Budget 2024 contained a number of measures that will be welcomed by individual taxpayers, particularly those on so-called ‘middle incomes’. As can be seen below, most of the personal tax measures announced benefit taxpayers, with a relatively minor PRSI increase being the only tax-raising measure in this area.
Aside from announcing the various fiscal measures, the Minister for Finance noted that Irish taxpayers may not be claiming their full entitlement to all available tax reliefs. Potential refunds unclaimed by taxpayers amount to €180m for 2022 alone according to Revenue. For example, the take-up of the rent tax credit has been much lower than expected. To address this, the minister has proposed an information campaign to raise awareness of the various credits and reliefs available.
The specific personal tax measures announced in the minister’s speech today are set out below.
Universal social charge
For the first time since Budget 2019, there has been a reduction in USC rates as the 4.5% rate will reduce to 4% with effect from 1 January 2024.
The entry point for the third (now 4%) rate of USC has been increased from €22,920 to €25,760. This increase will not only ensure that those who benefit from the rise in the minimum wage to €12.70 per hour (applicable from 1 January 2024) will stay within the two lower USC rate bands, but will also generate a modest benefit for every taxpayer with income above those levels.
The USC cap of 2% for medical card holders with income of less than €60,000 per annum has been extended by two years to the end of 2025. There was no mention of an extension to the USC cap for those with income of less than €60,000 per annum who are over 70 years of age. It remains to be seen if this was an inadvertent omission that will be addressed in the Finance Bill next week.
Full details of the revised rates and bands are included in the Tax Rates and Credits 2024 table at the end of this publication.
Income tax
In a move that was well-flagged in advance of the Budget speech, the point at which the higher rate of income tax will apply has increased by €2,000 to €42,000. This increase should deliver an annual saving of €400 for a single person with income of more than €42,000 per annum and €800 for married couples/civil partners.
This increase continues last year’s trajectory of increasing the standard rate cut-off point. However, the threshold at which taxpayers start to pay the higher rate of income tax in Ireland remains low by international standards, which impacts on Ireland’s attractiveness for multinational organisations.
While it was mentioned by then-minister Donohoe in last year’s Budget speech as something to be considered for 2024, Minister McGrath did not make any reference to the potential introduction of a third rate of income tax between the 20% and 40% rates.
Tax credits
The personal tax credit, employee tax credit and earned income credit will each rise by €100, from €1,775 to €1,875 with effect from 1 January 2024. While this represents a welcome 5.6% increase in these credits, the index-linking of these credits to inflation or minimum wage increases continues to be conspicuous by its absence.
The minister also provided for increases to the home carer tax credit and single person child carer tax credit of €100 each with the result that these credits will be €1,800 and €1,750 respectively for those that qualify.
The Incapacitated Child Tax Credit will increase by €200 from 1 January 2024. This credit had been left unchanged in the past five years despite increases in other tax credits.
PRSI
In Minister Donohoe’s speech, it was announced that the government is planning an increase of 0.1% to all PRSI contribution rates with effect from 1 October 2024. This was described as a ‘modest’ increase, but it was made clear that this will be the commencement of further increases over the coming years as part of a phased approach to address the demands of funding the pension system.
It is assumed that this increase will apply to all classes of PRSI and not solely employee/employer Class A contributions, although the Social Welfare legislation when available will clarify the final intentions.
Other cost of living measures
In addition to the above taxation measures, Minister Donohoe detailed various ‘cost of living’ measures which include:
- three credits of €150 each which will be provided between the end of this year and April 2024 to assist with energy bills over the winter period, and
- a one-off reduction in the student contribution fee for undergraduate students of €1,000.
Capital acquisitions tax
It was announced as part of the Budget that technical amendments will be introduced to recognise the wider familial relationships for foster children.
While foster children can currently avail of the ‘Group A threshold’ (currently €335,000) on the receipt of gifts and inheritances from their foster parents in line with the treatment of other parent-child relationships, they are considered ‘strangers in blood’ for gifts and inheritances from other family members (their foster siblings, the parents/brothers/sisters of their foster parents, etc.) and can only avail of the ‘Group C threshold’ (€16,250) for benefits taken from such people, instead of the ‘Group B threshold’ (€32,500).
Following the proposed change, the ‘Group B threshold’ will apply to such gifts/inheritances.
Donation of heritage items
A tax credit has been available for many years in respect of the donation of heritage items (i.e. any cultural item, including archaeological items, archives, books, estate records, manuscripts or paintings) to approved bodies such as the National Archives of Ireland, the National Gallery of Ireland, etc.
The tax credit granted equals 80% of the market value of the items donated and can be offset against certain taxes. However, the item(s) donated need to have a minimum value of €150,000 and currently the total value of donated item(s) on which relief is available is limited to €6 million per year. Per the minister’s speech today, this upper limit will be increased to €8 million.
Sporting organisations and charities
The Irish tax system provides several reliefs to sporting organisations and charities, such as tax relief on donations and potential for VAT reclaims. In his Budget speech, the minister expressed the belief that there is potential to do more, and he indicated that a review of how the tax system may be utilised to support organisations with capital programmes to upgrade or develop new facilities would be undertaken.
It is probably no coincidence that this comment comes at a time when the nation’s sporting facilities are the subject of significant media commentary after the formal announcement from UEFA that Ireland’s joint bid with the UK to host soccer’s European Championship 2028 has been accepted.
Queries? Get in touch
The measures announced in Budget 2024 will affect businesses and individuals across Ireland. If you have any queries on the impact of these changes for your business, please contact Cian Liddy or Robert Dowley of our tax team.
We'd be delighted to hear from you.
Cian Liddy
Partner
KPMG in Ireland
Robert Dowley
Partner
KPMG in Ireland
