Budget 2025 Update

Budget 2025 -The Main Points

The financial position for Government in framing the budget was exceptionally strong.

A surplus of €25 billion is projected for 2024. At its disposal the Government had

€14.1 billion from the Apple Tax ruling; €3.1 billion from the sale of AIB shares; and a €1.5 billion surplus in the National Training Fund.

In framing Budget 2025, some key priorities were evident:

• Impact of elevated inflation and higher interest rates on the cost of living.
• The need to relieve pressure on squeezed middle income earners.
• The increased cost of doing business for small businesses.
• The ongoing pressures on the housing market for both house purchasers and renters.
• The longer-term imperative of investment in infrastructure.
• A general election that must be held before 22nd March 2025.

As stated in the Summer Economic Statement, the core package in Budget 2025 is €8.3 billion,comprising €1.4 billion in taxation measures(personal income tax measures €1.6 billion) and core expenditure of just under €6.9 billion. A cost-of-living package of €2.2 billion is in addition to this, giving a total budget package of €10.5 billion.

The Government has laid out a longer-term strategy for investment expenditure.

€3 billion is being made available for infrastructure spending, in water infrastructure

(€1 bln), housing (€1.25 bln), and electricity grid infrastructure (€750 mln). This money will be dispersed through the Land Development Agency (LDA); Eirgrid and ESB; and Uisce Eireann.

In September, €4.3 billion was transferred into the Future Ireland Fund  and €2 billion into the Infrastructure, Climate and Nature Fund.A further €4.1 billion will be transferred into the Future Ireland Fund next year and almost €2 billion to the Infrastructure, Climate and Nature Fund. By the end of 2025, more than €16 billion will have been transferred into both funds.

Budget 2025 is an expansionary package with a significant injection of fiscal stimulus into the economy. The overall package will support economic activity in 2024, particularly consumer spending.

Key Points from the Budget 2025 Speech:

Pensions

• The auto-enrolment pension scheme will begin on 30th September 2025. This scheme will mean that around 800,000 workers will automatically be enrolled into a private pension scheme, in addition to their state pension. People who do not have a pension scheme; are aged between 23 and 60; and who earn more than €20,000 will be automatically enrolled. People outside of this range will not be automatically enrolled but will be able to opt in. Under the scheme, employees will contribute 1.5% of their gross salary during the first three years of paying in. This will rise to 3% from the third year on, 4.5% from year six on, topping out at 6% from year 10 on. The state will contribute €1 for every €3 contributed by the participant, and for every €3 that an employee contributes, the employer will have to contribute €3.
• Finance Bill 2024 will provide for the taxation of the Automatic Enrolment Retirement Savings Scheme (referred to as AE). The tax treatment aligns as much as possible with that of Personal Retirement Savings Accounts (PRSAs), other than for employee contributions. Employer contributions are tax relieved, the growth in the AE funds is exempt from tax and the AE funds are taxed on draw down, other than a 25% lump sum. The lump sum can be taken tax free up to €200,000, is taxed at 20% between €200,000 and €500,000 and is taxed at 40% above €500,000. As the State is making a direct contribution for employees within the AE scheme, there is no tax relief being provided for employee contributions to AE.
• The standard fund threshold was last changed in 2014, when it was reduced from €2.3 million to €2 million. This will be increased to €2.8 million in four equal phases between 2026 and 2029.

 Taxation:

• The capital acquisition tax tax-free threshold in the Group A category for children inheriting from their parents is being increased from €335,000 to €400,000. Group B has been increased from €32,500 to €40,000, and Group C from €16,250 to €20,000.
• There is a reduction of 1% in the 4% USC rate that will now apply to incomes between €27,382 and €70,044. The 2% rate band ceiling has been lifted by €1,622. Incomes of less than €13,000 are exempt from USC.
• The standard rate threshold for income taxpayers has been increased from €42,000 to €44,000.
• An increase of €125 in the personal tax credit; the employee tax credit; the earned income credit, €150 in the home carer tax credit; the single person child carer tax credit; and an increase of €300 in the incapacitated child tax credit; the blind person’s tax credit; and €60 in the dependent relative tax credit.
• The small benefit exemption allowing an employer to provide limited non-cash benefits or rewards to their employees without a tax liability has been increased from €1,000 to €1,500.
• In relation to BIK relief for company cars, the temporary universal relief is being extended for a further year; and the EV specific relief of €35,000 will be extended for a further year.
• Excise duties on 20 cigarettes increased by €1.
• The carbon tax for petrol and diesel increased from €56 to €63.50 from 9th October.
• The VAT on installation of heat pumps reduced from 23% to 9%.

Housing

• The rent credit for private renters, which was introduced in Budget 2023, has been increased from €750 to €1,000 for an individual and from €1,500 to €2,000 for a couple. Renters will be able to claim this higher relief in 2024.
• A one-year Mortgage Interest Tax Relief was introduced in Budget 2024 for homeowners with an outstanding mortgage balance on their primary dwelling house of between €80,000 and €500,000 as of 31st December 2022. This is being extended for another year. The added relief will be available on increased interest paid on mortgages in 2024 over 2022 at the standard rate of 20% income tax. The value of the relief will be the lesser of 20% of the excess interest figure or €1,250.
• The Help-to-Buy scheme will be extended until 2029. This scheme allows first-time buyers of a new home to claim up to €30,000 back from Revenue in income tax they have paid over the past four years so that it can be used as part of a deposit. It is inequitable that the scheme does not apply to first-time buyers of previously owned homes.
• The relief for pre-letting expenses for landlords has been extended to the end of 2027.
• An extra 5% in stamp duty will be charged on the purchase of 10 or more houses by investment funds taking the rate from 10% to 15%.
• The Residential Zoned Land Tax will go ahead as planned in 2025, but an opportunity is being provided to landowners to have their land rezoned to reflect the economic activity they carry out on their land.
• The Vacant Homes Tax rate increased from 5 to 7 times the property’s LPT charge.

For a more in depth budget update from the LIA please click the following link:

Available by clicking here:

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