The budgetary announcements in October each year are an obvious example of balancing politics with economics. From the political perspective, the government hopes to provide good news for as many sectors of society as possible, whether though income tax cuts, social welfare increases or additional funding for required public services. From the economic perspective, the objective, this year at least, is to maintain the strong employment growth that has been experienced in recent years, without stoking the fires of inflation.

While many will be disappointed that their sector of society has not got all that they had demanded or expected, it is fair to say that the Minster for Finance, Michael McGrath, and the Minster for Public Expenditure, NDP Delivery and Reform, Paschal Donohue, have delivered a budget that has something for everyone.

The following is an overview of some of the tax measures which were announced, focussing primarily on personal taxes and capital gains tax.

Personal tax

By increasing tax credits, expanding the standard rate tax band and reducing the rate at which middle income earners pay the USC, the personal tax measures should provide some financial benefit for those earning more than €20,000 to €25,000 per annum. The proposed 12% increase in the minimum wage will either directly or indirectly benefit those earning less (while not a tax measure, this is a cost to their employer).

Standard rate tax band

The level of income at which an individual or jointly assessed couple becomes subject to the higher rate of income tax has been increased as follows:

This reduces the amount of tax paid on incomes above the relevant threshold. For example, in the case of a single person earning more than €42,000 in the coming year, they will pay tax at 20% rather than at 40% on an additional €2,000 of their income, thereby reducing their annual tax liability by €400.

Increases to tax credits

Each of the main income tax credits have been increased, thereby reducing the amount of tax paid by an individual with sufficient income to utilise all credits available to them. The following is a summary of the main changes:

The tax credits also reduce the amount of tax paid on incomes above a certain level, using the example of a single person in employment, and also in rented accommodation, they should benefit from the increase in the personal tax credit (available to all), the employee tax credit (available to all employees) and the rent tax credit (available to those living in rented accommodation). For such an individual, the increases in tax credits will reduce their annual tax liability by €450.

Changes to USC

There have been two changes introduced in relation to USC rates and bands:

• For those that benefit from the increase in the minimum wage, the amount of income subject to the 2% USC rate has been increased to ensure that the increase in the minimum wage does not result in those employees paying higher taxes; and
• For those earning above the minimum wage, the 4.5% USC rate has been reduced to 4%.

For an individual earning more than €70,000, who benefits fully from both measures, their annual USC liability will reduce by almost €300.

The above are the main changes to personal tax for 2024, and in the case of the single individual used in examples above, earning more than €70,000 and living in rented accommodation, the above measures could reduce their annual tax liability (including USC) by almost €1,150.

For those that do not benefit from all of the tax and USC measures outlined above, the core weekly social welfare rates are increasing by €12 and there are numerous once-off payments being provided for (most of which are scheduled for the period before and after Christmas, including €300 to those in receipt of the Fuel Allowance, €200 to those in receipt of the Living Alone Allowance, €400 to those in receipt of the disability allowance, the blind pension or the invalidity pension).

Also, every household is eligible to receive three energy credits of €150 each between now and the end of April next year.

Capital gains tax

While many in the business community have proposed reductions to the rate of capital gains tax in recent years, it has once again fallen on deaf ears. Whilst there is a precedent (approximately 20 years ago, the tax rate was reduced from 40% to 20% and the cumulative amount of tax paid increased significantly), a reduction in the current 33% tax rate is not something that appears to be on the horizon.

Targeted reliefs

Instead, there have been some changes to the targeted reliefs that are available in the case of a sale of certain business assets:

Retirement relief

Firstly, retirement relief, which has been part of the Irish tax landscape since the 1970’s, will be subject to a couple of substantial changes from the start of 2025. While there is currently no limit on the value of, or gain on, transfers to children before the parent reaches the age of 66, what has been proposed is a €10 million limit, that will apply to transfers to children up to the 70^th birthday of the parent. Thereafter the limit reduces to €3 million.

Once introduced, the limit for sales to third parties will reduce from €750,000 to €500,000 and the limit for transfers to children will reduce from €10 million to €3 million, in both cases, once the parent reaches their 70^th birthday. It is possible that the result of these measures will be less transactions and less tax revenue (if larger businesses are retained by the parents due to the tax costs associated with a sale or lifetime transfer to their children).

Angel Investor Relief

Secondly, a new tax relief has been introduced for certain investors that are not actively employed by or involved in the business that they have invested in. Described as the Angel Investor Relief, it provides for a reduced tax rate of 16% (or 18% in the case of investments made through a partnership), on gains arising on the sale of qualifying investments, up to a maximum of twice their initial investment, subject to a lifetime limit of €3 million on gains.

It is understood that the relief will include a certification process, which will be carried out by Enterprise Ireland, to ensure the relief is targeted at innovative SME’s that can demonstrate financial viability and compliance with EU regulations.

The two main concerns that have been expressed by the business community are:

1. The requirement that the investor has a 5% shareholding in the investee company (this unnecessarily restricts the scope of the relief) and;
2. The cap on gains eligible for the relief of twice the initial investment (this does not properly reflect the risk/reward associated with investment in a start-up).

Entrepreneur relief

Thirdly, entrepreneur relief, which has been a welcome addition to the tax scene over the last seven to eight years. The Minister for Finance has proposed, “to examine opportunities to refocus the relief with a view to further improving the incentives for founders and entrepreneurs . . .”, we look forward to the outcome of this review.

Taxes on property

In addition to the increase in the tax credit for those in rented accommodation, the Budget also introduced a temporary mortgage interest tax relief for homeowners (for one year only), and a tax relief for residential landlords. The latter is understood to be the equivalent of an income disregard of up to €3,000 (increasing up to €5,000 in later years) at the standard rate of tax, for residential landlords that keep their property on the rental market.

Sticking to the residential property market, the Vacant Homes Tax, which was introduced to penalise those with unused residential property, has been increased. The rate of tax has been increased to five times the basic Local Property Tax rate (this is before the first chargeable period for the tax has ended, in respect of which the tax is charged at three times the LPT rate, this return is due on or before 7 November 2023).

Conclusion

This highlights reel could have focussed on the personal tax changes (which impact almost everyone at work), and the social welfare changes (which hopefully support all others). We have also included a whistle-stop tour of the capital gains tax reliefs that were mentioned in Budget 2024 and some changes proposed to property-related taxes.

We have not mentioned the extension of certain relieving measures related to benefit-in-kind for company cars, and specifically electric cars. This is similar to the extension of accelerated capital allowances for certain energy-efficient equipment, including electric cars.

We hope that you found this helpful. Further detail on all budgetary measures are expected in the Finance Bill and the Finance Act, which should be enacted before the end of the year.

For further information contact Michael O’Leary, Tax Partner, JPA Brenson Lawlor at Michael@jpabrensonlawlor.ie.