Budget 2025 Initial Response

The Minister for Finance Jack Chambers delivered his first Budget today in the Dáil. The Minister's commitment to "plan, transform, and deliver for the future" will not likely be fully achieved under this Budget. Certain stakeholders in the economy will be disappointed. Key among those will be the Hospitality sector which had heavily lobbied for the re-introduction of the reduced VAT rate. It is also another lost opportunity to drive domestic originated entrepreneurship by bolstering the CGT Entrepreneur Relief regime.

However, there are welcome changes to commence the simplification of Ireland's corporate tax code. In particular, we welcome the introduction of the Dividend Participation Exemption and measures to enhance the R&D credit. Significant capital investments in infrastructure have also been announced which are crucial to maintaining an overall competitive offering to current and future potential FDI investments.

Our Economist notes;

The Budget measures announcing a net give away of €10.5bn, an almost 7% increase in spending, will support economic growth in Ireland over the next year, but it risks over stimulating an already tight labour market and reigniting inflation.

The budget surplus has given the government a rare opportunity, within developed countries at least, to increase spending without relying on a fiscal deficit.

Minister for Finance Chambers Jack Chambers TD is right to boost spending on infrastructure spending to support future economic growth and the additional payments to households and tax cuts will feed through into higher consumer spending. Both of these will support stronger domestic economic growth over the next year.

However, with the labour market already extremely tight and the minimum wage increasing by 6.3% there is a clear risk that higher demand for labour ends up pushing wages higher without doing much to stimulate employment. Faster wage growth coupled with strong demand would then feed into a rebound in inflation. If the ECB continues to cut interest rates, as seems almost certain, this would just add to the inflationary risks.

The outlook for the economy is indeed healthy, but the government should be wary about stoking inflation at a time when monetary policy is also easing.

We have summarised key Budget 2025 announcements below.

Corporate tax measures

Following unprecedent changes to the Irish Corporate Tax Regime over the past number of years, Budget 2025 represented a first step towards simplification of the Corporate Tax Regime – some of the key changes are set out as follows;

Dividend participation exemption - As anticipated, the Minister for Finance, Jack Chambers, has confirmed that with effect from January 1, 2025, Irish legislation will include a tax exemption on certain foreign dividend income paid to Irish tax resident companies. This is a welcome and important first step towards the simplification of Irelands Corporate Tax Regime, to continue to enhance Irelands Foreign Direct Investment offering, with the Minister further confirming “in line with the timeline set out in the roadmap, next year will see consideration of a possible exemption for foreign branch profits”.
R&D tax credit - The Research and Development (R&D) Tax Credit is an important feature of the Irish Corporation Tax (CT) system, providing a 30% tax credit for all qualifying R&D expenditure. It is proposed to increase the first-year payment threshold from €50,000 to €75,000, which is the threshold amount up to which a claim can be paid in full in the first year, rather than being paid in instalments over three years.
Relief for listing expenses - A new measure has been introduced giving relief for expenses incurred on an initial stock market listing. An overall cap of €1 million of expenses per listing will apply, with the relief being claimable by a company in the year of first successful listing, on or after1 January 2025.
Start-up relief - Start Up Relief currently provides a Corporation Tax relief for new small companies in the first five years of trading with an annual CT liability of less than €40,000, with marginal relief available to Companies with a CT liability of between €40,000 and €60,000. The relief is currently calculated by reference to employer PRSI paid of up to €5,000 per employee (which does not encompass PRSI paid by owner-directors). Budget 2025 proposes to extend the qualifying criteria to allow up to €1,000 of Class S PRSI per individual to count toward this cap.

Personal and employment taxes

Budget 2025 included a number of positive changes to personal and employment tax, which should represent a benefit to all Irish tax payers. We have summarised key measures below;

Tax credits and SRCOP - All personal taxpayers will benefit from the increase by €125 in the personal tax credits, employee tax credits and earned income tax credits for 2025. The increase in the standard rate cut-off point by €2,000, up to which the lower rate of income tax of 20% applies, will benefit all taxpayers.
Other family credits - The Home Carer credit increased €150, single person child carer credit increased €150, incapacitated child credit increased €300, the dependent relative credit increased €60 and the blind tax credit increased €300.
Reduction in USC rate – The Budget confirmed heavily flagged changes to the USC bands and percentages which will apply to all taxpayers. A decrease of the 4% USC rate to 3% was announced. This is the second reduction to this rate, previously 4.5% in 2023. The 3% rate will see an increase in the threshold by €1,622 in line with the increase of national minimum wage.
Small benefit exemption - It is proposed to increase the limit of the “Small Benefit Exemption” to €1,500 and 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).
BIK exemption electric vehicle 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.
Rent tax credit - Tax relief for taxpayers renting private accommodation was re-introduced in 2022. The Minister has announced that the credit will be increased to €1,000 for a single person and €2,000 for jointly assessed individuals for 2025, with the same relief available for 2024.
Share-based remuneration - The minister acknowledged the importance of share-based remuneration. He announced the commissioning of an independent review which will be considered. The review provides for recommendations on cap of level of employer’s PRSI exemption, enhancement of the KEEP scheme, taxation of RSUs, simplification of administrative burden of share-scheme reporting and taxation of Employee Ownership Trusts (EOTs) to align with the UK treatment.
CAT thresholds - The CAT thresholds (i.e. the amount of an inheritance or gift which can be received free of CAT which applies at 33%) will be increased. The CAT A Threshold (this band is for immediate family members) will increase from €335,000 to €400,000, Group B will increase from €32,500 to €40,000, and Group C will increase from €16,500 to €20,000.
Angel Investor Capital Gains Tax Relief - The Angel Investor Capital Gains Tax Relief (announced last year) which is targeted at encouraging business angel investment in innovative start-ups 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.

Taxation of Irish real estate

Stamp duty
The following changes to the rates of stamp duty have been made, which will come into effect on passing the Budget Financial Resolution today:

The higher rate of stamp duty on bulk acquisitions of houses has increased to 15% (from 10%).
The introduction of a new rate of stamp duty of 6% on residential property valued above €1.5 million.
The existing rate of 1% will continue to apply to values up to €1 million, and 2% on values between €1m and €1.5m.

Vacant Homes Tax
The rate of the Vacant Homes Tax is being increased from 5 to 7 times the property's existing base Local Property Tax rate.

VAT measures

The Budget speech did not flag any significant VAT changes. The key changes are summarised below;

VAT registration thresholds – With effect from 1 January 2025, there is a proposed increase in the current VAT registration thresholds applicable to goods and services from €80,000 and €40,000, to €85,000 and €42,500 respectively.
Electricity - A proposed extension of the second reduced rate (9%) applicable to electricity gas for a further 6 months to 30 April 2025 to address cost of living pressures associated with the price of gas and electricity.
Heat pump - Reduction in VAT rate applicable to supply and installation of heat pumps from 23% to 9%, proposed from 1 January 2025 to incentivise homeowners to install heat pumps.
Flat rate scheme - The flat-rate scheme compensates unregistered farmers on an overall basis for VAT incurred on their farming inputs. Based on macro-economic data received from the CSO and the Revenue Commissioners for the period 2022-2024, this rate will increase from the current 4.8% to 5.1% from 1 January 2025.