Short-Term Relief for Households, Long-Term Competitiveness Questions Remain

Budget 2027 will give many households some relief. Wider income tax bands, higher credits and measures on childcare and energy costs should ease some of the pressure that has built up over the past few years. For a single employee earning about €50,000, the combined income tax changes could be worth around €700 a year. 

However, at an individual level, factors largely outside the Government’s control, such as food and energy costs, could quickly wipe out that relief. And from an Ireland Inc perspective, the state is heavily reliant on corporation tax receipts from a relatively small number of companies, while businesses here are competing harder for capital and skilled workers. 

There are useful measures in Budget 2027, including lower CGT, changes to R&D incentives and a new Personal Investment Account. But taken as a whole, the Budget does more to ease immediate pressure than to strengthen the conditions for Irish businesses to scale.

Income tax relief helps, but high marginal rates remain

Budget 2027 gets a lot right in terms of addressing the immediate pressures facing households. At a time when people continue to find things tight, these interventions are understandable and should be welcomed.

While the income tax changes will put more money back into workers’ pockets, they do not address Ireland’s high marginal tax rate. That rate has risen from 43% in 2008 to more than 52% today. For employers competing internationally for skilled staff, that remains a significant cost.

“It was disappointing that there was no roadmap outlining plans to address our high personal tax rates. The marginal rate for employees has increased from 43% in 2008 to over 52% today. This puts Ireland at a significant competitive disadvantage at a time when our corporation tax advantage continues to be eroded,” Peter Vale, Tax Partner at Grant Thornton Ireland, said.

CGT falls, but the change is modest

The reduction in the headline Capital Gains Tax rate from 33% to 31% is a positive move for entrepreneurs and investors. But a two-point cut is unlikely on its own to change many investment decisions.

While the Minister acknowledged that “enterprise drives productivity growth, incomes and increases in living standards and that it is the small business owners, risk takers and entrepreneurs that are the bedrock of our economy”, it was disappointing that the lifetime limit for Revised Entrepreneur Relief remained capped at €1.5 million.

Entrepreneurs who spend years building and scaling Irish businesses are central to delivering on those objectives, and a more meaningful increase in the threshold would have sent a stronger signal that Ireland is committed to supporting entrepreneurship, encouraging investment and acknowledging the importance of these businesses to the economy.

Extensions to EIIS and Angel Investor Relief provide more certainty for companies seeking growth capital, although complexity remains a barrier to wider use.

“While the reduction in the CGT rate sends a positive signal that the Government recognises the positive impact that owner-managed and family businesses have on the Irish economy, it is relatively modest. In isolation, it is unlikely to change investment decisions, encourage significantly greater levels of entrepreneurship or meaningfully accelerate the recycling of capital into the Irish economy,” Una Ryan, Tax Partner at Grant Thornton Ireland, said.

Inheritance tax rises slightly, but the wider imbalance remains

Unlike CGT, the rate of Capital Acquisitions Tax (CAT) remains unchanged at 33%. The Government did change the thresholds to €420,000 for Group A, €44,000 for Group B and €22,000 for Group C. The changes will help some beneficiaries, but they leave a large gap between those inheriting from parents and those in Groups B and C.

Any increase in the CAT thresholds will be welcomed by those who benefit from it, but Budget 2027 was an opportunity to look beyond simple tweaks and set out a roadmap to address the fundamental imbalance within our inheritance tax system.

The Revenue figures themselves illustrate the disparity starkly. Almost €3 in every €5 of inheritance tax receipts in 2025 came from beneficiaries in Groups B and C, despite those groups having substantially lower tax-free thresholds than those that apply to a child inheriting from a parent.

“Family dynamics and living arrangements have evolved over the years, but our inheritance tax system is still stuck in the past. Not everybody has children and for many people, the most important person in their life may be a long-term partner, sibling, niece, nephew, or somebody who does not fall within their immediate family at all. You could be partners in life, but strangers in blood and penalised because as a couple, you didn’t tick the box of a traditional marriage,” Julia Considine, Private Client Partner at Grant Thornton Ireland, said.

Personal Investment Account could unlock capital, but simplicity will be vital

Irish households are among the strongest savers in Europe, holding more than €160 billion in bank deposits, yet much of that capital remains in deposit accounts generating limited real returns over time. The new Personal Investment Account has the potential to unlock some of that capital by making long-term investing more accessible.

The question now is whether the new account will be simple enough to persuade more people to move some of that money into long-term investments. That will depend heavily on the final design. Ireland’s existing investment tax rules are already complex, so simplicity will be vital.

“The key now will be ensuring that the final design of the Personal Investment Account is simple and attractive enough to drive meaningful behavioural change. This isn’t only about investment returns. Greater participation in long-term investing can boost financial literacy, strengthen retirement outcomes and provide additional sources of funding for economic growth,” Brian Murphy, Tax Partner at Grant Thornton Ireland, said.

Corporate tax changes bring targeted improvements

Budget 2027 also includes several changes for companies, particularly around preliminary tax, R&D and reporting requirements.

The threshold for a company to be treated as “large” for preliminary tax purposes has been updated so fewer companies will be liable to pay their tax in two instalments. Calculated on the amount of corporation tax paid in the previous year, the threshold will rise from €200,000 to €350,000. 

The R&D tax credit has also been enhanced, with higher subcontractor limits, a higher first-year payment threshold and changes covering wage costs and clinical trials.

There are practical simplifications too. From 2027, companies will have a welcome choice to operate Enhanced Reporting for certain employee payments by the 14th of the following month rather than on a real-time basis as heretofore. 

“The measures announced in Budget 2027 will be welcomed by businesses. The changes to preliminary tax ease cashflow and compliance pressures for many companies, while the enhanced R&D tax credit provides further support for innovation and growth. Equally important are the practical reporting simplifications that reduce administrative burdens. Taken together, these changes represent a step towards a more business-friendly and competitive tax environment,” Sarah Meredith, Tax Partner at Grant Thornton Ireland, said.