pressure, the increased credits will apply for 2024 also.

Mortgage Interest Tax Relief

Mortgage interest tax relief is being extended to a second year.

Mortgage interest tax relief will be available at the standard rate of income tax (20%) in respect of the increase in the interest paid between the calendar year 2024 compared to the calendar year 2022. The maximum value of the relief is €1,250 per property.

National Minimum Wage

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

1.2 PROPERTY

Help to Buy (HTB)

The Help to Buy scheme is an income tax measure intended to assist first-time buyers with the deposit required to purchase or self-build a new house or apartment to live in as their home. The scheme will be extended for a further four years, from the end of 2025 to the end of 2029.

Pre-Letting Expenses

A deduction (capped at €10,000 per premises) from rental income for certain pre-letting expenditure is available. The relief will be extended for a further three years, to 31 December 2027.

Vacant Homes Tax (VHT)

The VHT was introduced in 2023 to increase the supply of homes for rent or purchase to meet demand for housing.  The tax applies to residential properties which are unoccupied for twelve months or more.  A property will be considered vacant for the purposes of the tax if it is occupied for less than 30 days in a 12-month period.

The rate of the VHT is being increased from five times to seven times a property’s existing base Local Property Tax liability.  This increase will take effect from the next chargeable period, commencing 1 November 2024.

Residential Zoned Land Tax

Budget 2022 announced a new Residential Zoned Land Tax (RZLT) to encourage the use of land for building homes.  The Minister announced that the primary objective is to increase the supply of residential accommodation rather than to raise revenue.

RZLT is an annual tax, to be calculated at 3% of the market value of the land in scope. Amendments proposed to RZLT legislation in Finance Bill 2024 will provide for a further opportunity for RZLT landowners to seek a change in zoning in 2025 to a zoning which reflects the economic activity they undertake on the land.

Legislation will be introduced to allow for 12-month deferral of RZLT liability between the grant of planning and commencement of development, exemption during Judicial Review Proceedings brought by a third party as well as technical amendments. To ensure local authorities appropriately consider requests the Minister for Housing, Local Government and Heritage will issue guidelines to local authorities indicating that they should consider and accommodate rezoning requests where landowners seek to continue undertaking existing economic activity.

Stamp Duty on the bulk acquisition of houses

The Stamp Duty rate applied where 10 or more houses are acquired in any 12-month period is being increased from 10% to 15% with effect from Budget night.

Stamp Duty on residential property value above €1.5 million

A third rate of Stamp Duty on residential properties to apply where the value/acquisition price involved exceeds €1.5 million is now being introduced with effect from 2nd October 2024.  It will apply at a rate of 6% to that element of the value above €1.5 million.  The existing 1% Stamp Duty rate on residential property value up to and including €1 million, and 2% on any value above €1 million and at or below €1.5 million will continue to apply.

1.3 BUSINESS MATTERS

Corporation Tax Rates

The current 12.5% Corporation Tax Rate remains unchanged.

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.

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).

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.

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.

Relief for Investment in Corporate Trades

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.

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.

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.

BIK Measure: Relief for Battery Electric Vehicles

The temporary universal relief of €10,000 applied to the Original Market Value of a vehicle (including vans) for vehicles in Category A-D and the amendment to the lower limit of the highest mileage band is being extended to 31 December 2025.

The tapering mechanism applied to benefit in kind relief for electric vehicles was enhanced in 2024 by extending the current Original Market Value deduction of €35,000 until end 2025, followed by a reduction to €20,000 in 2026 and €10,000 in 2027.

Taken together with the extension of the universal Original Market Value relief an employee with an electric company vehicle will see an overall BIK Original Market Value relief of €45,000 in 2025.

BIK Measure: Battery Electric Vehicle (BEV) home chargers  

A BIK exemption is being made in circumstances where an employer incurs an expense in connection with the provision of a facility for the electric charging of vehicles at the home of a director or employee. 

Bank Levy

The revised bank levy introduced in 2024 is being extended for one further year (2025).  It will apply to those banks that received financial assistance from the State during the banking crisis, (AIB, EBS, Bank of Ireland and PTSB).  It will have a revenue target of €200 million.

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.

Accelerated Capital Allowances – Gas & Hydrogen Vehicles 

The Accelerated Capital Allowances scheme for gas and hydrogen-powered vehicles and refuelling equipment provides a tax incentive for companies and unincorporated businesses who invest in such vehicles and equipment for the purposes of their trade.  It is proposed to extend the relief for a further year, to 31 December 2025.

Emissions Threshold for vehicle capital allowances

The CO2 thresholds for claiming capital allowances on business cars are being adjusted downward in light of improved vehicle emissions standards. From 1 January 2027, an expenditure of €24,000 will be allowable for cars with CO2 emissions of 0-120g/km. A reduced amount of €12,000 will be allowable for vehicles with CO2 emissions of 121-140g/km.  There will be no allowable expenditure for vehicles with emissions >141g/km.

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.

1.4 AGRICULTURAL MEASURES

Accelerated Capital Allowances – Farm Safety Equipment

This scheme allows for accelerated capital allowances of 50% per annum for eligible equipment.

The measure is being broadened to allow for relief in respect of expenditure by famers on certain Targeted Agriculture Modernisation Schemes (TAMS) eligible safety equipment not currently supported.

Stock Relief (General, Young Trained Farmers and Registered Farm Partnerships)

Stock reliefs are given as a deduction from trading income and are available in respect of the computation of farming profits. Subject to meeting certain conditions, a person carrying on the trade of farming is entitled to a stock relief deduction for an accounting period in which there is an increase in the value of the trading stock of the farming trade over the accounting period. The following three stock reliefs, which are due to expire on 31 December 2024, are being extended for a further three years to 31 December 2027 – General Stock Relief, Young Trained Farmer Stock Relief and Stock Relief for Registered Farm Partnerships.

CAPITAL TAXES

The current rates of Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) remain unchanged at 33%.

CAT Group Thresholds

The three  CAT tax-free thresholds, depending on the relationship between the disponer and the beneficiary, will increase as follows:

• CAT A Threshold to €400.000
• CAT B Threshold to €40,000 and
• CAT C Threshold to €20,000.

CAT Agricultural Relief

This new measure will require the donor to meet the 6-year Active Farmer test for the beneficiary to benefit from Agricultural Relief and is a tax relief limiting measure to narrow this relief to benefit farmers. This measure is to safeguard agricultural relief for the genuine active farmer and the next generation of farmers.

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.

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.

INDIRECT TAXES

3.1 VAT

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.

VAT scheme for unregistered farmers

The flat-rate scheme compensates unregistered farmers on an overall basis for VAT incurred on their farming inputs.  This rate will increase from the current 4.8% to 5.1% from 1 January 2025.

VAT rate for gas and electricity

The 9% VAT reduction for gas and electricity is being extended for an additional six months, until 30 April 2025.

VAT rate on the supply and installation of heat pumps

Following amendments in the VAT Directive it is possible to apply a reduced VAT rate on heat pumps meeting specific technical standards. A VAT reduction to 9% for heat pumps is proposed from 1 January 2025 to incentivise homeowners to install heat pumps.

3.2 EXCISE DUTIES

Tobacco Products Tax                                                             

The excise duty on a packet of 20 cigarettes is being increased by €1 (including VAT) with a pro-rata increase on the other tobacco products effective from midnight on 1 October 2024.

E-Cigarettes

A tax on e-liquid products is to be introduced in the middle of next year. This tax will be charged on the supply of e-liquid products made in the State and will apply at a rate of €0.50 per ml.

Alcohol Products Tax Relief Measure

The excise relief for independent small producers of cider and perry is being extended to cover what is known as other fermented beverages, which includes products such as mead and wines other than grape wine such as elderberry wine, strawberry wine etc., as well as to higher strength cider and perry.

CLIMATE CHANGE TAXES

Carbon Tax

The rate per tonne of carbon dioxide emitted for petrol and diesel will increase from €56.00 to €63.50 from 9 October as per the trajectory set out in the Finance Act 2020.  This increase will be applied to all other fuels with effect from 1 May 2025.

Emissions based VRT for Category B Vehicles 

An emissions based approach to VRT for category B commercial vehicles is being introduced. This proposal will introduce a lower 8% rate for category B vehicles with CO2 emission of less than 120 grams per kilometre with a view to incentivising uptake of lower emissions vehicles.

Weight Carriage Ratio 

The weight carriage ratio for electric commercial vehicles is being changed to enable them to qualify for  the VRT rate of €200.

OTHER TAXATION MEASURES

Compliance

Revenue will conduct a range of targeted compliance management activities in 2025. It is expected that additional Exchequer receipts will arise from increased taxpayer compliance in a range of economic areas. The yield form this is estimated to be €70 million.

CervicalCheck Payments

Budget 2025 provides that payments made to women impacted by failures in the CervicalCheck national screening programme will be exempt from income tax, capital gains tax, and capital acquisitions tax.  In addition, the minister indicated that any income or gains arising to these women from the investment of the funds received under the CervicalCheck payments will also be exempt from the aforementioned taxes.

Charitable bodies

The Minister announced that newly registered charities will no longer have to wait two years after registering to be eligible for tax relief on donations.

Sporting organisations and bodies

The Minister announced that there is to be greater flexibility on how donations to sports bodies for both capital projects and other purposes, are to be treated for income tax purposes. It is proposed that individuals will be able to choose whether they obtain the income tax relief or whether the sporting body can claim relief directly from Revenue.

SUPPORTS AND BENEFITS

Once-off cost of living supports

• Two credits of €125 each will be provided between the end of this year and April of next year to assist households with energy bills.
• Double payment of Child Benefit, worth an additional €140 for each child, will be made to all qualifying households before Christmas. A double payment of the Foster Care Allowance will also be made this year.
• A Newborn Baby Grant of €280, in addition to the first month of Child Benefit of €140, will be paid to children born on or after 1 January 2025.
• A €300 lump sum payment will be made to recipients of the Fuel Allowance in November.
• An additional €200 will also be paid this year to recipients of the Living Alone Allowance.
• Once-off double week “Cost of Living Support” payment to all qualifying Social Protection recipients this October and will include pensioners, carers, people on disability payments and jobseekers. This is in addition to the Christmas bonus.
• A special, once-off payment of €400 will be made before Christmas to those who receive the Carer’s Support Grant, Disability Allowance, Blind Pension, Invalidity Pension and Domiciliary Care Allowance. This will be limited to one payment per individual.
• A €400 lump sum payment will be made to recipients of the Working Family Payment this winter.
• A once off reduction of the student contribution fee by €1,000 for free fees students; a once-off reduction of approximately 33% in the contribution fee for apprentices in higher education and an increase in the Post Graduate Tuition fee contribution by €1,000 for student grant recipients.

Recurring supports

There were many changes to the range of recurring payments made through the Social Welfare system. Some of the more notable ones are listed below and more details can be found here.

• The maximum weekly rate of Maternity Benefit, Adoptive Benefit, Paternity Benefit and Parent’s Benefit will increase by €15 (January 2025). All other weekly social welfare payments will increase by €12 with proportional increases for qualified adults and people on reduced rates of payment (January 2025).
• There are a number of improvements for Carers including in increase in the amount of Disregarded Income for Carer’s Allowance as well as qualification for the Fuel Allowance. Carer’s Benefit will extend to the self-employed and there are increases in the Carer’s Support Grant as well as the Domiciliary Care Allowance.

EXPENDITURE

On top of the significant allocations of funds for medium-term infrastructural projects  to the Land Development Agency, Uisce Éireann and the electricity network, Minister O’Donohoe also announced the measures below, amongst others.

Health

• Introduction of 495 new beds to our health service, bringing the total number of beds to 18,000
• Increased access to IVF and HRT free of charge
• 600,000 additional home support hours

Housing

• 10,000 new-build social homes and €560 million for key affordable housing schemes supporting the delivery of 6,400 affordable homes
• 10,000 new tenancies supported through the Housing Assistance Payment and Rental Accommodation Schemes
• €1.65 billion in current funding will continue to support 66,000 households in active social housing tenancies
• 7,400 new social housing leases

Education

• Extending the Hot School Meals programme to all primary schools in 2025. Introducing a school meals holiday hunger pilot project
• Extension of the Free Schoolbooks initiative to all senior cycle pupils in recognised post primary schools within the free education scheme
• €78 million to support the continued growth of the craft apprenticeships system to 6,800 apprentice registrations
• €1.3 billion will support 350 school building projects currently underway as well as a further 200 new school projects
• 768 additional special education teachers and 1,600 more Special Needs Assistants
• The rollout of supports to allow schools become smartphone free areas throughout the school day

Rural Ireland

• €400 million to accelerate the roll-out of the National Broadband Plan
• €235 million helping to support the revitalisation of rural Ireland through infrastructure and schemes

Agriculture

• €416 million to support sustainable farming through areas of natural constraint, forestry, organic farming and other schemes
• €30 million for a new tillage scheme supporting farmers to plant their field crops
• €8 million to enhance payment rates on the Beef Welfare Scheme
• €10 million for animal health measures improving biosecur
• €22 million for the continuation of the National Sheep Welfare Scheme into 2025

Transport

• Continued rollout of the BusConnects programme in our cities and more town bus services
• A new and modern Coast Guard Search and Rescue contract
• €1 million per day investment in cycling and walking infrastructure
• Fare initiatives on public transport, including the Young Adult Card and the ninety-minute fare, continued to end of 2025
• €99 million financing agreement for the Port of Cork to develop infrastructure which can facilitate offshore renewable projects

Culture & Sport

• Almost €380 million to arts and culture
• €231 million to sports which will benefit clubs and organisations in every corner of the count
• Additional €25 million to the Community Recognition Fund for upgrades to sports facilities, community centres, parks, walking trails and playgrounds

Justice & Defence

• Significant increase in funding for the Irish Prisons Service, which includes provision for up to 350 additional staff
• Funding for the recruitment of a further 1,000 Gardaí and up to 150 Garda civilian staff next year
• €7 million for organisations providing supports to victims of domestic, sexual and gender- based violence
• Funding for the recruitment, training and support of a net increase of 400 military personnel

Overseas Aid & Migration

• Highest ever allocation to Overseas Development Assistance
• €13 million to help integrate migrants from Ukraine into local communities

This newsletter 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.