Budget 2025 – The Windfall Budget

Introduction

With a record tax revenue to report for 2024 of €105.7 billion (€59.3 billion in 2019), including the corporation tax receipts and receipts from the Apple Windfall, the new Minister for Finance, Jack Chambers, with this embarrassment of riches sought to balance the need of supporting families in the continuing cost of living crunch with not impacting the rate of inflation, which has despite government interventions continued to fall.

A delicate balance indeed when one is looking at a Budget package of over €10.5 billion being given out in recurring and cost of living once-off measures.

In this Bulletin, we highlight some of the more substantive taxation measures, amounting to just over €1.4 billion, introduced by Budget 2025. Whilst the real detail of many of these changes will be contained in Finance Bill 2024, we have tried to address these measures and what they mean in the following sections.

Personal Taxes

• Personal Tax – Standard Band and Credits: As highlighted in media reports, there will be an increase in the standard rate band to €44,000 (from €42,000) with pro-rata increases for married/ widowed with minimal personal credit increases of €125 across a list of different categories. A higher increase of €150 will apply to the home carer tax credit.

• USC: The 2% USC rate band ceiling will be increased to €27,382 to match the increase to the minimum wage by 80 cent per hour to €13.50 per hour, and the current 4% rate that would have applied from €27,382 to €70,044 will be reduced to 3%. The reduced USC rate of 3% for individuals who earn less than €60,000 per year and hold a medical card will continue to 31 December 2025.

• PRSI: Incremental increases in the PRSI rates were announced in October 2023 so whilst not a Budget 2025 measure, it should not be forgotten that 1 October 2024 will bring an incremental increase in PRSI of 0.1% across all rates of PRSI to be followed next year with the next increase.

• Small Benefits from Employers: The tax-exempt limit on small benefit awards for employees is to be increased from €1,000 to €1,500 but unlike last year’s Budget, there was no indication that it would apply from Budget Day. There is to be an increase to up to 5 non-cash benefits in a single year.

• Mortgage Interest Relief: Mortgage interest relief, introduced last year for one year, is being extended for individuals holding mortgages on 31 December 2022. The homeowner must be compliant with LPT and should under the extension terms obtain a credit at 20% for the difference between the 2024 interest and the 2022 interest. The relief is likely to remain capped at €1,250 per property qualifying. The relief must be claimed and is not given at source.

• BIK on Cars: There is to be an extension of the €10,000 disregard of the original market value (OMV) for BIK purposes into 2025.

• CervicalCheck Payments: A new measure, that will exempt payments received and income and gains earned on these payments, is to be introduced. This will provide relief from income tax, CGT and indeed CAT on such payments, gains and receipts. This will match many of the benefits of provisions currently only available to incapacitated individuals and is welcome to remove the requirement of individuals having to qualify for such status.

• Gift Tax and Inheritance Tax Thresholds: As expected, the tax exemption thresholds for Groups A, B and C increase to €400,000, €40,000 and €20,000 respectively. There is no increase in the small gift exemption limit which remains at €3,000 per donor. More disappointingly, there was no indication that the aggregation period that runs from 5 December 1991 is to be moved into the 21^st century. This therefore indicates that such thresholds should be viewed as effective lifetime limits.

Business Measures – SME Supports

Minister Chambers announced a number of measures targeted mainly at the SME sector in Budget 2025.

• Special Reduced CGT Rate for Angel Investors: A new CGT relief for ‘Angel Investors’ in innovative start-ups was introduced in Budget 2024, which was subject to a commencement order. This relief was to apply to investments in SMEs, for shares subscribed for prior to 31 December 2026, costing at least €10,000 and constituting 5% to 49% of the ordinary issued share capital of the SME. The relief is intended to reduce the rate of CGT to 16% for individuals or 18% where held through a partnership (as many venture capital investments will be structured) and will apply to a maximum gain of twice the initial investment made or if lower the amount of the gain or the remaining lifetime limit. A lifetime limit of €3 million was to apply. The Minister in Budget 2025 has announced firstly that this relief is to be shortly commenced and secondly the cap on the relief is to be increased to €10 million. Whilst this change is welcome, we had commented last year on the hope that the legislation would be free of significant conditionality. However, this hope was not realised and when commenced, it will be spread over 17 sections of legislation.

• Retirement Relief from CGT – €10 million Cap: Retirement relief from CGT has generally been available without limit for gifts of shares in trading companies which are family companies by individuals aged 55 or over. However, once the individual reaches 66, the limit of the gain relieved is €3 million. In last year’s Budget, it was proposed that the gain limit of €3 million would from 1 January 2025 only apply once the individual reaches age 70. A sting in the tail was that a new limit of €10 million would be introduced from 1 January 2025 for individuals under 66. We had commented in publications that the introduction of this limit offended against good succession within successful Irish businesses, representing a retrograde step in seeking to reduce reliance on the multinational sector. Happily, some sense has come to bear and Budget 2025 has announced that any tax arising due to the cap of €10 million will be abated where the successor retains the assets for 12 years (i.e. 6 years more than the usual clawback period). It is hoped that the meddling with this important relief – that assists businesses to implement succession policies early – will now cease.

• EII/ Start-Up Relief for Entrepreneurs/ Start-Up Capital Incentive: All three schemes are to be extended for a further 2 years to 31 December 2026. The limit on relief being claimed by an individual under EII is to be increased from €500,000 to €1 million and to €140,000 per year (€980,000 over 7 years) for Start-Up Relief for Entrepreneurs. Whilst this is welcome, the incentives in our view continue to be diluted and overburdened by legislative conditions such that it has ceased in many cases to be a viable route for companies to raise funds (without taking on significant tax risk).

• R&D Tax Credit: The R&D tax credit was increased to 30% in respect of 2024 expenditure. Whilst there is no increase in the percentage announced in Budget 2025, the de minimus threshold that allows the credit to be paid in year 1 (and not over 3 years) is again to be increased to €75,000 (likely to be for 2025 expenditure).

• Share Schemes: The Minister referred to the Indecon Report of 19 July 2024, which reviewed the taxation of share based remuneration in Ireland. The Report is attached to the Budget papers on the Department of Finance website. Whilst its recommendations were indicated as being matters he ‘will consider in due course’, they should provide some insight to companies with an interest in the area of providing share based remuneration to valued employees.

Business Measures – Other Changes

Other changes that relate to business include:

• Participation Exemption: Many will be aware of the corporate participation exemption available to exempt gains arising on certain shareholdings of ‘parent companies’. Whilst this creates an attraction for Ireland as a holding company jurisdiction, the treatment of dividends earned from shareholdings abroad remained a considerable issue as Ireland did not apply an exempt treatment but applied a reduced tax rate and a credit regime. This is complex in practice and created competitive disadvantages when compared with other jurisdictions. Following a consultation process announced in last year’s Budget, Budget 2025 has announced that there will be an exemption regime for foreign dividends available from 1 January 2025. Initially, it would seem that this exemption treatment will only apply to dividends from DTA/EEA States but there is reference to the possibility of this being extended. In association with this announcement was another to the effect that an exemption for foreign branch profits is also being considered.

• Residential Land Zoned Tax: This tax, which was originally legislated for in Finance Act 2021, is due to be implemented with a valuation date on 1 February 2025. It provided for a tax at 3% per annum on lands included in maps drawn up by local authorities. These lands were intended to comprise of serviced lands, either zoned residential or zoned mixed use, and which were not being used for existing commercial purposes. This mapping process has been flawed and even after a deferral of the implemented tax for a year announced in Budget 2024 to allow for revisions of maps, the current maps still include properties that could not be used for residential development (and which will be liable to the tax). This means that the tax, directed at ensuring ready to go building land was developed, will have greater application than perhaps was intended. To exacerbate this, the tax legislation, as drafted, contains significant weaknesses that do not recognise existing methods of land development and house delivery projects on the ground. Whilst these weaknesses may or not be remedied in Finance Bill 2024, the Minister has announced a new process available to certain landowners (wrongly) included in maps to seek rezoning of these lands to obtain an exemption from the tax in 2025 where the land is subject to an existing use. There is also to be a deferral of liability for 12 months between the grant of a planning permission and the commencement of the development.

• Pension: Budget 2025 is to provide taxation measures for the taxation of pensions auto-enrolment. The tax treatment is to align with PRSAs other than in relation to employee contributions. As the State will be making matching contributions to the employee contributions, there is no tax relief for employee contributions. Despite the announcements on 18 September (on the publication of a report prepared by Dr Donal de Butleir) regarding the standard fund threshold increases and changes in the factors used for valuing defined benefit arrangements (which will benefit higher paid public servants and members of defined benefit schemes), nothing is contained in the Budget on such measures. They can be expected in the Finance Bill.
• Film Sector: Certain credits are to be introduced – in both cases subject to commencement orders and State aid approval from the EU – for unscripted productions and a Sceal Uplift to enhance the relief under section 481 TCA.

Housing Measures

• Vacant Home Tax: The Vacant Home Tax introduced in 2023 is going to be increased to seven times the rate of LPT from November 2024. The tax currently applies to residential properties which are occupied for less than 30 days per year and there has been no indication of any change in this. The tax operates on a self-assessed basis.

• Rent Credit: The rent credit of €750 per annum for 2024 is being increased to €1,000 for 2025 (and retrospectively being increased to €1,000 for 2024 also). In order to be eligible for the credit, the renter must not be in receipt of any other State housing support. The credit is also available to parents of students staying in ‘digs’ or accommodation provided under a ‘rent a room’ arrangement.

• Help to Buy Scheme: The Help to Buy Scheme is being extended to 31 December 2029 (from end 2025).

• Bulk buying of Houses – Stamp Duty: In 2021, due to media reports, a 10% rate of stamp duty was introduced for purchases of 10 homes or more by a person over a 12 month period. This rate of stamp duty is being increased to 15% from tonight.

• Stamp duty on Higher Value Residential Properties: On the introduction of local property tax, stamp duty rates were reduced on residential properties to recognise firstly an annual property tax giving certainty on revenues when compared with a transaction tax and secondly to compensate for the annual burden of property tax. Rates of 1% for the first €1 million and 2% on the excess were the outcome. A step back in the other direction has now been taken and a rate of 6% for residential properties is to be introduced to apply to any excess in value over €1.5 million from Budget night.

• Pre-letting Expenses: Certain expenses, that would otherwise be deductible if incurred after a lease was first granted, are permitted up to €10,000 for premises that has been vacant for a period of time. The relief, due to expire on 31 December 2024 is being extended to 31 December 2027.

Farming

As is usual for Budgets of recent years, measures to assist with the agricultural sector have been included:

• Capital Allowances: An accelerated capital allowance for safety equipment, which seeks to allow 50% of the expenditure to be claimed over two years, is being extended to 31 December 2028.

• Stock Relief: Stock reliefs are given as a deduction from trading income in 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. Three current stock reliefs, which are due to expire on 31 December 2024, are being extended for a further three years to 31 December 2027.

• Agricultural Property Relief: An announcement of significant interest is in relation to agricultural property relief. This relief affords a reduction in 90% of the market value of agricultural property where certain asset and active farmer tests are met by the beneficiary. The Minister has announced that the active farmer test is to be introduced for the disponer of the property. The terms of this will be in the Finance Bill but it is clearly intended to restrict individuals not involved in the sector from using agricultural property to minimise gift tax and inheritance tax. This may have followed commentary in the media on the increase in land values of significant land holdings due to high profile purchasers. The impact of this change on agricultural land values remains to be seen.

Additional Points of Note

• The Minister announced in his speech some other initiatives:
  • Greater use of the tax system to encourage participation in sport and capital expenditure in sporting facilities;
  • Changes in the tax relief regime for donor to sports organisations to allow flexibility for the retention by the donor of the tax relief or ceding same to the sports organisation;
  • The intention to remove the 2 year qualification requirement before which charities can offer tax relief to donors.

• The Minister announced significant transfers to the Future Ireland Fund and the Infrastructure, Climate and Nature Fund. These funds will be essentially funded through significant parts of the Exchequer surplus.

• The bank levy is to be retained for 2025 and is expected to raise €200 million.