Budget 2024 is for the second year, labelled “A Cost of Living Budget” and includes measures that will benefit people before Christmas. The Minister stated that there is limited cash for permanent Budget day changes but there is money to spend on one off measures.
The external economic background is still uncertain, with global inflation high and interest rates continuing to rise. Domestically the economy is still performing well, as shown in booming, albeit slowing, Corporation Tax receipts and with record levels of employment, as unemployment rates sits at 4.1%. The concern is to avoid fueling inflation whilst alleviating pressures on small businesses and households - a difficult balancing act.
In a welcome relief for SMEs, the Minister announced an increase in the R&D Tax Credit rate from 25% to 30%. This will alleviate some of the additional tax suffered by groups within the scope of the OECD’s forthcoming Pillar Two tax changes. Additionally, the year one refundable R&D tax credit is increasing from €25,000 to €50,000 which will give an immediate cash-flow benefit for companies.
The Employment Investment Incentive Scheme (EIIS) is being enhanced to double the maximum investment on which you can claim relief to €500,000 per annum where shares are held for a minimum of 4 years.
The 'Film Tax Credit' is being further extended to December 2028, and subject to State Aid approval, there will be an increase in qualifying expenditure on projects from €70m to €125m. The Government is also looking to explore opportunities in the ‘unscripted production sector’.
A revised bank levy is being introduced and is expected to raise €200 million in 2024.
As widely reported in the media on the run up to the Ministers Budget speech, the standard rate band has been increased from €40,000 to €42,000 at the lower 20% rate of Income Tax, a saving of €400 per individual where the band is fully utilised. This along with the €100 increase on the main annual tax credits and changes to the USC, the average middle-income family with two incomes totalling €90,000 will be circa. €1,534 better off per annum.
An increase in the ceiling for the 2% rate of USC to €25,760 aligns this band with the increase in minimum wage to €12.70 per hour. This ensures those on the minimum wage will remain outside the top rates of USC. The 4.5% rate of USC has been reduced to 4%, and this is applicable to income between €25,761 and €70,044.
The USC concession for medical cardholders is being extended for a further two years to 31 December 2025. These reduced rates are applicable to individuals who have a full medical card and whose income is €60,000 or less per annum.
PRSI rates will increase by 0.1% from 1 October 2024.
The government have introduced a temporary one-year mortgage relief, for approximately 160,000 homeowners, with an outstanding mortgage balance on their home of between €80,000 and €500,000 on 31 December 2022. The relief will be calculated on the increase in interest paid in the calendar year 2022 against that paid in 2023, at the standard rate of income tax of 20%. The relief is capped at €1,250 per property.
The rent tax credit has been increased from €500 per year to €750 from 2024. There is additional good news for parents paying for their student children’s accommodation in the case of Rent a Room / “digs” accommodation, as they can now claim this credit both going forward and retrospectively for the years 2022 and 2023.
Further assistance to the housing market is the introduction of a Rented Residential relief for Landlords. The relief will apply at the standard rate as follows: €3,000 in the tax year 2024, €4,000 in tax year 2025 and €5,000 in tax years 2026 and 2027. A full clawback of the relief will apply should the relevant property be removed from the rental market during this time.
The 'Help to Buy Scheme' is being extended until 31 December 2025 and will include those in the Local Authority Affordable Purchase Scheme, from 11 October 2023.
The electricity credit from 2022 will make a come-back for the end of 2023 and into 2024. It will amount to an electricity credit of €450 for all households. This will be received in 3 instalments of €150. The first to be received before Christmas and the remaining €300 to be paid out in two instalments at the start of 2024.
Against the backdrop of indigenous businesses being the backbone of our economy, there has been a number of favourable changes proposed for SME’s.
The Revised Entrepreneur Relief is to be reviewed, in order to refocus the relief with a view to improving the incentives for founders and entrepreneurs and ensure it is contributing to employment creation.
A new CGT relief for angel investment is being introduced with an effective reduced rate of 16% on a gain up to twice the value of an initial investment. The investment must be in the form of newly issued shares costing at least €10,000 and constituting between 5% and 49% of the ordinary issued share capital of the company. There is a lifetime limit of €3m on gains to which the reduced rate of CGT will apply.
Changes to CGT retirement relief will include extending the upper age limit to 70 from 66. The Minister is also introducing a limit of €10m on qualifying disposals to a child up to the age of 70. These changes will come into effect from 1 January 2025.
The Minister has secured EU State aid approval for the 2022 changes to the Key Employee Engagement Programme (KEEP), which includes the extension of the scheme to the end of 2025 and a doubling of the limit for the total market value of issued but unexercised qualifying share options from €3m to €6m.
Consanguinity relief which applies a 1% stamp duty rate on certain land transfers between certain family members is being further extended for a period of five years.
The Vacant Homes Tax which was introduced in Budget 2023 has been increased from three to five times the rate of Local Property Tax. This aims to incentivise vacant home owners to sell their properties to increase the supply of homes for rent or purchase and will take effect from the next chargeable period which commences on 1 November 2023.
Finally, the Minister commented that amendments will be introduced to improve the efficiency of the Residential Zoned Land Tax, including that affected landowners should have sufficient opportunity to engage with the mapping process, and he is therefore extending the liability date of the tax by one year to allow for the planned 2024 review of maps to take place.
The Minister has announced a new Infrastructure, Climate and Nature Fund which will have a climate and nature component worth over €3billion. The aim of this fund is to help the achievement of carbon budgets through capital projects, where it is clear that Ireland’s climate targets are not being reached.
Carbon Tax on fuels will increase, as planned, from the current rate of €48.50 to €56.00 per tonne of CO2 from 11 October as per the trajectory set out in the Finance Act 2020. Part of the funds raised from this increase in carbon tax will be used to fund a socially progressive national retrofitting programme and to encourage and support farmers in the green transition.
The accelerated capital allowances scheme for energy efficient equipment is being extended for a further two years. There will also be an extension to the accelerated capital allowances for farm safety equipment.
The tax disregard in respect of personal income received by households will be doubled to €400 per annum. This applies to households who sell residual electricity from micro-generation back to the national grid from 1 January 2024.
In a welcome easement on electricity and gas costs, the reduced rate of 9% applying to these supplies is being extended by 12 months to 31 October 2024.
The zero rate applicable to supply and installation of solar panels is being extended to include supplies made to schools. The VAT zero rate will also apply to the sale of audiobooks and e-books with effect from 1 January 2024 – this removes the unequal treatment between paper and electronic publications.
From 1 January 2024, the existing VAT registration thresholds are being increased from €37,500 for services and €75,000 for goods to €40,000 and €80,000 respectively.
The VAT compensation fund for Charities will be increased from €5M to €10M allowing charities to recover more of the VAT incurred on expenses.
For the third year in a row, the Flat Rate farmer addition has been reduced from 5% to 4.8% with effect from 1 January 2024.
The Excise duty on a package of 20 cigarettes is to increase by €0.75 with a pro-rata increase for other tobacco products from 11 October 2023. It is proposed to introduce a domestic tax on e-cigarettes and vaping products in Budget 2025.
While the expected final tranche of fuel excise increases have been deferred for petrol, diesel, and Market Gas Oil (MGO). However, the Carbon Tax charge (currently €48.50 per tonne) will increase by €7.50 per tonne from 11 October 2023, giving an increase in petrol and diesel overnight of between approx. 2c per litre.
The VRT relief for Battery Electric Vehicles which was due to end on 31 December 2023 is being extended to 31 December 2025.
Separately, the Government has declared its intention to implement the EU Directive 2020/284, which introduces new reporting obligations for Payment Service Providers (PSPs), in order to further enable tax authorities combat VAT fraud. PSPs operating within the EU will from 2024 be required to maintain records and file a quarterly report of cross-border payments by customers. The data collected by Member States will be exchanged and centralized in the "Central Electronic System of Payment information", or CESOP. This goes into effect on 1 January 2024, and the first reporting is due by 30 April 2024.
If PSPs have not yet prepared for these new obligations, they should liaise with their tax advisors to identify their impacted products and processes, and develop a roadmap to ensure compliance with this new regime.
Overall, the Budget was able to deliver over €2.7bn in once off measures, and a core budget package for 2024 worth €6.4bn.
Budget 2024 is future orientated with a focus on the wellbeing of young people and helping families and small businesses. It remains to be seen whether the various measures announced today are sufficient to boost consumer and business sentiment. Initial indications are that Budget 2024 has made a comprehensive range of interventions that should leave more money in the hands of consumers and businesses and offset at least some of the inflationary cost of living increases.