Budget 2025: Commentary and Analysis

Broadly good news for businesses

With the domestic economy in robust shape, including record employment levels, the Government has sought to enable further business growth and drive Ireland’s competitiveness through increased funding, tax credits and exemptions. There was disappointment, however, for the hospitality sector, and here and there for others.

Protecting Ireland as a corporate location

The business sector will welcome the new participation exemption on foreign dividends, says Paschal Comerford, Tax Director at Grant Thornton. 

“Ireland has been an outlier compared to our EU and OECD counterparts – the exemption will go some way in sustaining our position as a best-in-class corporate location in the face of intense international competition,” he says.

SMEs to see increased R&D credit

Another positive for businesses in this year’s Budget is the change to the research and development (R&D) credit, with an increase in the first-year payment threshold from €50,000 to €75,000 

“This will be a welcome boost to small businesses carrying out R&D,” said Paschal Comerford, Tax Director. “While these changes will be widely welcomed by businesses – both domestic and international, it’s unfortunate that the rate was not increased beyond the 30% level, as many called for before the budget.”

Relief for investment in corporate trades

The Employment Investment Incentive, the Start-Up Relief for Entrepreneurs and the Start-Up Capital Incentive have been extended for a further two years to the end of 2026. 

“This extension will come as no surprise,” says Una Ryan, tax director at Grant Thornton, “but other related changes were both unexpected and welcome.

“For example, the amount an investor can claim relief on under the Employment Investment Incentive is being doubled from €500,000 up to €1 million, and the relief available under the Start-Up Relief for Entrepreneurs is increasing to an annual maximum of €140,000."

Positive developments in employment taxes

Employers will now be able to give as many as five non-cash benefits in a year of up to €1,500 each (up from two of €500 each) under the revised Small Benefit Exemption. 

“SMEs will particularly welcome this move as a way to reward employees in a tax-efficient way,” said Michelle Dunne, Tax Director at Grant Thornton.

Meanwhile, there is also good news for employees with company vehicles or electric vehicles. The temporary reduction of €10,000 to the original market value of company vehicles will be maintained for 2025.

Moreover, the benefit-in-kind (BIK) exemption for e-vehicle charging points on business premises will now be extended to include the installation of home charging points. 

“This is a common sense move,” adds Michelle, “and it will be good news for those with electric vehicles, who were previously expected to fund their home charging facilities. The market value reduction will be welcome for others with company vehicles, who may have been expecting an increase in benefit-in-kind (BIK).”

Financial sector: funds review and bank levy update

While many will be happy with today’s Budget, the funds industry didn’t see the progress it would have liked, as the wheels have been turning slowly on the funds sector review.

During his speech, the Minister noted he had recently received the report, but despite the terms of reference being released in April 2023, the industry has to wait for another day until we hear next steps. 

This could be seen as a missed opportunity to publish and address the recommendations of the funds sector review to ensure Ireland remains a location of choice for the funds and asset management sector. 

Meanwhile, the recent consultation on the bank levy has not given rise to any material changes – for now. Instead, the Minister opted to extend the levy for another year, with a target yield of €200 million.

Good news for car owners

In a welcome development for motor insurance policyholders, the Motor Insurers Insolvency Compensation Fund levy will be reduced to 0% for policies renewing from January 1, 2025. By moving the levy to 0% rather than abolishing it, the Government has ensured it can announce a rate increase in future budgets if required.

Personal taxes: USC ceiling up, rate down

Employees at all levels will find more money in their pockets following this budget, though the hoped-for reduction in USC for higher earners didn’t materialise. Personal tax credit and employee tax credits got a boost.

“The government’s scattergun approach forms an attempt to keep everyone happy, but the cost of living continues to increase,” says Paschal Comerford, tax director.

Individual tax bands and credits raised

The standard rate band has been increased from €42,000 to €44,000 at the lower 20% rate of income tax, delivering a saving of €400 per person where the band is fully used.

The 4% USC has been reduced to 3% – this applies to income between €27,382 and €70,044 – while the increase in the lower rate band of €1,622 to €27,382 aligns this band with the increase of 80c in the hourly minimum wage to €13.50.

“This along with the €125 increase in the main annual tax credits, means the average middle-income family - families with two incomes totalling €90,000 will be about €1,627 better off per year.

"While this will be welcome to the JAM (just about managing) families, however the increase in PRSI introduced in last year’s budget will reduce the positive impact of the above by about €90 per year,” says Mary Moran, tax director.

Property: mortgage-holders, tenants and prospective purchasers to benefit

Would-be first-time buyers will be happy to learn the Help-to-Buy scheme has been extended to 2029. 

There’s positive news for mortgage-holders, with mortgage interest relief extended to 2024. “Relief is given on the increase on mortgage interest between 2022 and 2024,” says Mary Moran, Tax Director, “but there has been no reference in the Budget to a review of the mortgage balance of €500,000.

"Meanwhile, there were pros and cons for landlords, she added. “It’s positive to see that the relief for pre-letting expenses for landlords has been extended out to the end of 2027. However, they will be disappointed to see no change to the €10,000 limit or vacant period mentioned in the Budget.”

And there was some good news for tenants, she said. “They will benefit from the increase in the rent tax credit, from €750 per year to €1,000 from 2025. There is additional good news in that the €1,000 figure will also now apply for 2024 to give an additional €250 back in the short-term,” says Mary Moran, Tax Director.

Capital taxes: changes to CAT, CGT and more

When it came to capital taxes, there was broadly good news in the Budget for families and businesses, but some anticipated changes that would have helped even further didn’t materialise.

“While it’s welcome to see capital acquisitions tax (CAT) threshold increases in line with increased house prices, those thresholds are still far below the highest threshold level of €542,544 before the economic crash,” says Una Ryan, Tax Director.

“It was also disappointing that the CAT rate was not reduced.”

CAT thresholds up but rate holds steady

There was good news for those planning to give (or receive) gifts or inheritances to family members or others, as all the CAT thresholds were increased. It was a letdown, however, to see the CAT rate did not decrease – it remains at 33%, up from the 20% rate that applied in 2008.

• Group A exemption threshold: €335,000 to €400,000
• Group B exemption threshold: €32,500 to €40,000
• Group B exemption threshold: €16,250 to €20,000

Welcome news on retirement relief 

There was positive news in relation to retirement relief from capital gains tax (on the disposal of farms and businesses), with two major changes announced from 1 January 2025:

• Extension of the retirement age from 65 to 70
• The €10m cap on disposals announced in Budget 2024 has been rolled back, except where there is a disposal by a child within 12 years of receiving the business, where a full clawback of the relief will arise.

“The extension of the retirement age and amendment to the €10m cap restriction will be warmly welcomed,” says Una Ryan, Tax Director, “the previously announced cap for intergenerational transfers would have resulted in a dry tax charge on the transfer of even medium-sized business”.

Stricter CAT conditions for farmers

Only genuine farmers will be able to avail of Agricultural Relief from now on, as it is being amended to include a six-year active farmer test on donors who provide the land.

This is narrowing the relief substantially, as those availing of it will have to show land is being farmed before and after the gift or inheritance of that land.

Significant changes on high-value property stamp tax

Already dubbed the ‘mansion tax’ by the media, a 6% stamp duty has been introduced on the sale of any property worth over €1.5m. This seems overly onerous as it is mainly a one-off tax for those buying their homes.

• 6% stamp duty: Properties worth over €1.5m
• 2% stamp duty: Properties worth €1m to €1.5m
• 1% stamp duty: Properties worth below €1m

In a move that will massively affect foreign and institutional investors in the property market, the higher rate of stamp duty on bulk acquisitions of houses is rising from 10% to 15% with immediate effect.

“This change will have a significant impact on foreign and institutional investors buying property here in Ireland,” says Una Ryan, Tax Director, “and it may risk increasing rental fees if those landlords pass costs onto tenants.”

Good news for angel investors

There has been a welcome change to the lifetime gains for angel investors, which could indirectly mean more businesses see investment. The reduced CGT rate of 16% will apply on lifetime gains of up to €10m (previously only lifetime gains of €3m). 

Mixed news on VAT

Not everyone got good news on the VAT front in this budget and those in hospitality will be especially disappointed, while many other SMEs will be pleased with increased VAT registration thresholds.

While it’s almost inevitable the Government might use the Budget to discourage smokers, vapers too are set to pay more in 2025.

Energy cost savings for households

The temporary 9% VAT rate for fuel, gas, oil and electricity has been extended for a further six months to 30 April 2025.

“Paired with energy tax credits of €250 announced by Minister Donohoe, this ‘cost of living’ headline support will be welcomed by households,” said Emma Broderick, tax partner. “That said, the effective benefit is closer to €110 when we take into account other changes taking effect from October 1.”

Those changes include:

• planned increases to electricity network charges (of €100)
• an increase to the Public Service Obligation (PSO) levy of €40

Businesses and farmers to see VAT range changes

Businesses will welcome the increased VAT registration thresholds (from January 1 2025), which is similar to the increase last year and brings Ireland in line with the thresholds of similarly sized EU economies.

“While this is welcome, a decrease in the complexity of the VAT registration process would be an additional welcome step to support small start-ups,” said Emma Broderick, tax partner.

• VAT threshold for the supply of goods to rise from €80,000 to €85,000
• VAT threshold for the supply of services up from €40,000 to €42,500
• The farmer’s flat rate addition to increase from 4.8% to 5.1% from January 1 2025.

Disappointment for hospitality and property developers 

Despite high-profile restaurant closures driving calls for the reinstatement of the 9% ‘hospitality’ VAT rate, there has been no change and the rate remains at 13.5%.

“That’s disappointing for publicans, restaurateurs and others in the sector, but the anticipated exchequer cost (€764 million) and concerns around inflation evidently proved prohibitive,” said Emma Broderick, tax partner.

As with hospitality, the 13.5% VAT rate for supplies of newly developed property is unchanged. While the Minister had flagged this in the Summer Economic Statement, it’s disappointing nonetheless to the property sector.

VAT on new properties and ecofriendly products

A new 9% VAT rate on heat pumps is expected to save the average customer who buys one about €750.

The Minister also announced measures to support the transition to electric vehicles–he made further changes to VRT rates for commercial electric vehicles, aimed at removing competitive disadvantages in this area.

Vapers and smokers to pay more

A vaping tax will come into force next year. That’s expected to add €1.23 (including VAT) to the price of a typical disposable vape. Meanwhile, smokers buying cigarettes in the most popular category will now pay €18.05 for a pack of 20 cigarettes from tonight, with the excise increasing by €1. That’s double the 50c increase of previous years.