Budget 2025 Highlights

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Budget 2025 Highlights

Minister for Finance, Jack Chambers delivered the final Budget today, 1 October 2023. Below we outline the highlights of Budget 2025.

Personal Tax

  • Income Tax Standard Rate Bands increase by €2,000 to €44,000 (single person), with the married single earner band increasing to €53,000, and the married dual income band increasing to €88,000.
  • Personal, PAYE, Earned Tax Credits to increase by €125 to €2,000.
  • Home Carer and Single Person Child Carer Tax Credits will increase by €150 to €1,950 and €1,900 respectively.
  • Incapacitated Child and Blind Person’s Tax Credits will increase by €300 to €3,800 and €1,950 respectively.
  • Small change to the second rate-band of Universal Social Charge which will increase from €25,760 to €27,382. The 4% rate is reducing to 3% from 1 January 2025.
  • Alignment to the tax treatment of Automatic Enrolment Retirement Savings Schemes so that they are similar to that of PRSAs. Employer contributions are tax relieved. Funds grow tax free and a tax-free lump sum can be taken on draw down of the fund up to a maximum of €200,000.

 Enterprise/SMEs

  • Ireland is the only country in the EU which taxes dividends from foreign subsidiaries. It is proposed to introduce a participation exemption for Foreign Dividends to simplify the double taxation relief provisions. Companies will have an option to claim the exemption or continue to use the existing tax and credit relief by way of an election on the company’s annual Corporation Tax return. The exemption will apply for distributions received on or after the 1 January 2025.
  • Capital Gains Tax Relief for Angel Investment to encourage investment in innovative start-ups is to commence shortly. Qualifying investments will be certified by Enterprise Ireland with a minimum investment in new shares of at least €10,000. Relief will apply if shares are held for at least 3 years. A reduced rate of Capital Gains Tax of 16% will apply on a gain of up to twice the initial investment. A lifetime limit of €10m will apply to the relief.
  • A 12-year clawback period for Retirement Relief on disposals to children on businesses valued at over €10m.
  • The various reliefs for Investment in Corporate Trades are being extended for a further two years to 31 December 2025. The €500,000 investor limit on EII investment is being increased to €1m, while it is being increased to €980,000 for SURE investments.
  • The first-year payment threshold for the Research & Development Tax Credit is being increased to €75,000. The first-year payment threshold, which allows for a claim to be repaid in full rather than spread over 3 years.
  • The Section 486C Start Up Relief is currently calculated by reference to the amount of employer PRSI paid – up to €5,000 per employee. It is proposed that amounts paid under Class S will also be considered, subject to a maximum of €1,000 per individual.
  • New relief for up to €1m of expenses incurred on companies on their first listing on a recognised stock exchange in Ireland or the EU/EEA area. The relief is to support companies in the scale up phase of their growth and development.
  • The cumulative tax-free limit for small benefit exemption is being increased to €1,500 and the number of times an employer can provide a benefit is being increased from two to five per annum.
  • An exemption from taxable benefit in kind on the provision of EV home chargers.
  • The CO2 thresholds for claiming capital allowances on business cars is being revised downwards from 2027. An expenditure of €24,000 will be allowable for cars with CO2 emissions of 0-120g/km, a reduced €12,000 for vehicles with emissions of 121-140g/km and no zero for vehicles with CO2 emissions greater than 141g/km.

Agri-Food Sector

  • CAT Agricultural Relief will now require that the donor must meet a 6-year Active Farmer test.
  • The measures for Stock Relief which were due to expire at the end of 2024 are being extended to the end of 2027.
  • 50% Accelerated capital allowances for farm safety equipment.
  • Farmer’s Flat Rate VAT compensation being increased to 5.1%.

 Housing/Cost of Living Measures

  • The Rent Tax Credit is being increased by €250.
  • The deduction for pre-letting expenditure from rental income will be extended for a further three years, to the end of 2027. The deduction is capped at €10,000 per property.
  • The Help to Buy (HTB) scheme is being extended to the end of 2029.
  • The Stamp Duty rate applied where 10 or more residential properties are acquired in any 12-month period is being increased from 2 October 2024 from 10% to 15%. In addition, a 6% rate will apply to residential properties valued excess of €1.5m.
  • A temporary one-year Mortgage Interest Tax Relief introduced last year is being extended for a further year. Relief will be available for the increased mortgage interest paid in 2024 over 2022. The relief is capped at €1,250 per property and applies to mortgages outstanding of between €80,000 and €500,000 on the 31 December 2022 and fully LPT compliant. Relief is at the standard rate.
  • The rate of the Vacant Homes Tax is again increased with effect from 1 November 2024 to 7 times the property’s existing LPT liability.
  • The 9% VAT rate for Gas and Electricity supplies is extended to 30 April 2025.

 VAT

  • The registration thresholds are being slightly increased to €42,500 for the supply of services and €85,000 for the supply of goods from 1 January 2025.
  • The supply and installation of heat pumps is reduced from 23% to 9%.
  • The Farming VAT Flat Rate is being reduced to 5.1% from 1 January 2025.

Other Measures

  • The universal relief of €10,000 to the OMV for vehicles in Category A-D is extended for a further year to end 2025.
  • The Capital Acquisitions Tax thresholds are being increased as follows.
    • Category A threshold €400,000
    • Category B threshold €40,000
    • Category C threshold €20,000
  • Two new audio-visual incentives are being introduced. Both require European Commission approval.
    • A Corporation Tax credit for expenditure on unscripted productions. The credit will be granted at 20% of the expenditure up to a limit of €15m per project.
    • Scéal Uplift for film production up to a maximum expenditure of €20m. This incentive will form part of section 481 Film Relief.

Read our tax team’s analysis of Budget 2025.

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Research & Development (R&D) Tax Credit – What is it and how can it be claimed?

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The R&D tax credit was introduced to incentivise large multinationals to locate an R&D unit here and to encourage Irish companies to invest in R&D activities.

Where a company meets the criteria to qualify for the R&D credit, it will be entitled to claim a tax credit equivalent to 30% of eligible expenditure incurred by it on qualifying R&D activities. As the claimant should also be entitled to claim a tax deduction at the standard rate of corporation of 12.5% on the same expenditure, it should result in an effective corporation tax benefit of 42.5%.

Changes from 2024

For accounting periods commencing from 1 January 2024, new rules have been introduced in Budget 2024. The main changes include the following:

  • The R&D credit is increased from 25% to 30%
  • The first payment instalment has been increased from €25,000 to €50,000
  • The company must now provide pre-notification of intention to make an R&D tax credit claim

Is my company eligible to claim the R&D credit?

In order to qualify for the R&D tax credit the following must apply:

  • The applicant must be a company
  • The company must be within the charge to Irish tax
  • The company must undertake qualifying R&D activities either within Ireland or the EEA

The expenditure on which the company is making the claim must be wholly and exclusively incurred in the carrying on by it of qualifying R&D activities. As per Revenue guidance, it is crucial that claimants distinguish the term “carrying on” from “for the purposes of” or “in connection with”. Indirect costs such as recruitment fees, insurance and travel costs, which are not wholly and exclusively incurred in the carrying on of the R&D activity do not qualify as relevant expenditure.

Typically, expenses which qualify for the R&D credit include materials, salary costs, subcontracted R&D and plant and machinery.

What are qualifying activities for the purposes of the R&D credit?

Qualifying activities must:

  1. Be systematic, investigative or experimental activities;
  2. Be in a field of science or technology;
  3. Involve one or more of the following categories of R&D:
    • Basic research
    • Applied research
    • Experimental development
  4. Seek to achieve scientific or technological advancement; and
  5. Involve the resolution of scientific or technological uncertainty.

Essentially, the R&D activities being carried out must address an area of technological or scientific uncertainty where the outcome is unclear from the outset.

Claiming the R&D Tax Credit

Under the new R&D system which was introduced in Budget 2023, for periods commencing on 1 January 2023, a company will have an option to request either payment of their R&D tax credit or for it to be offset against other tax liabilities which will provide greater flexibility to the claimant.

Where a company opts to have the credit refunded, it will be refunded as follows:

  • The first €25,000 (for accounting periods beginning on or after 1 January 2023) or €50,000 (for accounting periods beginning on or after 1 January 2024) of an R&D claim will now be payable in full in year 1.
  • In year 2, the second instalment will equal three-fifths of the remaining balance.
  • The third and final instalment in year 3 will in effect be the remaining balance.

A company will have the option to specify whether the R&D corporation tax credit is to be offset against the company’s tax liabilities or is to be paid to the company. Under the new regime, the option is there to offset against any tax liability, such as PAYE Employer liabilities or VAT liabilities.

In addition to the above, the current limits on the payable element of the credit will be removed as part of the new system.

Pre-notification

With effect from 1 January 2024, companies who wish to claim the R&D tax credit and it is either their first tax credit claim or it has been more than 3 years since their last claim, there is now a requirement to notify Revenue of their intention to make the claim. This must be done 90 days prior to making the claim.

The company must do this in writing and the information required is as follows:

  • Name, address and corporation tax number of the company;
  • Description of the research and development activities carried out by the company;
  • Number of employees carrying on research and development activities; and
  • Expenditure incurred by the company on research and development activities, which has been or is to be met directly or indirectly by grant assistance.

It is important that companies review their activities to determine if they qualify for the tax credit as the credit can prove to be a very valuable source of funding.

If you have any queries about the R&D tax credit, please contact us.

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Knowledge Development Box Update

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Knowledge Development Box Update

The Knowledge Development Box was introduced by Finance Act 2015, for those companies whose accounting periods commence on or after 1 January 2016. This legislation will allow small and medium sized companies engaged in research and development activities which led to the creation of the patent, copyrighted software or intellectual property (IP) equivalent to a patentable invention to reduce the tax paid on profits arising from these qualifying assets.

Updates to the legislation were enacted in September 2023 and from October 2023 the profits arising from patents, copyrighted software or IP equivalent to a patentable invention are now taxed at an effective rate of 10% rather than a previous effective rate of 6.25%.

Although this is not as favourable as it once was, if the profits arising from qualifying assets are significant, there could still be significant tax savings for companies.

Qualifying Assets

For the purposes of KBD, a qualifying asset would include the following assets that arose from R&D activities:

  • A computer programme
  • An invention protected by a patent
  • IP for small companies

Qualifying Income

Any income generated from the above qualifying assets will qualify for the relief. The income generally would include:

  • Royalty income
  • Licensing fees
  • Portion of sales price that is attributable to qualifying assets

Operation of Relief

The relief operates by allowing a tax deduction of 20% (from October 2023) of the qualifying profits from the R&D activities which results in an effective tax rate of these profits of 10%. In order to calculate the qualifying profits figure, there is a formula to use as follows:

QE + UE  x  QA
OE

QE – Qualifying expenditure
UE – Uplift expenditure
OE – Overall expenditure
PQA – Profits from qualifying assets

Qualifying expenditure includes costs that have been borne by the company, wholly and exclusively in carrying out R&D activities which result in the creation, improvement or development of the qualifying assets.

Overall expenditure is the overall expenditure the company has incurred on R&D on the qualifying assets. The main difference between qualifying expenditure and overall expenditure is that outsourced costs and acquisition costs incurred by the company in relation to qualifying assets can be included here.

An additional “uplift expenditure” is allowed to increase the qualifying expenditure on the qualifying asset. The uplift expenditure is the lower of:

  • 30% of the qualifying expenditure; or
  • the aggregate of the acquisition costs and group outsourcing costs.

As can be seen from the above, the formula seeks to restrict purchases costs of IP and group outsourcing – this makes it more beneficial to Irish companies who do all the majority of the development work in house rather than multinationals who outsource elements to group companies.

Claims for the KBD must be made within 24 months of the period end.

For further information on the above article or any other issue surrounding the Knowledge Development Box, please contact us.

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