The Irish government’s Budget 2025 introduces significant tax reforms aimed at supporting workers, businesses, housing, and climate action, while addressing the rising cost of living. Below is an overview of the main tax policy changes, including updates on Capital Acquisitions Tax (CAT), Capital Gains Tax (CGT), Stamp Duty, and their implications for individuals and businesses.
1. Supporting Workers and Households
To alleviate financial pressures on households, several tax reliefs and credits have been enhanced:
- Income Tax: The standard rate cut-off point is increased by €2,000, along with an increase in tax credits, including the Personal Tax Credit, Employee Tax Credit, Home Carer Tax Credit, Single Person Child Carer Credit and Incapacitated Child Credit.
- Universal Social Charge (USC): The ceiling for the 2% USC rate is raised to €27,382, and the 4% USC rate is reduced to 3%, providing additional savings for workers.
- Rent Tax Credit: Renters will benefit from an increased tax credit of €1,000 for individuals and €2,000 for jointly assessed taxpayers.
- Help to Buy Scheme: Extended until 2029, providing support for first-time homebuyers.
- Mortgage Interest Relief: Extended for one more year. The credit for 2024 will be based on the increase in interest relative to 2022 interest paid.
2. Business Support Measures
To promote business growth and entrepreneurship, Budget 2025 introduces several supportive tax measures:
- Participation Exemption: A new participation exemption for foreign source dividends from EU/EEA and tax treaty jurisdictions will be introduced with effect from 1 January 2025. Work is also ongoing to develop a potential foreign branch exemption in the future.
- Angel Investor Capital Gains Tax (CGT) Relief: The lifetime limit is increased to €10 million, encouraging investment in start-ups.
- Capital Gains Tax Retirement Relief: Adjustments will support the intergenerational transfer of businesses, ensuring continuity in family businesses with a cap of €10 million or 12 year clawback period for assets greater than €10 million.
- Research and Development Tax Credit: The first-year payment threshold is raised to €75,000, enhancing cash flow for companies engaged in R&D.
- VAT Registration Thresholds: The thresholds are increased to €85,000 for goods and €42,500 for services, easing the tax burden on small businesses.
- Small Benefit Exemption: Employers can now provide up to five small benefits, capped at €1,500 annually, which is tax-free for employees.
- Relief for Listing Expenses: Up to €1 million in expenses related to an initial stock exchange listing are deductible, promoting business expansion.
- EIIS Scheme/ Start-Up Relief: Both reliefs have been extended for a further two years up to the end of 2026. The EIIS scheme is also being enhanced by increasing the amount on which investors can claim relief from €500K to €1 million per annum. The amount of relief available under the Start-Up scheme for entrepreneurs is also being increased from €700K to €980K.
3. Tax Changes to Support Housing
The government has taken measures to tackle housing affordability and availability:
- Stamp Duty: The rate for bulk purchases of residential properties (10 or more homes in a 12-month period) is increased from 10% to 15%, aimed at curbing large-scale acquisitions that limit housing availability for individual buyers.
- 6% rate over €1.5m: A new 6% rate of Stamp Duty will apply to residential property purchases for values greater than €1.5m.
- Vacant Homes Tax: The tax is increased to seven times the property’s Local Property Tax (LPT) charge, targeting underutilized housing stock to encourage usage or sale.
- Help to Buy Scheme: The Help to Buy scheme is extended to 2029.
- Pre-Letting Expenses: Relief for pre-letting expenses for landlords has been extended for another three years up to the end of 2027.
4. Capital Acquisitions Tax (CAT) Changes
To support family wealth transfers, the CAT thresholds have been increased, allowing beneficiaries to receive larger tax-free gifts or inheritances:
- Group A (children inheriting from parents): The tax-free threshold is increased to €400,000.
- Group B (siblings, nieces, nephews, etc.): The threshold is raised to €40,000.
- Group C (unrelated parties): The threshold is increased to €20,000.
These changes reflect the government’s effort to alleviate the tax burden on intergenerational wealth transfers, making it easier for families to pass on assets.
- Agricultural Relief: The scope of agricultural relief has been curtailed so that the doner will now need to meet a six-year active farmer test in order for the beneficiary to benefit from agricultural relief.
5. Supporting Climate Action
The government continues to prioritize climate action with various incentives:
- Carbon Tax: Increased to €63.50 per tonne of CO2 for petrol and diesel, effective from May 2025 for other fuels.
- VAT on Heat Pumps: The VAT rate on the installation of heat pumps is reduced to 9%, encouraging energy-efficient home upgrades.
- Vehicle Emissions Incentives: Adjustments to the Vehicle Registration Tax (VRT) and capital allowances support the adoption of low-emission vehicles.
6. Addressing the Cost of Living
A range of measures have been introduced to help manage inflationary pressures:
- VAT on Gas and Electricity: The 9% VAT rate on gas and electricity is extended until April 2025.
- Excise Duties: Increases in excise duties on tobacco products and the introduction of a new tax on e-cigarettes reflect the government’s health-focused approach.
Conclusion
Budget 2025 reflects the government’s focus on supporting households, businesses, and sustainability while promoting housing availability and addressing cost-of-living challenges. Significant changes to CAT, CGT, and Stamp Duty aim to make tax reliefs more accessible for families and businesses, supporting long-term economic growth and wealth transfer.
However, while these tax measures provide support for businesses and individuals, the question remains: Could more have been done to encourage entrepreneurship and innovation? Although improvements to the Angel Investor CGT relief and R&D tax credits are welcome, broader measures such as deeper cuts to Capital Gains Tax or enhanced incentives for start-ups might have further spurred business creation and investment. As the global economy evolves, continued focus on entrepreneurial support will be key to ensuring Ireland remains competitive and innovation-driven.
For more detailed guidance on how these changes may impact your business or personal finances, contact MC2 Accountants for tailored advice.