Finance Bill 2024 introduces key updates on tax reliefs for employers and private businesses. Pat Mahon breaks down the most significant changes
From an employment and personal tax standpoint, the majority of the legislative actions contained in Finance Bill 2024 are aligned with announcements made on Budget Day. However, some newly announced measures in the Finance Bill are likely to be of interest to employers and private businesses.
Employment Investment Incentive
Finance (No. 2) Act 2023 brought several changes to Employment Investment Incentive (EII) relief to ensure the relief complied with amended EU state aid rules. The most fundamental change concerns the rate of tax relief.
Finance (No. 2) Act 2023 restricted the maximum effective rate of EII relief for follow-on investments to 20 percent. This change was implemented based on an initial interpretation of EU state aid rules.
However, on further developments, it appears that there is flexibility in the EU state aid rules for the 35 percent rate to apply to follow-on risk finance investments where the company has been in existence for less than ten years or within seven years of its first commercial sale.
Finance Bill 2024 has recognised this rate of relief on a retrospective basis for shares issued on or after 1 January 2024. This is a welcomed change for the Irish scale-up sector.
Other relevant changes to the regime were:
- An extension to the deadline for processing the relief from four months post-year-end to 31 December in the year following the year in which the shares were issued.
- The extension of the operation of the relief to 31 December 2026.
- The amount upon which an investor can claim tax relief under the scheme has increased from €500,000 to €1 million.
Start-Up Refunds for Entrepreneurs
The amount of Start-Up Refunds for Entrepreneurs (SURE) relief that an investor can claim annually has been increased from €100,000 to €140,000. This results in a total maximum of €980,000 over seven years.
For SURE relief being claimed where a loan is converted to eligible shares, a business plan must be in place in advance of the date of the issue of the loan.
The same change for the rate of relief from 20 to 3 precent for follow-on EII investments also applies to SURE claims.
Start-Up Relief S486C TCA 1997
For accounting periods beginning on or after 1 January 2025, in addition to providing the current relief relevant to the amount of employer’s PRSI borne by the company, relief will also be available by reference to the amount of Class S PRSI paid by a director of the company. This is subject to a maximum of €5,000 employer’s PRSI per employee, €1,000 Class S PRSI per company director and €40,000 overall.
R&D tax credit
The amount of refundable R&D tax credits that can be paid to a company in a year has been increased from €50,000 to €75,000.
CGT retirement relief
Finance (No. 2) Act 2023 increased the age limits for CGT retirement relief purposes from 65 to 69 years. However, it also introduced a new maximum limit of €10 million on disposals of qualifying assets to children up to and including the age of 69 years.
These changes were due to take effect from 1 January 2025.
While the increased upper age limit will remain in place, amendments introduced in Finance Bill 2024 propose a clawback period of 12 years in relation to disposals of qualifying assets in excess of €10 million made by an individual between the ages of 55 and 69 years (inclusive) from 1 January 2025.
The relief will operate to defer any CGT which would be due by the parent disposing of the asset to the earlier of:
- the date on which the shares are disposed of by the child; or
- the expiration of 12 years from the date of the disposal.
Where a qualifying asset on which retirement relief is claimed is subsequently disposed of by the child within 12 years of the transfer, the child will be assessed on the deferred CGT in addition to any CGT arising in respect of the gain accruing to the child.
However, if the qualifying asset is held by the child for at least 12 years, the CGT will be abated.
This change is to be welcomed and will ensure that transfers of successful businesses to the next generation are not penalised subject to a number of requirements being satisfied.
Angel investor CGT relief
Angel investor CGT relief was introduced in Finance (No. 2) Act 2023. The relief provides a reduced CGT rate for qualifying investments made by a qualifying investor in a qualifying company.
The reduced CGT rate is 16 percent for direct investments or 18 percent for investments made by a partnership. The relief was restricted to a lifetime limit of €3 million on gains.
The new Finance Bill increased the lifetime limit on gains from €3 million to €10 million. The commencement of the relief is subject to Ministerial Order.
Small benefit exemption
Finance Bill 2024 confirms the increase in the small benefit exemption threshold to €1,500 per annum.
There is also a very welcome increase in respect of the number of vouchers or benefits that qualify for the relief, with five gifts or vouchers now being eligible for relief providing the cumulative value does not exceed €1,500 per annum.
Surprisingly, the Bill also states that the exemption will cease with effect from the year of assessment 2030 onwards.
PAYE statute of limitations
There is a provision to amend the time limits within which the Revenue Commissioners can raise PAYE assessments against employers for tax years 2025 et seq.
However, there are some uncertainties in relation to the effect of the changes and further clarity will need to be provided once the draft provision is debated.
Pat Mahon is Tax Partner at PwC
LOADING...