Derek Henry, BDO on Budget 2025

Derek Henry, BDO on Budget 2025

Budget 2024 Preview

In a pre-election Budget it is widely anticipated that the current Government will do as much as possible to position itself in a favourable light with the electorate. In this regard, we are likely to see increases in the Standard Rate Cut-Off Point, adjustment to tax credits and perhaps a reduction in Universal Social Charge (USC). Perhaps enhanced reliefs and allowances related to the cost of childcare, fuel costs, education and health expenses will be introduced to help alleviate the financial burden on taxpayers. Such measures will be perceived to curry favour with voters, however, there are other issues that should be addressed if the Government wish to show that they are willing and able to continue to address the economic issues of the country.

Housing

We firmly believe that housing should be the key issue that the government seeks to address in budget 2025. While many good initiatives have been undertaken by the government and progress has been made on the number of housing completions, given the increasing rise in demand the scale of the problem continues to grow. Radical intervention is required now.

Therefore, we are reiterating our call in the 2024 pre-budget Commentary last year for the introduction of a capital allowance scheme/section 23 type incentive to stimulate supply in residential development. A carefully controlled introduction of such a scheme would have a significant impact on incentivising investment into this area and dramatically improve viability which will have a positive effect on supply of
residential units.

The Government have introduced Residential Zoned Land Tax and Vacant Homes Tax to penalise the underutilisation of land that could be put to residential use. We believe introducing a 20% rate of CGT/Income tax on any gains from disposal of such land would result in more landowners selling such holdings to people with the capacity and skills to develop same into residential stock.

Finally, we would suggest some other measures should be considered in this area to build on some of the initiatives introduced in recent years. In particular, we would like to see the following:

1. To reduce costs and increase viability we would like to see the introduction of a reduced rate of VAT on input costs for the development of residential units.
2. We would like to see the extension of the temporary development contribution waiver.
3. We would like to see the rent a room scheme increased from €14,000 per annum to €20,000 with marginal relief available beyond this amount to avoid a cliff edge.  This should support the better utilisation of the current residential stock.
4. We would support the introduction of a standard rate of income tax of 20% for landlords on rental profits.
5. To assist with the decarbonisation of the economy, we would suggest some enhancements to the capital schemes for retrofitting existing residential buildings to increase the BER credentials, this should apply to both owner occupiers and landlords.

Encouraging Investment in SMEs

While many incentives have been introduced over the years to assist and encourage investment in SMEs, we believe there is more that can be done to broaden the scope of these measures and their ease of access.

We would encourage the introduction of the following changes:
1. Enhancing and simplifying the Employment Investment Incentive Scheme (EII) which presently is very complex, and with material penalties for getting it wrong. Moreover, no CGT losses are currently available for loss making investments.

2. We would like to see further improvements to the KEEP (Key Employee Engagement Programme) to help SMEs with staff attraction and retention.

3. Abolishing the 3% USC surcharge on non-PAYE income over €100,000 to encourage entrepreneurship. This surcharge has repeatedly been noted by the Tax Strategy Group, Commission on Taxation, and indeed was noted in the current Government’s Programme for Government, for unfairly penalising self-employed individuals.

4. Enhancing the CGT regime through a reduction in the current 33% rate to unlock capital, as well as through broadening current reliefs such as the new angel investor relief which is complex and restrictive, and addressing some of the anomalies in the current CGT Entrepreneur Relief would also be welcomed.

5. Maintaining the existing CGT retirement relief regime to facilitate the smooth transition of family businesses. Currently the new rules, which are due to commence on 1 January 2025, will impose a €10m cap on this relief which will act as a barrier to lifetime transfers.

Other Measures

We would like to see further work on the following areas:

1. Tax simplification in particular we would like to see consideration of the establishment of an Office for Tax Simplification. We feel that a priority for tax simplification should be around interest deductibility rules.
2. We look forward to the introduction of the Participation Exemption for foreign dividends that was announced last year and hope that the feedback on the draft legislation has been heard to ensure what is introduced is internationally competitive.

Author: Derek Henry,  Partner – Head of Tax at BDO.