Personal Tax

New measures not announced in Budget 2025

Pensions

• An employer limit has been introduced in relation to contributions by employers to employee’s PRSAs/PEPP, the contribution cannot exceed more than 100% of the employee’s emoluments in the year. The excess amount over the limit shall be treated as a taxable BIK in the hands of the employee.
  
• The standard fund threshold (SFT”) limit for pensions will increase from 1 January 2026 on a phased basis from €2m to €2.8m over the years 2026 to 2029, with a formula in subsequent years where the amount exceeds €2.8m.
  
• Transfers from PRSAs to vested PRSA’s are considered a benefit crystallisation event which may give rise to a tax liability if an individual’s pension exceeds the SFT.
  
  

CAT – agricultural relief

• There have been changes to agricultural relief which applies to gifts/inheritances taken after 1 January 2025 which include:
  • For the six years prior to the gift/inheritance, the disponer will need to satisfy an “active farmer” test, whereby they hold an agricultural qualification and farm the lands commercially; or have spent more than 50% of their time farming; or have leased the lands to such an active farmer.
    
  • Where lands are partly farmed and partly leased to an active farmer by the disponer or beneficiary, agricultural relief will continue to apply.
    
    

CAT – loan reporting requirements

• There has been a change to the requirement to report certain close relative loans to Revenue, such that payment of interest at less than market value rates within six months of year end will no longer remove the requirement for mandatory reporting from 1 January 2025.
  
  

What was unexpected?

The change to the loan reporting requirements on loans between relatives where interest is paid on the loan was unexpected. Notably, the loan threshold for this loan reporting to apply has been retained at €335,000, despite the increase in the CAT Group A (parent to child) threshold to €400,000.

The change to agricultural relief was provided for in the budget and the transitional measures provided for in the Finance Bill is welcome, to provide farming families with time to structure the transfer of the farm to the next generation to ensure agricultural relief will apply. The extension of agricultural relief to beneficiaries and disponers who partly farm the land and partly lease the land to active farmers is also welcome and will provide flexibility to beneficiaries.

The change to employer contributions to PRSAs was not announced in the Budget however it was not unexpected in light of the broad application of tax relief on PRSAs since Finance Act 2022.

Who will be affected?

Farming families, and families with loans exceeding €335,000 will be affected by the Finance Act, while the PRSA changes will have significant impact for many business owners.

When? What to do now?

Business owners, particularly those considering retirement in the short term, should consider whether to make contributions to PRSAs at an early stage before the proposed changes come into effect. After 2025, regular contributions to PRSAs could be made over a number of years in advance of retirement as opposed to once off contributions.

In light of the changes in the Finance Bill, putting a plan in place for the succession of the farm is now more important than ever. Families considering passing on their farm should review their current position at an early juncture to ensure agricultural relief will apply, particularly where they may have been considering making a conditional cash gift to assist the next generation in the purchase of farmlands.

Families should also consider whether total loans of €335,000 have been made either personally or to/from connected companies and ensure that such loans are reported as required in 2025.

Our view

In light of the changes to the SFT for pension purposes, persons with more than one employment or a further career in retirement, who have taken retirement benefits below the €2m SFT should consider whether further contributions can be made in a subsequent employment to bolster provision for their retirement. If a person maxed out their SFT previously, it appears that no further contributions can be made.

The CAT reporting requirement places an onerous burden on families where loans may be advanced to children to assist them with purchasing their homes, at a time of rising house prices and difficulties getting on the property ladder, particularly where interest is charged on those loans.

It seems the intention of the CAT changes is to safeguard agricultural relief for genuine farmers, in light of significant increases in agricultural lands in recent years. While the transitional measures are welcomed, the changes may have more far-reaching consequences for genuine farmers in certain scenarios with informal farming/leasing arrangements in place, and the removal of the tax efficient opportunity to make conditional cash gifts to purchase agricultural assets, such as livestock or additional farmlands, will affect many farming families. However, the clarification that agricultural relief will be available where lands are partly farmed and partly leased is welcome, particularly for families where the successor farmer may have off-farm employment requiring part of the lands to be leased.