Budget 2024: Summary and Key Changes

Budget 2024 was announced against a backdrop of higher inflation, elevated energy prices and a rising interest rate environment. The total package announced in the Budget was €14 billion which was in line with expectations, mainly focused on cost of living and future proofing the country’s finances. We eagerly anticipate next week’s Finance Bill which may set out further changes relevant to our clients. 

Investment tax changes

While there was no change to the standard Capital Gains Tax (CGT) rate, there were a number of potentially significant changes announced:   

• A new targeted CGT relief will be introduced for angel investors in innovative small and medium-sized enterprises (SMEs). Qualifying investors may avail of an effective reduced rate of CGT of 16% (or 18% if through a partnership), on a gain up to twice the value of their initial investment. There is a lifetime limit of €3 million on gains to which the reduced rate of CGT will apply.  

• The upper age limit for CGT retirement relief is to be extended from 65 until age of 69. From 1 January 2025, however, there will be a new limit of €10 million (currently there is no limit) on the relief available for disposals to a child up until the age of 69. The increase in the age limit is welcomed, however the limit of €10 million could impede the succession of many Irish businesses.    

• The Minister committed to examine Revised Entrepreneur Relief with a view to improving it for founders and entrepreneurs.  

• The Employment Investment Incentive scheme (EII) is to be enhanced. In particular, from 1 January 2024, the investment limit for relief purposes is now €500,000.  

• Increase in vacant homes tax from three to five times the property’s existing basic Local Property Tax rate. 

• The Minister referred to the ongoing review being undertaken by the Department of Finance around the current taxation framework applicable to the funds sector. The Department of Finance will review public submissions made (which includes Davy’s submission), and the Minister expects to receive the final report next summer, at which stage changes will be considered. 

Tax changes for business

The Minister announced a scheme of business supports worth €250 million recognizing the impact of rising costs.   

• As part of Revenue's commitment to make it easier for businesses to avail of supports, a dedicated subgroup will be set up. 
• The Research and Development (R&D) Tax Credit is being increased from 25% to 30%. The first-year payment threshold is being doubled from €25,000 to €50,000 to "provide valuable cash-flow support to companies engaged in smaller R&D projects”. 
• The VAT registration thresholds for businesses will be increased from €37,500 for services and €75,000 for goods to €40,000 for services and €80,000 for goods respectively. 
• The Minister announced an increase in the current project cap on qualifying expenditure for Film relief from €70 million to €125 million, subject to State aid approval. 
• The Minister confirmed that he will be publishing legislation in the Finance Bill to implement the 15% minimum effective tax rate for large companies as provided for under the OECD Pillar Two agreement.  
• A territoriality / participation exemption for foreign sourced dividends is being developed. It is expected  that this will be included in Finance Bill 2024. 
• The Minister also committed to working through the area of interest deductibility. Part of this process will involve engagement with stakeholders on the issue. 
• From 1 January 2024, the minimum wage will increase by €1.40 bringing it to €12.70 an hour. 

Personal tax changes

The total income tax package was worth €1.3 billion. 

Some of the measures announced include:  

• Increase of the standard rate band by a further €2,000.  
• The 4.5% USC rate will be reduced to 4%. 
• Increasing the personal, employee and earned income tax credits each by €100. 
• Increasing the entry threshold to the 4% USC rate to €25,760 in line with the increase to the national minimum wage.
• Increasing the Home Carer Tax credit and the single person child carer credit by €100 each. 
• Increasing the incapacitated child tax credit by €200. 
• Subject to certain conditions being met, rental income of €3,000 for 2024, €4,000 for 2025 and €5,000 for the years 2026 and 2027, will be disregarded at the standard rate (20%). The relief will be clawed back if the property is removed from the rental market before 2027.  
• 0.1% increase in all rates of PRSI from October 2024 as outlined above. 

Cost of living measures

Cost of living measures worth €2.7 billion were announced. These measures include:  

• An increase in the contributory state pension of €12 per week.  

• The Renters’ Credit which was introduced in Budget 2023, increases to €750. The credit was also amended to allow parents who pay for their student children who have tenancies in 'Rent a Room' or 'digs' accommodation to claim the Rent Tax Credit. This will be backdated to allow for claims to be made for the 2022 and 2023 tax years. 

• Introduction of a one-year Mortgage Interest Tax Relief for homeowners with an outstanding mortgage balance on their primary dwelling house of between €80,000 and €500,000 as of 31 December 2022. Relief will be available on increased interest paid on mortgages this year as compared with the amount paid in 2022, at the standard rate (20%). The relief will be capped at €1,250 per property. 

• Electricity credit of €450 to be paid in three instalments to all households. The credits will be provided between the end of 2023 and April 2024.  

• The extension of the 9% VAT rate for electricity and gas for another twelve months. 

• The extension of the 20% fare reduction on public transport until the end of 2024. 

• The final tranche of fuel excise increases which were due to happen on 31 October 2023 have been deferred. Instead they will happen in two equal instalments on 1 April 2024 and 1 August 2024.  

• Childcare fees are set to be cut by a further 25%. 

Sucession planning changes

There were no changes to the Capital Acquisitions Tax (CAT) rate and all three relationship thresholds (Group A, Group B, and Group C) remain the same. There were some minor changes as follows:    

• A number of Agricultural Reliefs due to expire at the end of 2023 were extended. 

• There was a technical amendment to ensure that foster children can avail of the Group B CAT threshold based on their relationship to their foster parent. 

Pension changes

While private pensions appear to have emerged untouched in this year’s Budget, more detail may come in the Finance Bill due to be published next week. 

• In previous years the Finance Bill has been used to implement the pension reform recommendations of the “Report of the Interdepartmental Pensions Reform & Taxation Group 2020” and we expect this to continue.  

• The general trend is pension simplification, with the goal of making pensions more attractive to savers, easier to understand and therefore increasing private pension coverage. 

• The Minister also referred to the long-term sustainability challenges faced by the State Pension system. To address this all PRSI contributions will increase by 0.1% from 1 October 2024. It’s expected that these rates will increase over a number of years. 

Provisioning for the future

Separately the Minister announced the creation of two new funds: 

• Future Ireland Fund: This fund has the potential to grow to over €100 billion by the middle of the next decade. The fund’s aim is to help protect living standards and public services for current and future generations. 

• Infrastructure, Climate and Nature Fund:  The intention is to seed this fund with €14 billion by 2030.This fund will allow for sustained levels of investment in infrastructure in the event of economic downturns and to support climate and nature related projects. 

Summary

We await the Finance Bill and Finance Act to determine the full impact of Budget 2024. Irrespective of any specific tax changes our view remains the same. We believe that the key to delivering the most appropriate solution is to work with you to understand your individual circumstances and your financial goals, incorporating the potential impact of taxation to ensure you can meet your goals efficiently. In essence, our dedicated team will help you to formulate a personalised plan and investment strategy based on your unique needs and circumstances.