Budget 2027 commentary: Scaling and Staying
Budget 2027 was announced amongst a backdrop of significant corporate tax receipts and a cost-of-living crisis. The budget package contained a tax package of €1.65bn, slightly more than the €1.5 billion which had been announced in the Summer Economic Statement, largely due to the announcement of additional fuel supports.
Overview
Overall, Budget 2027 has provided for some significant improvements to the income tax regime, which will have an impact on every individual’s take-home pay and help to ease the current cost-of-living pressures. The new Irish Investment Account which provides a €50,000 tax-free threshold is also very positive and should help to encourage individuals to invest rather than to save.
For businesses and business owners, the improvements to the R&D tax credit regime, simplification of the corporation tax preliminary tax measures and the reduction to the CGT rate will be welcome, but we had hoped for more in these areas as we had called for in our pre-Budget submission.
Income Tax Measures
Key measures announced today related to the income tax package, which includes an increase of the standard rate cut-off point, increases to the personal, employee and earned income tax credits and an increase to the USC 2% band bringing this up to €30,300. As the Tánaiste and Minister for Finance, Simon Harris, noted, these changes will mean that an individual earning €50,000 annually will pay over €700 less in Income Tax and USC in 2027, which will be very welcome. While we had hoped that the standard-rate cut-off point would be increased to €50,000, this is certainly a positive step in helping to ease the cost-of-living pressures many are facing.
Savings and Investment
Many of the details of the new Irish Investment Account were included within the Roadmap for the Taxation of Retail Investment, published back in August. However, it has now been confirmed that the tax-free threshold will be €50,000 with a flat tax of 1% to apply on the value of the account above that threshold. It has now been confirmed that the maximum contribution limit will be €12,000 per annum, with no minimum limit. It is therefore unlikely that any tax should arise on such accounts in the first few years.
To further encourage investment in Irish retail products, there will also be a reduction in the Investment Undertaking Tax and Life Assurance Exit Tax (as well as to the tax applicable to equivalent offshore funds and certain foreign life assurance policies) from 38% to 35%, to apply from 1 January 2027. While many in the funds industry had hoped there would be changes to the deemed disposal rules, it was at least positive to hear that the government will take steps this year to simplify the legislation underpinning the taxation of retail investments.
It was also announced today that the Finance Bill will introduce a new section specifically dealing with the taxation of investors in Irish domiciled investment funds whose units are held in a recognised clearing system.
Supporting Businesses & Innovation
Acknowledging that rising energy costs and salary costs have driven up the cost of doing business, a number of supports were announced today to support business operating in Ireland.
Of particular note, to support investment into small and start-up businesses, the Employment Investment Incentive, Start-up Capital Incentive, Start-up relief for Entrepreneurs and Angel Investor Relief have all been extended (subject to the adoption of the new EU State aid General Block Exemption Regulation). Corporation tax small company start-up relief is also to be extended.
In addition, recognising the importance of the R&D tax credit regime, further improvements were announced, which included increasing the limits on scope for subcontracting to third level institutions and third parties, increasing the first year payment threshold to €105,000, the introduction of a new enhancement in respect of qualifying R&D wage costs, and providing for simplification measures to improve the recognition of the R&D tax credit for preliminary tax purposes. While these changes are welcome, it is notable that the Budget announcement made no reference to extending the relief to allow related party expenditure.
Capital Taxes
A very welcome announcement was the reduction to the standard rate of Capital Gains Tax (CGT) from 33% to 31%, which will apply from 7 October 2026. Although we had hoped to see a more significant reduction to the CGT rate, this is certainly a step in the right direction.
From a Capital Acquisitions Tax (CAT) perspective, there were also increases to each of the group thresholds.
Supporting the Housing Market
In order to continue to support the housing market, a range of measures were announced aimed at increasing supply. These included an increase to the rent-a-room relief and extending the relief to newly installed detached auxiliary dwellings.
In relation to Residential Zoned Land Tax (RZLT), it was announced that there will be another opportunity for landowners to avail of an exemption in 2027 if they seek to have their land rezoned to reflect genuine economic activity being carried out.
Legislation to introduce a new Derelict Property Tax will also be included in this year’s Finance Bill. This tax is intended to encourage property owners to re-develop their properties or sell to someone who will. The tax rate is to be set at 7% of the self-assessed value of the property.
Other Measures
A package of other welcome measures were announced in Budget 2027 today, including an increase to the maximum refund available under the Help to Buy scheme, a €200 increase to the income tax disregard for micro-generation income received by households who sell electricity back to the grid and a significant increase to the Childcare Services Relief ceiling from €15,000 to €20,000.
