Budget 2025: Summary and Key Changes

Minister Jack Chambers introduced Budget 2025 against a backdrop of a buoyant fiscal environment, and with a general election looming, generous tax and spending measures were expected. Higher than anticipated corporation tax receipts and the Apple case ruling put the government in an enviable fiscal position to do so.

The total package announced in the Budget was €10.5 billion, comprising a net tax package of €1.4 billion, an expenditure package of €6.9 billion and a cost-of-living package of €2.2 billion.

The personal tax package of €1.4 billion included increases to the standard rate band, personal tax credits and changes to the Universal Social Charge (USC). There will also be changes to mortgage interest relief and increases to various credits.

To represent our clients’ interests, we set out our views in our Pre-Budget 2025 Submission to the Department of Finance earlier this summer and were pleased to see some of our recommendations included in Budget 2025 and recent announcements. These included proposed increases to the Standard Fund Threshold, changes to the Capital Gains Tax retirement relief rules and increases to the Capital Acquisition Tax thresholds. 

We have outlined some of the additional tax changes which we consider most relevant and look forward to the Finance Bill which will provide more detail and may set out further changes. 

Investment tax changes

While there were no changes to the standard Capital Gains Tax (CGT) rate or the Exit Tax rate, there were several significant changes announced. 

• The Minister confirmed that he has received the Funds Review Team report regarding the funds industry and will bring it to the government (and publish) shortly. Following a review of the report’s findings, the Minister will outline the next steps. While we are disappointed that no changes were made in Budget 2025, we look forward to further detail as we strongly support measures which will make fund-based investments more efficient and favourable for investors.

• The targeted CGT relief for angel investors introduced in Budget 2024 is due to commence shortly. The relief will reduce the rate of CGT to 16% for individuals or, 18% where held through a partnership, and will apply to a maximum gain of twice the initial investment made or the actual gain (if lower) subject to the lifetime cap. Budget 2025 proposes to increase the lifetime cap on which the reduced CGT rate applies from €3 million to €10 million. This will be of interest to investors who wish to invest in certain innovative start-up SMEs.

• Stamp duty rates will increase on residential properties valued over €1.5 million. The 1% rate will continue to apply to values up to €1 million. The 2% rate will apply to the value above €1 million and at or below €1.5 million, with a 6% rate applying to any value more than €1.5 million.

• The stamp duty rate on bulk acquisitions of houses has increased from 10% to 15%.

• The payments made to the women impacted by the failures in the CervicalCheck national screening programme relief will be exempt from income tax, CGT, and Capital Acquisitions Tax (CAT). The income and/or gains arising to these women from the investment of CervicalCheck payments will also be exempt from the relevant taxes. This measure is greatly welcomed. 

• The Residential Land Zoned Tax is due to be implemented with a valuation date on 1st February 2025. It provides for a tax at 3% per annum on lands included in maps drawn up by local authorities. The Minister has announced a new process available to certain landowners to obtain an exemption from the tax in 2025 where the land should not be subject to the tax. There will also be a deferral of the liability of 12 months between the grant of planning permission and the date on which development commences.

• The rate of the Vacant Homes Tax is to be increased from five times to seven times a property’s existing base Local Property Tax liability, which will take effect from the next chargeable period, starting 1st November 2024. The tax currently applies to residential properties which are occupied for less than 30 days per year.

Succession planning changes

As widely reported in the media, the CAT Group thresholds were each respectively increased for the first time in recent years.

• The Group A (parent to child) group threshold was increased from €335,000 to €400,000.
• The Group B (lineal descendent) group threshold was increased from €32,500 to €40,000.
• The Group C (no relation) threshold was increased from €16,250 to €20,000.

While the increased group thresholds are a welcome improvement from a succession planning perspective, further increases in line with inflation and the rising costs of assets such as family homes would be welcomed in future budgets.

The changes announced regarding CGT retirement relief rules which were due to commence in January 2025, are very positive. The €10 million cap, which was due to be introduced in 2025, will now only apply where the child disposes of the assets within 12 years. We welcome this decision by the Minister. The retention of the older-age limit is a positive. 

Agricultural Relief (which facilitates the tax efficient transmission of agricultural assets for CAT purposes) was altered significantly. This relief reduces the taxable value of agricultural land by 90%. In order to claim the relief it will now be necessary for the disponer (from whom the property passes) to meet the “active farmer” test, i.e. to have farmed the land on a commercial basis for 6 years prior to disposal. It appears the intention of this provision is to safeguard agricultural relief for farming families.

Pension changes

While private pensions were not mentioned in the ministers’ speeches, we expect more details in the Finance Bill 2024 due to be published next week. The Finance Bill is likely to reflect the changes in the published Budget 2025 Tax Policy Changes document and some of the proposals made by the Minister in his September 18th announcement regarding the Standard Fund Threshold (SFT). Key details of this announcement are as follows:

• An increase on a phased basis of the SFT to €2.8 million - with the threshold to increase by €200,000 each year from 2026 to 2029.
• From 2030, the intention is to increase the limit each year in line with an applicable level of growth.
• The rate of Chargeable Excess Tax (CET) (the 40% tax that arises on lifetime pensions drawn above the SFT) is to remain unchanged for the time being with a specific review of the rate to take place by 2030.
• The threshold for the higher rate of taxation to apply to a pension lump sum will be limited to €500,000. Previously, the maximum tax efficient lump sum changed by reference to the SFT.
• An independent evaluation of the age-related valuation factors that apply to defined benefit schemes for the SFT valuation purposes has been proposed in the report.
• An inter-agency group will be formed to oversee the implementation of the remaining recommendations.

The announcement is helpful in highlighting the direction of travel for government pension policy and we are hoping that the proposed SFT changes will be implemented in the Finance Bill. If the changes aren’t implemented in the Finance Bill, it remains unclear how the current government can implement these changes within the current term.

Minister for Social Protection Heather Humphreys also recently announced that the new auto-enrolment pension scheme will begin on 30th September 2025. The scheme will capture 800,000 workers who have no private pension with contributions to the scheme beginning at 1.5% of gross salary and rising to 6% in 10 years’ time.

The announcement of these details will now give certainty to businesses and allow them to prepare for the implementation of the scheme. 

Tax changes for businesses

The Minister announced a number of changes to our corporate tax regime with the intention to reduce complexity in our tax code and incentivise innovation.

• The VAT registration thresholds for businesses will be increased to €42,500 for services and €85,000 for goods.

• The first-year payment threshold provided in the research and development regime (R&D) increases from €50,000 to €75,000. 

• Employment Investment Incentive, the Start-Up Relief for Entrepreneurs, and the Start-Up Capital Incentive are all extended until the end of 2026. The relief under the Start-Up Relief for Entrepreneurs increases from €700,000 to €980,000.

• The amount an investor can claim relief on under the Employment Investment Incentive was doubled, bringing it from €500,000 to €1 million.

• Start-up relief for new small companies, which provides for a reduction in corporation tax payable, has been enhanced to ensure relief is also now available to small owner-managed companies.

• The Small Benefit Exemption has increased from €1,000 to €1,500. A business will also be able to give five non-cash benefits to their employees in a single year. 

• The revised bank levy introduced in 2024 is extended to 2025.

• A new participation exemption for foreign sourced dividends from subsidiaries in EU/EEA and tax treaty jurisdictions will be introduced with effect from 1st January 2025.

• The Minister referred to a Department of Finance report that reviewed the taxation of share-based remuneration in Ireland and made a number of recommendations, which the Minister will consider in due course.

• The Minister announced some changes to extend the film tax credit for investors in the sector, which are subject to commencement orders and State aid approval from the EU.

• Disappointingly, there was no reduction in the VAT rate for the hospitality sector with the rate remaining at 13.5 %.
   

Giving and Philanthropy

• The Minister referenced the five-year, National Philanthropy Policy which was launched in December 2024 as a key to fostering a new approach to giving. He has committed to removing the barriers to charities having access to tax benefits under the Charitable Donations Tax Scheme. Charities will no longer need to be established for at least two years to access the scheme. 

• Charities will also have a longer timeframe from the date of a donation to use the funds raised under the scheme for the work they do. 

• Separately, in recognising the vital role sports play in our country, the Minister will be making changes to the tax exemptions that apply to sporting bodies to facilitate long -term investments for the purposes of capital projects & sports equipment. 

• The Minister will be introducing measures which will allow PAYE and self-assessed individuals to donate to sports bodies. The individual can choose between claiming income tax relief on the donation or allowing the sporting body to claim the relief. 

Summary

We await the Finance Bill and Finance Act to determine the full impact of Budget 2025.

We work with clients to understand their individual circumstances and financial goals, incorporating the potential impact of taxation to ensure they can meet their goals efficiently. Our dedicated team can help formulate a personalised plan and investment strategy based on an individual client’s unique needs and circumstances.