Budget Delivers For Most Households and Businesses

‘Something For Everyone In The Audience’ Budget Delivers For Most Households and Businesses

The Government has struck a fine balancing act with Budget 2025 delivering a series of measures which should satisfy most households and businesses still grappling with a cost-of-living hangover, while also making progress on tackling the cost of doing business, addressing skills challenges, and promoting infrastructure development.

The Winners

• JAM Families – Just About Managing Families are the biggest winners with the average middle-income family €1,627 better off per annum. In the ‘one for everyone in the audience’ budget, families came out with more benefits than any other demographic. Measures like the electricity credit, increases in child benefit payments and the reduction in the student contribution will all make a big difference for families still grappling with the inflationary effects of the cost-of-living crisis;
• Green Economy – A range of targeted interventions such as the introduction of a 9% VAT rate for the supply of heat pumps and changes to VRT classifications to commercial electric vehicles will act as incentives to increase adoption of green technology that will collectively help Ireland move closer to achieving its climate targets;
• Family Buisinesses – The increase in the age of retirement to 70 will be seen as a positive change, although the decision to include a 12-year clawback period on disposal of family businesses in excess of €10m will come as a surprise to many, who expected the measure to be abolished. This may be seen to put pressure on succeeding generations.

The Disappointed

• Institutional Investors – The increase to the current stamp duty rate of 10% on bulk purchase (10 or more) of houses to 15% will have a significant (and potentially adverse) impact on foreign investors / institutional investors who are buying property here in Ireland, with a risk of higher rents if costs are passed onto tenants.
• Hospitality - Despite high profile restaurant closures which drove calls for the reinstatement of the 9% VAT rate in the hospitality sector, the hospitality sector will be disappointed that no change has been announced to the 13.5% ‘hospitality’ VAT rate. Unfortunately, it is clear the anticipated exchequer cost (€764 million) and concerns on the inflationary impact ultimately proved prohibitive.
• Property Developers – At a time when the dearth of housing is having a direct impact on the economy as the limited supply and burgeoning costs become barriers to attracting and maintaining critical employees, many stakeholders in the property sector will be disappointed with no change to the 13.5% VAT rate for supplies of newly developed property. While there is no magic wand to solve the issue, following the UK’s lead and introducing a 0% VAT rate on the construction of new housing would have been a welcome measure.

The Expert View

Commenting on Budget 2025, Grant Thornton Tax Partner Peter Vale said:

“This was a Budget that looked to do many things – invest in critical infrastructure, put money aside for future contingencies, put something into peoples’ pockets today and at the same time avoid overheating the domestic economy.

Significant Budget surpluses made the investment in critical infrastructure possible.

Money was put back into the pockets of most individuals through a combination of tax cuts and increased welfare payments. The personal tax package alone was worth €1.6bn.

The nature of future Budget surpluses remains uncertain. The Minister pointed to expected future government deficits when windfall corporation tax receipts are excluded.

However, while corporation tax receipts remain volatile, the windfall nature is now questionable. Future Budget surpluses are a distinct possibility, with the new higher 15% corporation tax rate yet to kick in.

The Minister announced several measures aimed at assisting smaller businesses and entrepreneurs.  As ever, the devil will be in the detail; new measures will need to be accessible in order to have a meaningful impact.

The introduction of the participation exemption for Irish holding companies will be welcomed, with a commitment to look at further enhancing this relief next year.

This relief costs the Exchequer little or nothing but critically will reduce complexity for many businesses and further enhance our attractiveness as a location for foreign investment. In a similar vein, the commitment to reduce the complexity of our interest deductibility rules will be welcomed by many businesses.

Despite the significant exposure of the Exchequer to volatility in corporation tax receipts, there was no attempt to broaden the tax base in today’s Budget.

While no decrease in marginal income rates was expected, it was disappointing that there was no commitment to address this in the future, should the current government secure another term.”

The Analysis

JAM Families

The Budget introduced a series of measures that will provide relief for households dealing with the hangover of the cost-of-living crisis. 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 individual where the band is fully utilised.

An increase in the ceiling for the 2% rate of USC to €27,382 aligns this band with the increase in minimum wage to €13.50 per hour.

This ensures those on the minimum wage will remain outside the top rates of USC. The 4.0% rate of USC has been reduced to 3%, and this is applicable to income between €27382 and €70,044.  This along with the €125 increase to the main annual tax credits, means that the average middle-income family - the JAM (just about managing) families with two incomes totalling €90,000 will be circa. €1,627 better off per annum.

While this will be welcome to JAM families, the increase in PRSI introduced in last year’s budget will reduce the positive impact of the above by approximately €90 per annum.

Housing

There has been no change to the 13.5% VAT rate for supplies of newly developed property. While the maintenance of this rate had been flagged in the Minister’s Summer Economic Statement, this will be disappointing nonetheless to the property sector.  Renters 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. It’s positive to see that the pre-letting expenses for landlords has been extended out to the end of 2027. However, it will be disappointing to landlords to see no change to the €10,000 limit or vacant period mentioned in the Budget.

The increase in stamp duty on residential property from midnight tonight to 6% on any houses above €1.5m appears overly onerous as it is mainly a once-off tax for those buying their homes.

Institutional Investors

There is an increase to the current stamp duty rate of 10% on bulk purchase (10 or more) of houses to 15%. This will have a significant impact on foreign investors / institutional investors who are buying property here in Ireland, and may risk increasing rental fees if costs are passed onto tenants.

Green Economy

The extension of 0% VAT rates to green economy initiatives, such as was applied to the domestic supply of solar panels in prior budgets, has proven very successful and progressive in supporting the transition to a green economy. The Minister today announced the introduction of a 9% VAT rate for the supply of heat pumps, which is expected to save the average customer about €750.

Similarly, the Minister has announced measures to support the transition to electric vehicles by making further changes to VRT rates for commercial electric vehicles, aimed at removing competitive disadvantages in this area.

The 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 and will be good news for those with electric vehicles, who were previously expected to fund their home charging facilities.

Capital Acquisitions Tax (Inheritance Tax)

As widely called for, the CAT thresholds for gifts or inheritances have been increased. While these increases, which maintain the thresholds in line with increased house prices are welcome, they are still far below the highest threshold level of €542, 544 before the economic crash.

It was disappointing that the CAT rate was not reduced from the current 33% rate, versus the 20% rate which applied in 2008.

Film Industry

The Minister has confirmed that the previously proposed tax credit for unscripted TV productions will be now formally introduced. The relief will apply at a rate of 20% to qualifying expenditure of up to €15m where the productions pass the mandatory cultural test.

In addition, the existing film tax credit under S.481 will be enhanced for smaller film projects with an 8% uplift on productions with a maximum qualifying expenditure of €20m. These changes will serve to further enhance Ireland’s reputation as a centre of excellence for screen production.

CGT Reliefs

The increase in the age of retirement to 70 will be seen as a positive change, although the decision to include a 12-year clawback period on disposal of family businesses in excess of €10m will come as a surprise to many, who expected the measure to be abolished.

This may be seen to put pressure on succeeding generations. While the extension of the retirement age will be warmly welcomed, some ay will be disappointed with the decision to include a 12-year clawback period on disposal of family businesses in excess of €10m.

On a more positive note, Angel Investors will welcome the increased lifetime limit on gains from €3m to €10m, on which qualifying angel investors can avail of a reduced rate of CGT of 16%. 

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 will come as no surprise.

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 being increased to a maximum of €140,000 per year. This is an unexpected and welcome change. 

Energy

The temporary 9% VAT rate for fuel, gas, oil and electricity has been extended for a further 6 months to 30 April 2025. Paired with energy tax credits of €250 announced by Minister O’Donoghue, this ‘cost of living’ headline support will be welcomed by households.

However, the effective benefit is actually closer to €110 when planned increases to electricity network charges (of €100), and an increase to the Public Service Obligation (PSO) levy (of €40, both effective from the 1st of October) are taken into account.