Personal tax

In line with the increases in the main personal tax credits last year, Budget 2025 proposes a further €125 increase in the personal tax credit, the employee tax credit and the earned income credit, from €1,875 to €2,000. This represents an increase of 6.6% but the automatic index-linking of these credits to inflation or wage increases continues to be conspicuous by its absence.

The minister also provided for increases in the home carer tax credit and the single person child carer tax credit by €150 each and increases in the incapacitated child tax credit and blind person’s tax credit by €300 each. There has also been an increase of €60 in the dependent relative tax credit.

The minister also announced the extension of the sea-going naval personnel tax credit for a further five years until 2029. This tax credit is currently €1,500 per annum for permanent members of the Irish Naval Service who have spent at least 80 days at sea in the previous year in the course of their employment. 

The much-anticipated Automatic Enrolment Retirement Savings Scheme (AE) is a pension scheme where employees who do not have an occupational pension are automatically enrolled into a retirement savings scheme (while retaining the option to opt-out of the scheme under certain conditions). The aim of the scheme is to combat the widely-reported low rates of private pension cover in Ireland. It was recently announced by the Minister for Social Protection that the scheme will come into effect on 30 September 2025 (previously expected to be January 2025).

Budget 2025 announced that Finance Bill 2024 will provide for the taxation measures associated with this scheme. Some of the noteworthy points are as follows:

• There will be no tax relief for employee contributions to the AE scheme (as the State is making direct contributions).
  
• Employers will receive tax relief for their contributions.
• Growth in the AE funds will be exempt from tax.
• Retirees will be taxable on the annuities payable from the AE funds.
• It will be possible to take a lump sum of up to 25% of the fund – this will be tax free up to €200,000, with rates of 20% applying on the next €300,000 and 40% thereafter.

While not included in the Budget Speech, in September the minister published the report of the independent examination of the Standard Fund Threshold (SFT) for pensions. The report made a number of recommendations to modernise and update the operation of the SFT. The Government has committed to implementing many of these recommendations in a multi-year plan. This plan includes:

• Phased increases in the SFT of €200,000 per year, from 2026 until 2029, and then converging the level of SFT with the applicable level of growth. This would increase the SFT to €2.8 million in 2029.
• The rate of Chargeable Excess Tax (CET) is to remain unchanged with a specific review of the rate to take place by 2030. The report recommends a reduction of the CET rate to a level to ensure that the effective rate on the excess benefits over the threshold is not less than the top marginal rate of tax. In current circumstances, a CET rate of 10% would be sufficient to achieve this, rather than the current rate of 40%.
• The report also recommends revised valuation factors, taking into account the different types of pensions to which the factors apply, and in particular, the different types of benefits that are provided. The minister noted that an independent evaluation of the age-related valuation factors proposed will be undertaken.
• The threshold for the higher rate of taxation to apply to a pension lump sum will be limited to €500,000, rather than a proportion of the SFT.
• An inter-agency group will be formed to oversee the implementation of the remaining recommendations.

Currently the Irish tax system provides sporting organisations and bodies with the ability to reclaim tax from Revenue on donations made to them by individuals.

The minister announced that there is to be greater flexibility on how donations to sports bodies for both capital projects and other purposes, are to be treated for income tax purposes. Specifically, the minister noted an intention to enable donors to choose whether they obtain the income tax relief or whether the sporting body can claim relief directly from Revenue. It will be interesting to see the extent to which donors elect to claim the tax relief themselves when this measure is introduced.

Further details will be available upon publication of the Finance Bill.