Budget 2026

If Budget 2025 was the ‘Windfall Budget’ with one-off measures aplenty for all, with controls cast off in anticipation of an election, Budget 2026 was presented as a belt-tightening exercise with the substantive focus being on protecting jobs and housing market initiatives.  

That said, Budget 2026, with a package of over €9.4 billion was not significantly less than the package in Budget 2025 of €10.5 billion, drawing warnings from the ESRI.  Many commentators are predicting a large deficit of €13.6 billion in 2026, when ‘windfall’ corporation tax receipts are excluded.  However, these spending increases continue for this year at least.

In this Bulletin, we highlight some of the more substantive taxation measures, amounting to just over €1.3 billion, introduced by Budget 2026.  Whilst the real detail of many of these changes will be contained in Finance Bill 2025, we have addressed some of these measures below.

Personal Taxes

• Personal Tax – Standard Band and Credits:  As highlighted in media reports well in advance of Budget 2026, there will be no changes in standard bands or tax credits.
• USC:  The 2% USC rate band ceiling will be increased to €28,700 to match the increase to the minimum wage by 65 cent per hour to €14.15 per hour.   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 2027.
• PRSI: Incremental increases in the PRSI rates were announced in October 2023 so whilst not a Budget 2026 measure, it should not be forgotten that 1 October 2025 will bring an incremental increase in PRSI of 0.1% across all rates of PRSI to be followed next year with the next increase.
• Mortgage Interest Relief: Mortgage interest relief, introduced in Budget 2024 for one year, is being extended again for two years to 31 December 2026 for individuals holding mortgages on 31 December 2022.   The homeowner must be compliant with LPT and will obtain a credit at 20% for the difference between the 2025 interest and the 2022 interest, capped at €1,250 per property qualifying.  For 2026, the cap is reduced to €625.  The relief must be claimed and is not given at source.
• BIK on Cars: There is to be an extension of the €10,000 disregard of the original market value (OMV) for BIK purposes into 2026 with this reducing then to €5,000 for 2027 and €2,500 for 2028.
• Investments in Irish Domiciled Funds and EU/ Treaty State Offshore Funds: In a welcome development the rate of tax on gains arising from certain Irish domiciled funds, life assurance funds, offshore state and ICAVs will reduce from 41% to 38%.  This represents a step in the right direction in making the tax rates on investment funds more attractive as an investment choice when compared with direct investments.

Business Measures – SME Supports

Minister Donohue announced a number of measures targeted mainly at the SME sector in Budget 2026:

• Revised Entrepreneur relief:  This is a valuable relief that allows certain holders of shares in trading companies to qualify for a reduced rate of tax of 10% on gains up to a lifetime limit of €1 million.  Budget 2026 has announced an increase in the lifetime limit to €1.5 million for disposals occurring on or after 1 January 2026.  Whilst this increase in the limit of the relief is welcome, it is unfortunate that steps were not taken to reduce the internationally uncompetitive headline CGT rate of 33%.
• R&D Credit: In recent years, steps have been taken to open up this important incentive to encourage expenditure on research and development in the SME sector.  These steps included increasing the credit to 30% (giving an effective 42.5% relief to revenue type expenditure) and also increasing the first year refund of the refundable tax credits to a minimum of €75,000.  These changes opened up the relief, which was viewed as more directed at the multinational sectors, to the SME sector.  These positive developments have continued in Budget 2026 with the credit now up to 35% (presumed to be from 1 January 2026) and the first year repayment of at least €87,500.  Administrative simplification measures have been included also in relation to key employee relief under the R&D credit regime.  Promises were also included in Minister Donohue’s speech of other developments in innovation supports.  These changes are indeed really welcome and support innovation in the SME sector.
• Participation Exemption for Foreign Dividends: Prior to 1 January 2025, dividends from foreign subsidiaries of Irish parent companies were subject to corporation tax at 25%/ 12.5% with a right to claim credits for underlying taxes.  This was completely out of step with many jurisdictions that offer exemptions for dividends from foreign subsidiaries and represented a significant weakness for Ireland presenting itself as a holding company jurisdiction.  This was changed from 1 January 2025 with dividends from subsidiaries in EU/EEA states now qualifying for exemption with restrictions on holding periods incorporated into the legislation.  The introduction of the exemption provisions was accordingly of somewhat limited value and remains out of step with competing jurisdictions.  Budget 2026 has announced:
  • A broadening of the geographic scope to include subsidiaries in jurisdictions that apply a non-refundable dividend withholding tax, and
  • Reducing the period for which subsidiaries are resident in approved geographic jurisdictions from 5 years to 3 years.
• Special Assignee Relief Programme: Budget 2026 has announced the extension of this relief, which is targeted at executives relocating to Ireland, to 31 December 2030.  The relief will offer relief of up to 30% of any incremental salary over €125,000 up to €1 million for up to 5 years for qualifying individuals.  Whilst this announcement is indeed welcome, what is also welcome is the announcement that some of the administrative rules of the programme, which have impacted its effectiveness, will be made more practical. This extension will require a commencement order as State aid approval is required.
• Foreign Earnings Deduction: Budget 2026 has announced also the extension of this relief, which is focused at offering a measure of relief to executives operating abroad for Irish companies, to 31 December 2030.  Additionally, the scheme is being amended to allow for an increased relief of up to €50,000.  The relief will now apply to time spent in Turkiye as well as the Philippines.
• VAT on Food and Catering and Hairdressing: Budget 2026 has confirmed the introduction of the reduced rate of 9% VAT on businesses in food and catering and hairdressing services from 1 July 2026.
• Share Schemes: In Budget 2025, Minister Chambers referred to the Indecon Report of 19 July 2024, which reviewed the taxation of share based remuneration in Ireland.  The Report was attached to the Budget papers on the Department of Finance website last year. Whilst its recommendations were indicated last year as being matters Minister Chambers ‘will consider in due course’, Budget 2026 is not unfortunately reflective of any such consideration having followed through but perhaps Finance Bill 2025 will contain some measures. However, it has been announced that the existing KEEP share option arrangements (that allow for CGT treatment on exercise) will be extended to 31 December 2028.  This will require a commencement order as State aid approval is required.

Business Measures – Other Changes

Other changes that relate to business include:

• Accelerated Capital Allowances for Energy Efficient Equipment:  Budget 2026 has announced an extension to 31 December 2030 of the 100% relief for companies and unincorporated businesses on the asset cost in year one where the business chooses highly energy-efficient options when investing in business assets.
• Digital Games Tax Credit:  Budget 2026 has announced an extension for 6 years to 31 December 2031.  This credit allows for a credit of 32% on qualifying expenditure of up to €25 million.  The credit is also being improved to allow for claims for post-release content work, where the original game has qualified for the credit and where the game has been released to the public in advance of such post-release content claim.  The detail of what will be included in this extension of the relief will need to be closely examined in the Finance Bill 2025. This amendment will require a commencement order as State aid approval is required.
• Film Sector: Budget 2026 has announced that the Section 481 Film Tax Credit, which provides for a tax credit of 32% on qualifying expenditure of up to €125 million on certain productions, is being enhanced to provide for a new 40% rate for productions with a minimum of €1 million of eligible expenditure on visual effects work. This rate will apply on eligible expenditure of up to a maximum of €10 million per production.  This amendment will require a commencement order as State aid approval is required.

Housing Measures

• VAT Rate on New Apartments: Budget 2026 has confirmed the introduction of a reduced VAT rate of 9% to the supply of apartments used or to be used for residential purposes in an apartment.  The financial resolution that is being passed overnight indicates it will apply to the supply of an apartment in an apartment block (defined in the Stamp Duty legislation).  This definition will require examination by developers of such units as the definitions utilised leave certain questions in relation to the application of the 9% rate in certain situations that arise in practice.
• Enhanced Corporation Tax Deduction for Apartment Construction Costs: In a surprise change, Budget 2026 has introduced an increased corporation tax deduction for ‘qualifying apartment construction costs’ of 125% up to a maximum deduction of €50,000 per apartment unit.  This will in effect allow a cost saving of €6,250 per apartment unit.  This enhanced relief will apply interestingly to new builds and also projects involved in the conversion of offices or retail spaces into apartments.  The enhanced deduction will only apply to projects where the commencement notice is served with the local authority on or after 8 October 2025 and prior to 31 December 2030.
• Corporation Tax Exemption for Cost Rental Income: In another surprise change, Budget 2026 has introduced an exemption in respect of profits associated with Cost Rental income. Properties designated as Cost Rental accommodation by the Minister for Housing, Local Government and Heritage are subject to strict criteria.  Up to the current time, such cost rental units have been provided by AHBs and local authorities but the exemption is targeting private providers.
• Living City Initiative: Budget 2026 has announced the extension of the scheme to 31 December 2030 and also the extension of the scheme to properties built pre-1975 (formerly restricted to those built pre-1915).  The scheme, which provides tax reliefs on capital costs of conversion of properties to residential use is also intended to apply to conversions of commercial property into residential properties, including utilisation of “over the shop” premises for residential purposes. There will be no building age restriction on this new category.  Additionally, the scheme is to be extended to areas in Athlone, Drogheda, Dundalk, Letterkenny and Sligo.
• Residential Development Stamp Duty Refund: In an expected step, the Residential Development Stamp Duty Refund has been extended to 31 December 2030. This scheme provides for a partial repayment of the Stamp Duty paid on the acquisition of land where the land is subsequently developed for residential purposes subject to a number of conditions.  The refund effectively reduces the rate of stamp duty from 7.5% to 2%. Certain conditions attaching to the refund scheme, as applied by Revenue, have led to issues with refunds in practice but Budget 2026 offers some additional hope that the extension of the refund scheme will also address certain of these practical issues.  Finance Bill 2025 will have to be awaited.
• Rent Credit: The rent credit of €1,000 per single individual and €2,000 per jointly assessed couple introduced in 2025 is being extended for another 3 years to 31 December 2028.
• Derelict Property Tax: In a case of applying the stick but with no carrot, Budget 2026 has flagged the introduction of a new derelict property tax to be administered by Revenue to counter dereliction in towns and villages.  Contrary to the Living City Initiative mentioned above, which provides an incentive to invest in old properties in the major cities and now major town centres, there is no incentive to remove dereliction in the towns and villages targeted with this tax.  Whilst this new ‘tax’ will not be introduced until 2027, this is a somewhat bizarre example of wishing dereliction away by taxing it.     
• Residential Zoned Land Tax: Unfortunately, Budget 2026 did not abolish this flawed tax that applies to land zoned for development, which would seem to be dragging back development rather than incentivising it, as was intended.  Equally, there was no detail provided on the measures that are at least required to make this tax workable in practice.  It is hoped that Finance Bill 2025 will address such issues.  The change announced in Budget 2026 is limited to offering a chance to land owners to seek to rezone land to take it out of the scope of the tax.

Farming

As is usual for Budgets of recent years, measures to assist with the agricultural sector have been included:

• Accelerated Capital Allowances for Slurry Storage: An accelerated capital allowance for for the construction of slurry storage facilities by farmers is being extended for a further four years to 31 December 2029.  The benefit of the regime is to allow the expenditure on equipment or buildings to be written off over 2 years.
• Farm Restructuring Relief:  Budget 2026 announced that Finance Bill 2025 will provide for an extension of the current Capital Gains Tax Farm Restructuring Relief to 31 December 2029. A broadening of the relief to cover land under commercial forestry as well as non-commercial woodland / forestry is also being introduced. These measures will be subject to separate commencement orders.
• Farm Consolidation Relief: Farm Consolidation Relief provides that a 1% rate of Stamp Duty is charged on the net difference between the value of land sold and land acquired as part of a Teagasc certified farm consolidation. The relief is being extended to 31 December 2029. Commercial forestry which is already within scope is being broadened to cover non-commercial woodland/forestry. These measures will be subject to separate commencement orders.
• Young Trained Farmer Relief: The Young Trained Farmer relief, which provides a full exemption from Stamp Duty on the transfer of farmland, subject to certain conditions being met, is being extended to 31 December 2029.  This will also be subject to a commencement order.
• Farmer’s Flat Rate VAT Payment: Unusually, Budget 2026 has announced a reduction in this rate that compensates unregistered farmers for their inability to recover VAT on inputs from 5.1% to 4.5%.  The Budget information indicates that this will result in €61.5 million of savings to the Exchequer. 

Additional Points of Note

• The Minister announced a stamp duty exemption for acquisitions of listed shares in Irish companies with a market cap below €1 billion.    
• The bank levy is to be retained for 2025 and is expected to raise €200 million.