As the Corporation Tax receipts continue at least for now, Budget 2024 has sought to balance the need of supporting families in the continuing cost of living crunch with the need of not exacerbating the inflationary cycle. A delicate balance indeed when one is looking at a Budget package of over €12 billion being given out in recurring and once-off measures! This is in fact higher than the €11 billion in Budget 2023.
In this Bulletin, we highlight some of the substantive taxation measures, amounting to just over €1.1 billion, introduced by Budget 2024. Whilst the detail of many of these changes will be contained in Finance Bill 2023, the papers provided by the Department of Finance allow for some information to be discerned.
Whilst many of the measures were flagged in advance, more measures were not and these unannounced measures are the main focus of this update.
- Increase in the standard rate band from €40,000 to €42,000 with pro-rata increases for married/ widowed with minimal personal credit increases.
- In Budget 2023, Minister Donohue announced that the Department of Finance together with Revenue Commissioners would be examining the feasibility of introducing a third income tax band over the coming months. The Budget 2024 papers include a ‘Review of the Personal Tax System’, which deals with this examination. The upshot of the review is that a third rate is not being recommended and the alternative of focusing on increasing the standard rate threshold is preferred. This is the option followed in Budget 2024 so that may be the end of that.
- The 2% USC rate band ceiling will be increased to €25,761 to match the increase to the minimum wage while the reduced USC rate of 3% for individuals who earn less than €60,000 per year and hold a medical card will continue to 31 December 2025. The 4.5% USC rate is being reduced to 4%.
- An increase in PRSI of 0.1% across all rates of PRSI will be introduced from October 2024.
- Mortgage interest relief is being introduced on a one year basis for individuals holding mortgages of between €80,000 and €500,000 on 31 December 2022. The homeowner must be compliant with LPT and obtains a credit at 20% for the difference between the 2023 interest and the 2022 interest. The relief is capped at €1,250 per property qualifying. The relief will not, as was previously the case, be given at source and will have to be claimed through the filing of tax returns.
Business Measures – SME Supports
Minister McGrath announced a number of measures targeted mainly at the SME sector in Budget 2024.
- Special Reduced CGT Rate for Angel Investors: A new CGT relief for ‘Angel Investors’ in innovative start-ups is being introduced. This relief will apply to investments in SMEs where made for a period of 3 years and must be for newly issued shares costing at least €10,000 and constituting 5% to 49% of the ordinary issued share capital of the SME. The relief will reduce the rate of CGT to 16% for individuals or 18% where held through a partnership (as many venture capital investments will be structured) and will apply to a maximum gain of twice their initial investment made. A lifetime limit of €3 million will apply to the relief offered. This relief is welcome and it is hoped that the legislative provisions will not seek to stifle the benefit of the relief with excessive conditionality.
- Revised Entrepreneur Relief: The Budget 2024 papers include a review of this important CGT relief and this was mentioned in the Minister’s speech. Interestingly, the report recommends the continuation of the relief but with little or no relaxation of the qualifying conditions. This relief is likely to be amended in the Finance Bill 2023 with focus perhaps on employment creation.
- Retirement Relief from CGT – New Cap and Lifting of Age Limits for transfers in the Family: Retirement relief from CGT is generally available without limit for gifts of shares in trading companies which are family companies by individuals aged 55 or over. However, once the individual reaches 66, the limit of the gain relieved is €3 million. It is proposed that the gain limit of €3 million will from 1 January 2025 only apply once the individual reaches age 70. A sting in the tail is that a new limit of €10 million in gains will be introduced also from that date for gifts when the individual is under 70. This follows on from a recommendation by the Commission on Taxation. This period before the changes are introduced is to allow some time to individuals to plan their succession.
- EII: From 1 January 2024, the minimum holding period for all investments is being standardised at 4 years. The limit on relief being claimed by an individual is being increased to €500,000. Whilst this is welcome, this relief has been overburdened by legislative conditions such that it has ceased in many cases to be a viable route for companies to raise funds (without taking on significant tax risk). Helpfully, Minister McGrath has announced that some relaxation of rules may be considered although this will be tempered by the need to comply with EU block exemption rules.
- R&D Tax Credit: The R&D tax credit, currently at 25% of the qualifying expenditure, is being increased to 30% in respect of 2024 expenditure. This is most welcome and will benefit large multinationals as well as the SME sector. The de minimus threshold that allows the credit to be paid in year 1 (and not over 3 years) is also being increased to €50,000 for 2024 expenditure.
- Accelerated Capital Allowances – Energy Efficient Equipment: the 100% year 1 allowances for energy efficient equipment for companies and unincorporated businesses is being extended for a further two years to 31 December 2025.
- KEEP: The Minister confirmed that the long awaited EU approval sought since 2019 has been obtained. As such, the Key Employee Engagement Programme is being extended until the end of 2025. Importantly, amendments are being introduced to allow for employer companies to buy back shares from participants in the scheme. The limits attaching to the scheme are also being increased.
Business Measures – Other Changes
Other changes that relate to business include:
- Pillar Two: The Minister confirmed that the Finance Bill 2023 will contain legislation to implement the 15% minimum effective rate for large companies under the OECD Pillar Two agreement. This promises to ensure that the Finance Bill 2023 will be the largest finance bill in recent years.
- Territoriality/ Participation Exemption: The Minister confirmed his intention to legislate for the participation exemption for foreign sourced dividends in Finance Bill 2024 (i.e. in late 2024) to allow for development work to be carried out over the next number of months. Discussions on this are already going on at TALC with a view to replacing the cumbersome treatment of foreign dividends received by Irish corporate shareholders.
- Residential Land Zoned Tax: This tax, which was originally legislated for in Finance Act 2021, is also getting attention in Budget 2024. It provided for a tax at 3% per annum on lands included in maps drawn up by local authorities. These lands were intended to comprise of serviced lands, either zoned residential or zoned mixed use, and which were not being used for commercial purposes or amenity purposes. The tax has recently obtained significantly more attention due to the finalisation of mapping including lands affected – with some surprising results that have hit the media recently - and the imminent date on which the tax was due – 1 February 2024. The tax, whilst directed at ensuring ready to go building land was developed, would have had greater application than perhaps was intended. With a view to perhaps heading off a myriad of judicial review applications by landowners challenging inclusion of properties in the final maps for the purposes of the tax, the Minister has announced a deferral of the liability date to 1 February 2025. It is hoped that the obvious flaws in the legislation and guidance issued might be addressed during this window and the changes to the legislation are expected in the Finance Bill 2023.
- Vacant Home Tax: The Vacant Home Tax introduced in 2023 is going to be increased to five times the rate of LPT from November 2023. The tax applies to residential properties which are occupied for less than 30 days per year. The tax operates on a self-assessed basis.
- Rent Credit: The rent credit of €500 per annum for 2023 is being increased to €750 for 2024 In order to be eligible for the credit, the renter must not be in receipt of any other State housing support. The credit is also - with retrospective effect to 2023 (but €500 in 2023) - being made available to parents of students staying in ‘digs’ or accommodation provided under a ‘rent a room’ arrangement.
- Help to Buy Scheme: The Help to Buy Scheme is being extended to 31 December 2025. The scheme is also being amended link in with the Local Authority Affordable Purchase Scheme (LAAP). This amendment will enable the use of the affordable dwelling contribution received through the LAAP scheme for the purposes of calculating the 70% loan-to-value requirement, thereby facilitating access to all LAAP purchasers to the HTB scheme. This will come into effect from 11 October 2023.
- Rented Residential Relief: Pursuant to assurances provided by the Minister earlier this year, some measure of tax incentive is being introduced to attempt to slow the exit of small landlords from the rental market. The measures will provide a tax credit of €600 in 2024, €800 in 2025 and €1,000 in 2026 and 2027, following which the credit will cease. For an individual to retain the benefit of the credit, the rental property must remain within the rental sector for the full period of 4 years. Whilst welcome, it remains to be seen whether this modest tax benefit will be enough to stem the flow of those exiting the sector, particularly when the conditionality for the tax benefit requires the property to stay rented for 4 years (with risk that increased regulation may be introduced into the sector during this period).
As is usual for Budgets of recent years, measures to assist with the agricultural sector have been included:
- Capital Allowances: An accelerated capital allowance for safety equipment, which seeks to allow 50% of the expenditure to be claimed over two years, is being extended to 31 December 2026.
- Income Tax relief for Letting of Farm Land: The land leasing income tax relief, which provides a very attractive income tax relief for lettings of farm land, is to be restricted to when the land has been owned for 7 years. This is a step that seeks to ensure that land will not be as attractive to non-farmers but may impact on land prices.
- Stamp Duty: The consanguinity relief that affords stamp duty at 1% for agricultural property rather than the usual 7.5% is being extended for a further period of 5 years from the end of 2023. Additionally, a state aid limit of €100,000 is being introduced from 1 January 2024 for young trained farmer relief and stock relief to tie in with a new EU agricultural block exemption.
Additional Points of Note
- The Minister announced in his speech a few interesting plans that will obtain his attention over the next year:
- Use of the taxation system to encourage philanthropy;
- Use of the taxation system to encourage capital investment in sports and cultural facilities;
- Taxation of funds.
- The Minister announced the creation of two funds – the Future Ireland Fund and the Infrastructure, Climate and Nature Fund. These funds will be essentially funded through significant parts of the Exchequer surplus. The former fund is intended to be funded annually to the extent of 0.8% of GDP, with a potential size of €100 billion by 2035.
- The bank levy is to be reintroduced for 2024 through a revised bank levy that is expected to raise €200 million.
- The Minister announced a consultation in relation to the proposal for electronic real time VAT invoicing. This has obtained a lot of attention in mainland Europe and the consultation is welcome in order to ensure the measures can be introduced taking into account views of business.