Budget 2025: What you need to know!

It’s been one of the most hotly anticipated budgets in recent years and the details of Budget 2025 have been announced. As we have come to expect, most changes had already been disclosed by the media before being announced, specifically around social welfare and key tax changes.

1. Tax Deadline
2. Pension Auto Enrolment
3. Employer Contributions to PRSAs
4. Pension Lifetime Limit
5. Life Insurance Exit Tax
6. Capital Acquisition (Inheritance) Tax
7. Income Tax and Bands
8. Retirement Relief
9. Minimum Wage

 

Tax Deadline

The deadline for claiming tax relief on pension contributions is 31st October 2024. For those who submit online returns, that is extended to 14 November 2024. We strongly advice clients who want to make a pension contribution for tax relief for 2023 to engage with us now before the end of October.

Pension Auto Enrolment

The widely anticipated Automatic Enrolment Retirement Savings Scheme (AE) is to begin on 30th September 2025. Finance Bill 2024 will provide for the taxation of AE and will align with PRSAs for Employer contributions. There will be no tax relief for employee contributions.

The State is making a top up for employees within AE which is equivalent to 25% relief. For anyone earning income in the 40% tax bracket, it is more beneficial for them to be in a regular employer sponsored pension scheme or PRSA.

Employer Contributions to PRSAs

Despite rumours, there has been no change to the 2022 ruling on Employer Contributions to PRSAs. There remains no benefit in kind on Employer Contributions to PRSAs and no funding limits introduced.

Pension Lifetime Limit

In terms of pension policy, no additional changes were announced given the recent publication of a review of the Standard Fund Threshold (SFT) setting out proposed changes commencing in 2026. At a high level these include:

• Phased increases in the SFT of €200,000 per year beginning in 2026 up to 2029 reaching €2.8 million and then converging the level of SFT with the applicable level of wage growth.
• Both elements of the pension lump sum will remain at the current levels and not increase as future increases to the SFT are applied
• Rate of chargeable excess tax is to remain unchanged at 40% for now, however, a specific review of the rate is to take place by 2030.

Life Insurance Exit Tax

In Budget 2024, Minister McGrath said that he is undertaking a review of the funds sector. He said the review will report to him in Summer 2024 and will examine a “Life Insurance Exit Tax”. Mr McGrath added that once the review was complete, he will then consider any changes to the taxation framework.

We have not seen the results of the review and Minister Chambers did not make any announcements about this issue in Budget 2025.

Until any such review is finalised DIRT tax remains at 33%, the 1% Insurance Levy also remains in place and the rate of exit tax on insurance company funds remains at 41%.

Capital Acquisition (Inheritance) Tax

• An increase in the tax free thresholds for gifts and inheritances
• Group A Threshold increased from €335,000 to €400,000
• Group B Threshold increased from €33,500 to €40,000
• Group C Threshold increased from €16,250 to €20,000

Income Tax and Bands

• The level at which earners begin to pay higher rate tax has been increased by €2,000 to €44,000 p.a. USC
• Increase in the ceiling for the 2% rate by €1,622.
• 4% rate reduced to 3%
• An increase in the Personal, Employee and Earned Income Tax Credit from €1,875 to €2,000
• €12 increase per week in main welfare payments and the State Pension

Retirement Relief

• Increase upper age limit is retained
• Introduction of a clawback period of 12 years for relief available for disposals over €10 million.

Minimum Wage

• To rise to €13.50 per hour from €12.70.

We will likely see the changes to the SFT along with tax changes included in this year’s Finance Bill due next week.

Please get in touch with any queries.