Personal Tax

Key measures

In the area of income tax, the following measures were announced: 

• The standard [20%] rate band for income tax is to be increased by €2,000 to an amount of €44,000 per individual.
• The 4% rate of USC will be reduced for the second consecutive year to 3%. The entry threshold for the 3% rate rises by €1,622 to €27,382. 
• The increase of various tax credits – personal tax credit, employee tax credit, earned income credit (by €125), home carer and single parent tax credits (by €150), rent tax credit (by credit (by €250), incapacitated child and blind persons tax credit (€300) and dependent relative tax credit (by €60).
• Mortgage interest relief will be extended for one further year in respect of the increase in interest paid in 2024 compared to 2022. 
• Individuals can now elect to choose whether the income tax relief on donations to sporting bodies go to themselves or the sporting body. 
• A tax exemption to be introduced for women receiving compensation from the failures in the cervical check national screening programme. 
• Stock reliefs for farmers that were due to expire at the end of the year have been extended to 2027 and agricultural relief for CAT has been curtailed by requiring that the donor is also subject to the six-year active farmer test. In terms of CAT, all group thresholds have been increased as follows; 
  • Group A: increased to €400,000 
  • Group B: Increased to €40,000 
  • Group C: Increased to €20,000 

Who will be affected?

Low to middle class earners will benefit from the income tax measures announced. While the increase in the CAT thresholds will support families in passing wealth to the next generation, those planning to transfer farms to the next generation may be affected by the changes unless the donor is a genuine farmer. 

When? What to do now?

Most measures outlined are to be introduced in 2025 (with the exception of the increase in the rent tax credit for 2024) with some measures extended to 2027.

Our view

With record high levels of employment, the income tax package announced, while inflationary in nature, will be welcome news for low to middle income earners in particular. It is, however, a missed opportunity to reform and simplify the income tax system as promised by the previous government, although, a review of the tax regime on funds and other investments may provide opportunity to simplify the personal tax system as it relates to them. 

The increase in the CAT thresholds for gifts / inheritances will, given increase in asset values, provide relief for families passing wealth intergenerationally - albeit for people giving amounts annually to support family the annual small gift exemption now remains unchanged for in excess of 20 years. 

Further, in light of proposed changes to the standard fund threshold for pension purposes, consideration could be given to persons with more than one employment or a further career in retirement, where having taken retirement benefits below the standard fund threshold, they can in a subsequent employment make further contributions to bolster provision for their retirement.