Budget 2025 overview: More to do on tax simplification

Unlike many of its EU counterparts, Ireland’s fiscal context for Budget 2025 is notably positive, says Paraic Burke, head of Tax at PwC Ireland.

The Department of Finance project a record surplus of €23.7bn, more than double the projected surplus a year ago.

Expectations were high, fuelled by speculation of a possible general election in the near future.

While the Summer Economic Statement outlined an €8.3bn package, the final Budget 2025 package was notably larger — a €10.5bn package which has something for everyone.

Missed opportunity on tax simplification

Budget 2025 presented a significant opportunity for the Government to support businesses and individuals facing ever-higher costs.

With an overall Budget package of €10.5bn, workers and households were the winners. To an extent, it also delivered some support for private business but it fell short of meaningful tax measures to help private businesses deal with rising costs, increased regulation and complexity. More pro-growth measures are needed to incentivise entrepreneurship.

We urge the Government to introduce a Tax Simplification Roadmap. Many SMEs are unable to access our showcase reliefs such as the Research & Development Tax Credit and EII because of the enormous complexities associated with claiming the relief for companies and investors. Until we address this, increasing the reliefs will not achieve the desired uptake.

With global uncertainty and intense competition for inward investment, Budget 2025 also aimed to enhance Ireland’s competitive edge and infrastructural constraints. The additional significant investment in housing, energy, water and transport is a positive step, but addressing deep-seated infrastructure issues will require immediate action and sustained focus from the next Government.

Personal taxation

As expected, Budget 2025 introduced several tax measures affecting individuals and households. These changes aim to leave more money in employees’ and income earners’ pockets, though there is no significant shift in income tax burdens.

Key measures include:

• Changes in the USC, increasing the ceiling of the 2% rate by €1,622 to €27,382 and cutting the top rate from 4% to 3%.
• An increase in the standard rate income tax cut-off point by €2,000. Various personal tax credits will also be increased.
• An energy credit of €250 per household, with €125 paid before year-end and another €125 after.
• Extension of the help-to-buy scheme, now running until the end of 2029.
• €250 increase in the rent tax credit, bringing it to €1,000 for a single person and €2,000 for a jointly assessed couple for 2024 and 2025.
• €10,000 company car BIK reduction extended by one year, along with a BIK exemption for home car chargers provided by employers.
• Mortgage interest relief extended by one more year.
• Minimum wage increase of 80 cents per hour, bringing it to €13.50 per hour.
• Increased tax-free thresholds for inheritance tax: Category A is up from €335,000 to €400,000, Category B is up from €32,500 to €40,000, and Category C is up from €16,250 to €20,000.

Housing 

The Government must address the housing crisis by making strategic investments to increase the supply of new houses. Budget 2025 commits to supporting first-time buyers and introduces measures to disincentivise bulk buyers.

Key measures include:

• An additional €1.25bn allocated to the Land Development Agency, bringing its total funding to €6.25bn to support the supply of thousands of new homes.
• The Help to Buy scheme is extended in its current form to 31 December 2029.
• A 6% rate of stamp duty for residential property purchases above €1.5m, effective tonight. The existing rates of 1% for the first €1m and 2% for the next €500k remain unchanged.
• The stamp duty rate on bulk purchases (10 in a 12-month period) of residential property, excluding apartments, increased from 10% to 15%, effective immediately.
• The Vacant Homes Tax rate increased to seven times the local property tax liability (up from five times), effective from 1 November 2024.
• Residential Zoned Land Tax (RZLT): Landowners carrying out genuine economic activity can seek an exemption from RZLT in 2025 by rezoning their land to reflect this activity.

Energy transition

Investing in Ireland’s energy transition and building secure and stable green infrastructure is crucial for meeting climate targets, maintaining competitiveness, and attracting foreign direct investment (FDI).

Key measures include:

• A direct equity investment of €750m to develop onshore and offshore electricity grid infrastructure.
• Additional €6bn transfers in 2025 to the Future Ireland Fund and the Infrastructure, Climate, and Nature Fund, bringing total investment to €16bn. Over €3bn is set aside from the Infrastructure, Climate, and Nature fund between 2026 and 2030 for the climate transition.
• Allocation of €1bn to Uisce Eireann for capital investment.
• Extension of the reduced 9% VAT rate on electricity and gas for another six months to 30 April 2025. The 9% VAT rate will also apply to heat pump installations.
• Annual carbon tax increase of €7.50 per tonne for petrol and diesel from 9 October 2024 and for other fuels from May 2025.
• Additional measures to increase the number of EVs, including changes to VRT.

Entrepreneurship and private businesses

The Ministers expressed their commitment to supporting entrepreneurs and private businesses through measures that foster growth, innovation and employment.

Key measures include:

• Increasing the first-year payment threshold in the R&D tax credit from €50,000 to €75,000 to provide further cash flow support. A review of the R&D tax credit will be undertaken in the coming year.
• Raising the annual limit for Small Benefit Exemption from €1,000 to €1,500, allowing employers to provide up to five non-cash benefits per year.
• Introducing a new tax credit for the unscripted production sector: 20% credit on qualifying expenditure up to €15m, subject to European Commission approval.
• An 8% uplift in Section 481 film tax credit relief for productions with a maximum qualifying expenditure of €20m, subject to State Aid approval.
• Extending the Employment Investment Incentive (EII), Start-Up Relief for Entrepreneurs, and Start-Up Capital Incentive schemes to the end of 2026, with improvements to the available reliefs.
• Increasing the age limit for qualifying individuals claiming Retirement Relief from capital gains tax (CGT) from 65 to 70 years. A clawback applies if a child disposes of assets above €10m within 12 years.
• Improving the new targeted CGT relief for angel investors.

FDI and financial services

Budget 2025 aims to boost Ireland’s attractiveness for investment and support the financial services sector. Key announcements include a public consultation on the tax treatment of interest and a commitment to simplify Ireland’s tax code.

Key measures include:

• Introduction of a participation exemption on foreign source dividends to simplify double tax relief for multinational businesses, effective from 1 January 2025. Further work on participation exemptions, including geographic scope and foreign branch exemptions, will continue next year.
• Ongoing consultation on the tax treatment of interest in Ireland, running until January 2025, aimed at reducing complexity and enhancing Ireland’s appeal as a business jurisdiction.
• Extension of the banking levy for another year, with no changes to the current rate of 0.122% or the scope of the levy.
• Finalisation of the Funds Sector 2030 report, soon to be presented to the Government, to safeguard Ireland’s leading position in investment funds and asset management. Next steps will be outlined following the review of the findings.

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