Budget 2025 has delivered a series of measures designed to satisfy households and businesses still grappling with a cost-of-living hangover.
The Government has struck a fine balancing act in delivering a Budget package that will keep the economy on an upward trajectory. While it has dodged changes that could send inflation upwards, it has added investment on to address Ireland’s infrastructure deficit.
“Significant Budget surpluses made the investment in critical infrastructure possible,” says Peter Vale, international tax partner at Grant Thornton.
Minister for Finance, Jack Chambers, announced an €8.3 billion core budget package, made up of €6.9 billion in spending and €1.4 billion in taxation measures. He also introduced a cost of living package of €2.2 billion. This brings the total to €10.5 billion. He also announced €1.4 billion in tax cuts.
Chambers also announced that more than €17 billion from the windfall Apple and AIB funding will be spent on improving infrastructure, with a particular focus on housing, water, electricity and transport. About €3 billion of this money will be deployed in 2025, with allocations to the Land Development Agency, Eirgrid and Irish Water.
Hear from Grant Thornton's tax experts and industry guests as they discuss the impact of the measures on you and your business, together with the wider economic impact.
The panel was hosted by Newstalk's Joe Lynam who was joined by Grant Thornton Tax Partners Robert Fitzgerald and Peter Vale, and Chief Economist Andrew Webb.
We were also delighted this year to be joined by Leo Clancy, CEO of Enterprise Ireland, and Margaret Sweeney, former CEO of IRES REIT Plc.
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.
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.
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.”
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."
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).”
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.
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.
The reliefs available under the Employment Investment Incentive and the Start-Up Relief for Entrepreneurs are both increasing.
The year one refundable R&D tax credit is being increased from €50,000 to €75,000.
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.
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.
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.
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 up to €400.
The 4% USC has been reduced to 3% – this applies to income between €27,382 and €70,044 – while the lower rate band has increased to cover income up to €27,382.
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.”
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.
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:
“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”.
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.
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.
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.”
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).
The exemption thresholds have gone up across all categories of CAT, meaning those receiving gifts and inheritances will pay less or no tax.
Those buying houses worth more than €1.5m, typically a one-off family home purchase, will be liable to an onerous new stamp duty of 6%.
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.
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:
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.
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.
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.
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.
The temporary 9% VAT rate for fuel, gas, oil and electricity has been extended for a further six months to 30 April 2025.
The VAT threshold for the supply of goods is rising from €80,000 to €85,000, while that for the supply of services goes up from €40,000 to €42,500.
