The Minister for Finance, Michael McGrath, and the Minister for Public Expenditure and Reform, Paschal Donohoe, presented the fourth Budget of the coalition Government on Tuesday. This Budget was framed against a backdrop of the ongoing war in the Ukraine, concerns about persistent inflation and the perceived windfall nature of corporation tax receipts.
The Budget measures announced are predominantly aimed at supporting businesses and communities through the current cost-of-living crisis. Looking to the future, the minister announced the establishment of two new State funds, the “Future Ireland Fund” and the “Infrastructure, Climate and Nature Fund”, to “help protect living standards and public services for current and future generations”.
Within his speech, Minister McGrath also highlighted the “once-in-a-generation reform” involving the implementation of the 15% minimum effective tax rate for large companies/groups.
An overview of the key measures announced are set out below.
Income tax
The standard rate cut off point will increase by €2,000 meaning the higher rate of income tax will start when income exceeds €42,000, with proportionate increases for married couples and civil partners.
The Personal, Employee PAYE, Earned Income and Home Carer Tax Credits will all increase by €100.
There are two changes to the Universal Social Charge (“USC” ):
An increase in the entry threshold to the second-rate band from €22,920 to €25,760 in line with the €1.40 per hour increase in the minimum wage.
A reduction in the rate of the second-rate band from 4.5% to 4%.
The Minister announced the extension of the USC concession which applies to medical card holders and whose earnings are less than €60,000 for two years to the end of December 2025.
From 1 October 2024, all PRSI rates will increase by 0.1%.
Corporate tax
The minister referenced the implementation of the 15% minimum effective tax rate for entities within the scope of the OECD Pillar Two agreement (i.e., companies which form part of a consolidated accounting group with turnover of more than €750 million per annum ).
The minister also announced the introduction of a participation exemption for foreign sourced dividends which will be legislated for in Finance Bill 2024. The introduction of this exemption is intended to reduce the administrative burden on businesses.
Social welfare and related measures
There will be a rise of €12 in Social Protection payments.
All recipients of the normal weekly fuel allowance will receive a lump sum payment of €300 this year.
The recipients of the Living Alone Allowance will receive an additional €200 payment this year.
For those in receipt of Social Protection payments, the Christmas Bonus will be paid in early December.
A once-off double week cost-of-living support payment will be made in January to pensioners, jobseekers, carers and those on disability allowance.
An additional payment of €400 will be made before Christmas to those who qualify for the Carer’s Support, Disability Allowance, Invalidity Pension, Blind Pension and the Domiciliary Care Allowance.
A double child benefit payment, worth an additional €140 per child, will be paid before Christmas. A double payment of the Foster Care allowance will also be paid this year.
There will be a one-off €400 payment to those claiming the Working Family Payment this year.
The Qualified Child payment will increase by €4 per week.
Business tax incentives
The R&D tax credit will increase from 25% to 30% in respect of 2024 expenditure, for which claims will be filed in 2025. The first-year payment threshold allows for a claim to be paid in full in year one, rather than over three years. The current threshold of €25,000 will increase to €50,000.
The Minister announced the following changes to CGT retirement relief, effective from 1 January 2025:
Reflecting the pattern of increased longevity of individuals in business, the maximum age at which the highest level of relief can be claimed will be increased from 66 to 70.
There will be a new limit of €10 million on the relief available for disposals to a child up until the age of 70. The full effect of the changes will only become clear once details are published in the upcoming Finance Bill.
The KEEP scheme, which provides for the tax efficient treatment of qualifying share options, will be extended until the end of 2025 and will include a doubling of the limit for the total market value of issued but unexercised qualifying share options from €3 million to €6 million.
Consanguinity relief will be extended for a five-year period.
The minister announced the introduction of an effective reduced rate of CGT of 16% (or 18% if the investment is made through a partnership ) for qualifying investors to encourage investment in innovative start-ups. This reduced rate will apply on a gain up to twice the value of the initial investment. The investment must be at least €10,000 in newly issued shares representing 5% to 49% of the ordinary share capital of the company. There is a lifetime limit of €3 million on gains to which the reduced rate of CGT will apply.
VAT
The minister has proposed to increase the VAT registration thresholds from €37,500 to €40,000 for services and €75,000 to €80,000 for goods.
VAT on eBooks and audio books will reduce from 9% to 0% with effect from 1 January 2024.
VAT on the supply and installation of solar panels will be zero rated for installation in schools from 1 January 2024.
The 9% VAT rate for electricity and gas is to be extended for another 12 months until 31 October 2024.
Housing
The Help-to-Buy scheme has been extended to the end of 2025.
The rent tax credit of €500 has been increased to €750 per annum.
Parents who pay for their student children in full-time accommodation will be able to claim the rent tax credit in respect of Rent a Room accommodation or “digs”– this will be backdated to allow for claims in 2022 and 2023.
The energy credit will be paid in three instalments of €150 up to April 2024.
Landlords will benefit from a new tax relief worth between €600 and €1,000, rising every year until 2026. The relief will be 20% of the following amounts of rental income each year:
€3,000 in 2024,
€4,000 in 2025,
€5,000 in 2026,
€5,000 in 2027.
A full claw-back of the benefit in respect of that property arises where the landlord removes the rental property held in year one within four years of claiming this benefit. No clawback should arise after the four-year period.
The vacant property tax will be increased from three to five times the rate of Local Property Tax.
Mortgage Interest Tax Relief
A one-year Mortgage Interest Tax Relief has been introduced for homeowners with an outstanding mortgage balance on their primary dwelling house of between €80,000 and €500,000 as of 31 December 2022.
Relief will be available in respect of the increased interest paid on the mortgage in the calendar year 2023 as compared with the amount paid in 2022, at the standard rate of 20% income tax. The relief will be capped at €1,250 per property.
Climate and long-term investment
The income disregard for households selling residual electricity to the grid will double to €400.
In relation to the BIK regime for company cars, the temporary universal relief of €10,000 to the Original Market Value (“OMV” ) will be extended for a further year.
To encourage the use of electric vehicles for company car purposes, the tapering of the preferential BIK relief will be temporarily suspended. The existing €35,000 OMV reduction will be maintained for 2024 and 2025.
Taken together with the extension of the universal OMV relief of €10,000, an employee with an electric vehicle should see a total overall BIK OMV relief of €45,000 in 2024.
Education
There will be a once off reduction in the student contribution fee of €1,000 for those eligible for the free fee initiative, a once off reduction of approximately 33% in the contribution fee for apprentices in higher education and an increase in the Post Graduate Tuition fee contribution of €1,000 for student grant recipients.
The minister announced that the free schoolbooks scheme will be extended to all junior cycle pupils in recognised post primary schools within the Free Education Scheme from September next year.
Other
There has been an increase in the rate of carbon tax from €48.50 to €56 per tonne. The increase will apply to petrol and diesel from 11 October 2023.
The final tranche of fuel excise increases which were due to happen on 31 October have been deferred. The outstanding amounts of 8c on petrol, 6c on diesel and 3.4c on Marked Gas Oil will be restored in two equal instalments on 1 April 2024 and 1 August 2024.
The excise duty on a packet of 20 cigarettes will be increased by 75 cent, with a pro-rata increase on other tobacco products. This change will be effective from midnight on Budget Day. It is proposed that a domestic tax on e-cigarettes and vaping products will be introduced in next year’s budget.
This article was compiled by Daniel Lenihan and Darren Dooley of KPMG, Dockgate, Dock Road, Galway. Tel: 091-534600. For further information on Budget 2024 log on to: kpmg.ie/budget2024
