Income tax

KPMG insights – our view

Relief for taxpayers, but PRSI increase offsets part of the benefit

The increases in the standard-rate band and personal tax credits should provide some relief for middle-income earners. The 6.25% increase in the standard-rate band also compares favourably with inflation of 3.7% in the year to August 2026 and average hourly earnings growth of 3.8% to the end of the second quarter of 2026.

However, there were no substantial changes to personal tax bands in last year’s Budget, so the increase appears less significant when viewed across the two-year period.

The further 0.15% increase in PRSI from 1 October 2027 will offset part of the benefit for employees arising from the increased income tax rate bands and credits. 

Investment reform moves forward, but complexity remains

The proposed Investment Account is a welcome development because it should offer Irish individuals a simpler, more accessible way to invest in capital markets. As noted elsewhere, it remains to be seen whether the tax-free threshold and contribution limit are high enough to provide the required incentive for use of the accounts.

The reduction from 38% to 35% for certain funds and life assurance policies is also positive. However, Budget 2027 did not address other changes identified in the Roadmap for the Taxation of Retail Investment, including the eight-year deemed disposal rule.

The minister indicated that further steps would be considered in future Budgets, but the absence of additional detail means that significant compliance complexity remains for individual investors.

Capital tax changes are positive but incomplete

The reduction in the headline CGT rate to 31% is a step towards encouraging entrepreneurship and investment. Ireland nevertheless continues to have a comparatively high CGT rate within the European Union, and the existing reliefs aimed at entrepreneurs remain onerous and cumbersome in practice.

Reforming those reliefs could help them operate more effectively and better support investment in Irish businesses.

The increases in the CAT thresholds are similarly a welcome step in the right direction, particularly considering the burden that has been created in the past decade by sustained asset-value growth.

However, the changes do not address all the criticisms of the CAT regime that have been discussed in the past year. It is also notable that the CAT rate remains at 33%, rather than falling in line with the headline CGT rate, apart from a brief four-week period in 2008, this is the first time in over 25 years that the rates have diverged.

Overall, Budget 2027 represents a measured step towards easing cost-of-living pressures and supporting investment. The package could have gone further to simplify personal tax administration and strengthen incentives for entrepreneurship, and the Finance Bill will be critical in determining the practical effect of several measures.