Personal tax

Personal Tax
 

Following on from Budget 2025, individual taxpayers will generally welcome the changes included in the Finance Bill. The proposed measures intend to target cost-of-living challenges in Ireland.  In addition, a financial resolution passed on 1 October 2024 introduced a timely increase to the tax-free thresholds for gifts/inheritances received by individuals. These are the first increases in the thresholds since 2019 and, in his speech, the Minister for Finance cited the considerable increase in property values in recent years as a key factor in these changes.

The key personal tax measures included in the Finance Bill are set out below.

Universal social charge
 

The Finance Bill provides for the various changes to universal social charge thresholds announced in the Budget. All changes take effect from 1 January 2025.

On Budget Day, the minister announced that the minimum wage will increase from 1 January 2025 to €13.50 per hour. The Finance Bill provides for the entry point for the third rate of USC to be increased from €25,760 to €27,382. This increase will ensure that those who benefit from the rise in the minimum wage will stay within the two lower USC rate bands whilst also generating a modest benefit for every taxpayer with income above those levels.

The Finance Bill also provided for a reduction from 4% to 3% in the USC rate levied on income up to €70,044. 

Income tax bands
 

The Bill provides for an increase in an individual’s standard rate tax band from €42,000 to €44,000 from 1 January 2025. This €2,000 increase is also reflected in the rate bands for married couples (with one or two earners), and the rate band for those claiming the single person child carer credit.

This increase should deliver an annual saving of €400 for a single person earning more than €44,000 per annum and up to €800 for married couples/civil partners. 

Tax credits
 

The Finance Bill provides for a €125 increase in each of the personal tax credit, employee tax credit and earned income credit, from €1,875 to €2,000 respectively. The home carer tax credit and the single person child carer tax credit by €150 each and 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.

In addition to the above, the Bill provides for 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. 

CervicalCheck payments
 

As announced in the Budget, the Bill provides that payments made to women impacted by failures in the CervicalCheck national screening programme will be exempt from income tax, capital gains tax, and capital acquisitions tax. Some of the other notable points included in the Bill are as follows:

• Confirmation that any income or gains arising to these women from the investment of the funds received under the CervicalCheck payments will be exempt from the aforementioned taxes.  
• The exemption to such taxes will apply retrospectively. It should be possible to claim a refund from Revenue for any such taxes paid as the standard four-year timeframe to claim a refund of tax will not apply. 

Stardust payments
 

The Bill provides that payments made to the families of the deceased victims of the Stardust fire under Phase 1 of the Stardust ex-gratia payments scheme will be exempt from income tax and capital acquisitions tax upon receipt of the payments. These exemptions apply to payments received on or after 9 August 2024.  

Pension changes
 

Following the publication of the report on the independent examination of the Standard Fund Threshold (SFT) for pensions in September, the Bill provides for the following changes to the SFT:

• Phased increases in the SFT of €200,000 per year, from 2026 until 2029, increasing the SFT to €2.8 million in 2029.
• For 2031 onwards, the level of SFT will be adjusted with the applicable level of growth based on the prior year SFT as adjusted for changes in the Earnings, Hours and Employment Costs Survey over specified periods. In addition, an adjustment may be made in 2030 to the €2.8 million amount based on that statistic.
• The threshold above which the higher rate of taxation will apply to a pension lump sum will be fixed at €500,000 (i.e. the standard chargeable amount will be computed as €500k less the tax-free amount of €200k).
• The Finance Bill provides that as the SFT increases over time, the value of accrued pension benefits on a crystallisation event will be grossed-up relative to the increase in SFT.
• In a related matter, transfers by a person from their Personal Retirement Savings Accounts (PRSAs) to vested PRSAs are considered a crystallisation event. As such individuals will have a chargeable excess which can give rise to a tax liability if that person’s pension entitlements exceed the SFT.

Gift and Inheritance Tax
 

Increases to thresholds
 

Following on from the Budget, the Finance Bill confirms that the following welcomed increases in the tax-free thresholds are to be effective for gifts/inheritances taken on or after 2 October 2024:

• The Group A threshold, which mainly relates to gifts and inheritances received by children from their parents, will increase to €400,000 (from €335,000)
• The Group B threshold, covering gifts and inheritances received from other close relatives such as grandparents, uncles, aunts, siblings, etc. will increase to €40,000 (from €32,500) and
• The Group C threshold, which captures gifts and inheritances received from any other persons not listed above, will increase to €20,000 (from €16,250).

It is worth noting that where gifts/inheritances in excess of the new thresholds have already been received, there is unfortunately not now an opportunity to receive additional tax free gifts/inheritances equal to the increased threshold.  

Reporting of interest free/low interest loans
 

Capital acquisitions tax (CAT) has always applied to the benefit conferred to the recipients of interest free and certain low interest loans. In accordance with Revenue practice, the taxable benefit for CAT purposes is currently calculated by reference to the highest rate of return which the individual advancing the loan could obtain by placing the funds on deposit, i.e. the deposit interest foregone. Prior to Finance Act (No 2) 2023, in general there was only a requirement to file a gift tax return in respect of the benefit of such loans where greater than 80% of the loan recipient’s relevant CAT group threshold had been utilised.

Finance (No 2) Act 2023 introduced a new CAT reporting requirement with effect from 1 January 2024 in respect of such loans between close family members and certain private companies owned by close relatives, even in instances where no gift tax is payable in respect of the loan. Currently, the reporting requirement does not apply to such loans where some interest is paid in respect of the loan within 6 months of the calendar year end.  The Finance Bill has now extended the reporting requirement to include all low-interest loans regardless of whether any interest is paid in respect of such loans.  

From 1 January 2025, the reporting requirement will apply to ‘specified loans’ meeting the following conditions: 

• A benefit arises in respect of the loan under CAT principles;
• The loan is advanced from a ‘close relative’, or by certain companies owned by close relatives, and;
• The balance outstanding on the loan and other loans to which the reporting requirements apply, in aggregate exceed €335,000 for at least one day in the calendar year.

It should be noted that the reporting threshold of €335,000 has not increased in line with the general increase in the Group A Threshold to €400,000. 

The relevant return will require details of the lender, the balance outstanding on the loan and any other details which may reasonably be required by the Revenue Commissioners. 

Automatic Enrolment Retirement Savings System
 

The much-anticipated Automatic Enrolment Retirement Savings Scheme (AE) is a pension scheme under which employees without an occupational pension will automatically be enrolled in 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. The Minister for Social Protection has signed a commencement order which will see the first enrolments under the scheme, to be known as “My Future Fund”, begin on 30 September 2025.

Finance Bill 2024 provides for the taxation measures associated with the implementation of the Automatic Enrolment Retirement Savings System Act 2024 (AE Act 2024).

Some of the noteworthy points are as follows:

• Employer contributions to An tÚdarás Náisiúnta um Uathrollú Coigiltis Scoir (the Authority) under the AE Act 2024 will be deductible on a paid basis.
• Employer contributions are not treated as a benefit-in-kind for employees.
• Consistent with the treatment of existing pension schemes, AE provider schemes in the form of UCITS or particular alternative investment funds will benefit from income tax and capital gains tax exemptions on deposits or investments held for the purposes of the scheme.
• A range of other exemptions are provided for the benefit of AE schemes, including an exemption from withholding tax on interest payments to and by the Authority, an exemption from DIRT, exemption from capital gains tax on gains realised on AE schemes and a stamp duty exemption for AE schemes.
• Payments to participants in AE schemes (after any tax-free lump sum) are taxable under the PAYE system. The tax-free lump sum is a maximum of 25% of the participant’s AE scheme balance. In addition, in calculating the tax-free amount, the life-time limit (currently €200,000) also applies. Other lump-sum pension benefits are aggregated for this purpose.
• State contributions to the Authority are not taxable.

The application of these provisions is subject to the issuance of a commencement order by the Minister for Finance.