Global Mobility & Employment

New measures not announced in Budget 2025

The Finance Bill proposes an amendment to the split year residence relief provisions which were not announced during the Budget. The amendment provides that split year residence relief will apply for the tax year of arrival and departure in cases where it is not sought by the resident individual during that tax year and where the individual is resident (in arrival cases) or not resident (in departure cases) in the State for the following year of assessment.

The Finance Bill includes provisions to limit employer contributions to Personal Retirement Savings Accounts (PRSAs) or Pan-European Personal Pensions (PEPPs). Employer contributions to these pension plans have not been taxable with effect from 1 January 2023. The Finance Bill introduces a limit such that the maximum permitted as an employer pension contribution is 100% of the employee’s emoluments from that employment. However, if the emoluments in the year are lower than the previous year due to the employee having had unpaid leave, sick leave or been in receipt of certain social welfare payments the contributions can be based on the previous year’s emoluments. Any excess over the limit of 100% of emoluments will be taxable as employment income.

On 1 October 2024, the Government announced the commencement date for the new Auto-Enrolment pension scheme will be 30 September 2025. This scheme will cover qualifying employees who are not already members of an occupational pension scheme. The Act providing for the establishment of the Auto-Enrolment pension scheme was published in July 2024. Under this Act, the scheme will be administered by the “National Automatic Enrolment Retirement Savings Authority” (‘NAERSA’), a newly-created independent public body. As expected, the Finance Bill outlines the taxation treatment of Auto-Enrolment Pensions. Employer contributions will not be taxable and will be deductible as an expense. There will be no tax relief on employee contributions as there will be State contributions to the plan. On drawdown a lump sum of up to 25% of the fund can be taken with up to €200,000 tax free, 20% tax on the next €300,000 and 40% tax thereafter. The remainder will be taxable in the same way as emoluments. NAERSA will be required to withhold taxes at the top rate of income tax unless they have received a payroll notification from Revenue.

What was unexpected?

A notable change for employers, and employees, is the enhancement of the “small benefit exemption” previously announced in the Budget, now provided for in the Finance Bill. From 1 January 2025, an employer can provide five non-cash benefits to their employees, provided that the cumulative value of the first five benefits does not exceed €1,500. Whilst this was announced in the budget the Bill includes a sunset clause such that the exemption will cease after 2029 which was not flagged.  

Who will be affected?

The changes will impact employers offering small benefits to employees or those contributing to PRSAs. Auto-Enrolment may impact all employers. Globally mobile employees need to consider the split year rules.

When? What to do now?

Employers offering small benefits need to consider updating their process for tracking the benefits to avail of the extension of the exemption to €1,500 and for the first to five benefits. 

The introduction of Auto-Enrolment will be a significant change for employers in Ireland. Employers need to consider how they may be impacted by Auto-Enrolment and ensure they plan ahead.

Our view 

The increase in the small benefit exemption is a welcome change.  However, it would have been much simpler and eased the administrative burden for employers if the provisions were amended to include a financial limit only and no limit on the number of non-cash benefits which can be provided. It is surprising and disappointing to see a provision that the exemption will no longer be available from 31 December 2029. 

The changes to split year residence relief are welcome as the current process of making in-year notifications in the year of arrival or departure is cumbersome and time consuming. The amendment applies in respect of the 2026 year of assessment and each subsequent tax year. The provisions will first apply to cases where an individual arrives in or departs from Ireland on or after 1 January 2025.

Employers will need to monitor the limits when considering making employer contributions to PRSAs or PEPPs.  

It is disappointing that the Bill does not include an extension to Special Assignee Relief Program (SARP) which is due to end on 31 December 2025.