As Ireland gears up for Budget 2025, the upcoming general election is poised to play a significant role. After two consecutive budget surpluses, taxpayers anticipate supports and tax cuts. Finance Minister Jack Chambers faces the challenge of balancing these demands with warnings that a giveaway Budget could overheat the economy. Budget 2025 will feature an €8.3 billion package, with €1.4 billion allocated to taxation measures. While these funds offer opportunities to enhance household finances, most will address wage inflation. Aside from tax adjustments to address wage inflation, Minister Chambers is expected to deliver targeted and sustainable cuts and spending.
Income tax and the Exchequer
The Exchequer income tax yield for the first eight months of 2024 totalled €22.2 billion, a 6.9% increase from the same period the previous year. This rise is attributed to the large number of people at work and wage growth. Combined with record corporate tax and VAT revenues, workers — especially those in the ‘squeezed middle’ income brackets — expect the Government to provide tax relief. This relief is crucial to help combat the ongoing cost of living pressures.
Income tax rates and bands
Due to the high cost, a decrease in income tax rates (20% or 40%) is highly unlikely. Instead, we expect an increase in the income tax standard rate band following recent trends. Last year, the threshold at which income becomes taxable at the 40% rate rose by €2,000 to €42,000. Another €2,000 increase, as modelled by the Tax Strategy Group (TSG), would cost €435 million in the first year and €500 million for a full year.
Additionally, we anticipate a 0.5% decrease in the 4% Universal Social Charge (USC) rate, costing €200 million in the first year and €230 million for a full year.
While increasing the standard rate cut-off point to €50,000 and abolishing USC entirely have been previous election promises, neither is likely within the lifetime of the current Government.
Income tax credits and benefits
To address wage inflation and protect against the erosion of salary increases from additional taxes, the Government will likely focus on increasing the main tax credits to ensure that cost-of-living adjustments are not diminished. These include employee, personal, earned income and home carers’ credits. A proposed ‘youth tax credit’ of €750 for individuals under 25 has also been suggested. Enterprise Minister Peter Burke claims this credit will cost €100 million annually and help Ireland retain young talent. However, its potential impact remains uncertain.
Cost of living
Following the trends of the last two budgets, several once-off cost of living measures are anticipated, though Minister Chambers has confirmed these will be on a smaller scale than in previous years. A lump sum energy credit of €450, to be delivered before Christmas, is currently under consideration.
Housing
Budget 2025 is expected to introduce several measures to address the ongoing housing crisis. The Minister for Housing has indicated an increase in the renters’ credit from €750 to €1,000, with reportedly strong support from Minister Chambers. There are also calls to extend the ‘help to buy’ scheme, currently set to expire at the end of 2025.
Despite last year’s controversy, the temporary mortgage interest relief introduced in Budget 2024 will likely be extended. With high interest rates persisting, the Government will likely want to be seen to support homeowners by potentially expanding this relief or extending it into 2025.
Capital Acquisitions Tax
A significant change anticipated in Budget 2025 is the extension of the Group A tax-free inheritance threshold, which applies to transfers from parents to children or vice versa. Currently set at €335,000, this threshold may increase to around €400,000. Tánaiste Micheál Martin has confirmed that a review of inheritance tax is on the agenda for Budget 2025, calling the current system too ‘punitive’. While there have been calls to raise the threshold to €500,000 and reduce the tax rate to 30%, these changes are not expected in this year’s budget.
Attractiveness to overseas talent
Given the importance of multinational companies to the Irish Exchequer, Ireland’s personal tax system must remain competitive globally. The Special Assignee Relief Programme (SARP), currently set to expire in 2025, plays a key role.
Businesses would welcome a commitment in Budget 2025 to extend and enhance SARP. Suggested enhancements include streamlining and simplifying the application process, extending relief to the USC and PRSI where relevant, and including new hires transferred to Ireland. The non-resident period should also be reduced to three years to encourage emigrants to return to Ireland, and the relief should become a permanent part of tax legislation to give employers certainty.
Pensions: auto-enrolment and lifetime limits
In 2024, legislation was passed to pave the way for auto-enrolment (AE), where employees not currently in a pension scheme will be automatically enrolled in a new State top-up scheme. AE is expected to go live in 2025, although a delay until late in the year is being considered due to overall cost pressures on employers.
Finance Act 2022 removed the benefit-in-kind (BIK) tax on employer PRSA contributions, but there has been criticism regarding the mismatch between PRSA funding and other occupational pensions. Budget 2025 may limit PRSA funding to align with occupational pension plan funding.
The standard fund threshold (SFT) for pension funding was reduced to €2 million in 2014 and has not been adjusted since. Following recent consultations, we may see an adjustment to account for inflation. The limit could be linked to future inflation or wage inflation while reviewing the valuation factors to assist public and private sector employees with defined benefits pension plans. These changes could influence individuals’ retirement plans and help in hiring for senior positions in both sectors.
Retrofitting and decarbonisation
Despite concerns about medium to long-term funding, several reliefs are necessary to encourage households to undertake retrofitting activities.As outlined in our pre-Budget submission, some options the government might consider include:
stamp duty refunds for residential and commercial retrofitting activities;
loan interest relief on mortgages or loans for retrofitting;
tax relief incentives for installing home car charging points;
a more flexible mechanism for claiming tax back on travel costs for hybrid workers to encourage the use of public transport over personal vehicles; and
extending the electric vehicle BIK deduction beyond 2027 and/or increasing the deduction amounts to €35,000 for future years.
Three key actions businesses can take today
1. Plan ahead
Plan for additional employment costs, including increases in employer and employee PRSI contributions. While AE may be deferred, it is essential to consider how this will impact your business and plan accordingly.
2. Tax-efficient employee remuneration
Consider eligibility for reliefs such as SARP and the Small Benefit Exemption to help recruit and incentivise key talent, as well as employer pension funding within relevant limits. As part of a financial wellness offering, ensure your employees are aware of typical reliefs they may be eligible to claim, including tax credits.
3. Retrofitting and decarbonisation
As carbon taxes increase, consider the reliefs you may be eligible for and the additional incentives the Government may introduce. These measures can help reduce your carbon footprint and associated costs.
We are here to help you
Budget 2025 comes at a critical time, with the Government facing a test of its policies against the backdrop of an imminent general election. The business community continues to grapple with rising costs and remains focused on attracting, incentivising and retaining key talent, as well as upskilling and evolving their workforce to meet evolving business practices and technology. Meanwhile, the workforce continues to navigate ongoing cost-of-living pressures. We are ready to help you, and your workforce, as you plan for the long-term — contact us today.
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