Budget 2025 Highlights – Derek Henry – BDO Ireland

With it being the last budget of the current government, it was widely anticipated that the current government would do as much as possible to position itself in a favourable light with the electorate.

As anticipated, a number of welcome changes were introduced in relation to an increase in the Standard Rate Cut-Off Point, adjustments to tax credits and changes to the Universal Social Charge (USC) bands and rates. A summary of some of the highlights are included below.

Cost of Living Measures

Cost of living measures introduced include an increase to the minimum wage, increased social welfare payments and bonus payments, improved child benefit payments, the temporary 9% VAT rate on residential gas and electricity bills to apply until 30 April 2025 and energy credits of €250 per household. Mortgage interest relief has been extended and an increased Rent Tax Credit announced to apply for 2024 also.

Housing Crisis

The housing crisis was always going to be a key issue to be addressed by the government. Their announcements to help alleviate the housing crisis are welcome but perhaps more radical intervention is required.

Positive announcements in this regard include:

The Help to Buy Scheme is extended until 31 December 2029. This scheme offers first time buyers a tax rebate of up to €30k on the purchase of new build homes.
The rate of Vacant Homes Tax to increase to 7 times the LPT liability attaching to the property.
Tax deduction for landlords in respect of pre-letting expenses in respect of certain properties has been extended.
The introduction – with immediate effect subject to some transitional arrangements – of an increased rate of Stamp Duty of 15% (up from 10%) to be charged on the acquisition of at least 10 residential units by one purchaser during any 12 month period.
A budget allocation in excess of €6 bn for the Dept of Housing, Local Government & Heritage to deliver social and affordable homes.
In what is being termed the “mansion tax”, a new rate of stamp duty of 6% for residential properties which are sold for over €1.5m will now apply.

Whilst some of the above measures are welcome there are other changes that we would have liked to see introduced to assist with the housing crisis but it has to be acknowledged that the changes introduced will have a positive impact.

Business Measures

A number of business friendly measures were also announced in the budget including, amongst others, measures such as:

An increase in the VAT registration thresholds
Reform of interest deductibility rules
A new participation exemption for foreign source dividends
Changes to Section 486C Start Up Company Relief
Changes to the R&D Tax Credit Regime.

An increase in the VAT registration thresholds is always welcome and the ongoing review of the tax treatment of interest costs is also welcomed as simplification is required in order to bring our interest deductibility rules more in line with our European counterparts to maintain our attractiveness to businesses.

The participation exemption for foreign source dividends, to come into effect on 01 January 2025, was widely anticipated and is welcomed but should possibly include worldwide dividends rather than distributions received from relevant subsidiaries that are resident in EU / EEA and tax treaty jurisdictions which is the current proposal.

Start Up Company Relief currently allows relief from Corporation Tax for small companies in the first five years of trading where their annual liability is less than €40,000 or marginal relief thereafter to €60,000. Positive changes, whereby PRSI paid by owner-directors can also be included in the calculation, are being introduced in terms of how it is calculated.

The year one refundable R&D credit is being increased from €50,000 to €75,000, or 50% the value of the credit if higher. This will provide an immediate cash-flow benefit for companies, particularly small companies engaging in R&D, or those availing of the R&D tax credit for the first time.

Capital Taxes

Whilst the rate of CGT and CAT remained unchanged there were some positive announcements such as increased CAT Group Thresholds and some welcome changes in relation to Retirement Relief and Angel Investor Relief.

Other Measures

There were also measures announced which will be welcomed by those involved in Agri-Business and Film Production whilst measures to help SME’s attract funding through incentives such as Employment Investment Incentive Scheme (“EIIS”), Start Up Relief for Entrepreneurs (“SURE”) and Start Up Capital Incentive (“SCI”) are also welcomed but it was hoped that such schemes would be simplified so that more SME’s could benefit.

There were also some positive announcements in relation to benefit in kind on company cars and home chargers for electric vehicles and the small benefit exemption has been increased to €1,500.

There were also some VAT, Customs & Excise measures announced in Budget 2025.

It is a budget that probably had something for everyone and no doubt in a pre-election budget that was the intention of the current government. While it is clear that the various economic commentary bodies are not happy with the spending packages announced for an economy at full employment, it remains to be seen how well received the budget will be by the electorate.

Author: Derek Henry, Partner – Head of Tax, BDO Ireland