To further combat the ongoing pressures on household budgets, the Minister for Finance announced the expected €2,000 increase in the standard rate cut off band for all taxpayers, in addition to a range of increases in various tax credits. The middle rate of USC will be reduced from 4 percent to 3 percent. The now usual change in the USC bands to ensure that the increased minimum wage remains outside the middle rate of the USC also featured. These changes will take effect from 1 January 2025.
Changes to the small benefit exemption, an issue on which the Institute has extensively lobbied on, also featured with the value limit to increase to €1,500 and the number of benefits that an employer can give to increase from two to five per year.
Rate bands and tax credits changes from 1 January 2025
The income tax standard rate cut off bands will increase as follows:
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Single, widowed or surviving civil partner from €42,000 to €44,000,
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Single, widowed or surviving civil partners, qualifying for the Single Person Child Carer Credit from €46,000 to €48,000,
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Married couples or civil partners (two incomes) from €51,000 to €53,000 (with a maximum increase of €35,000).
The personal tax credit, employee tax credit, and earned income tax credit will all increase from €1,875 to €2,000.
The estimated total cost of these measures is €1.12 billion in the first year and €1.29 billion on a full year basis.
The 4 percent rate of USC will reduce to 3 percent. To ensure that the salary of a full-time worker on the minimum wage will remain outside the new 3 percent rate of USC when the minimum wage increases from €12.70 to €13.50 from 1 January 2025, the ceiling of the 2 percent USC rate band will increase by €1,622 from €25,760 to €27,382.
As a result, the USC rates and bands from 1 January 2025 will be:
Incomes of less than €13,000 remain exempt from USC.
According to the Minister for Finance’s speech, these changes means that a full-time worker on the minimum wage will see an increase in their net take home pay of approximately €1,424 on an annual basis and a single person earning €20,000 or less in 2025 will now be outside of the income tax net.
The estimated cost of the changes in USC is €470 million in 2025 and €540 million per annum thereafter.
Sea-going naval personnel tax credit
The sea-going naval personnel tax credit will not end on 31 December 2024 and has been extended for a further five years to 31 December 2029. This tax credit is €1,500 per annum for permanent members of the Irish Naval Service who have spent at least 80 days at sea in the previous year performing the duties of his/her employment. The cost of retaining this credit is estimated to be €500,000 per annum.
The limit of the “Small Benefit Exemption” will increase to €1,500 and the number of benefits that an employer can give will also increase from two to five per year so that the cumulative total of the first five benefits in a year shall not exceed €1,500. This is an issue that the Institute has lobbied upon extensively on behalf of members. No date was given for when these increases will take effect.
Finance Bill 2024 will provide for the taxation of the Automatic Enrolment Retirement Savings Scheme (referred to as AE). It is expected that AE will be introduced in September 2025. The Institute has long supported the introduction of AE but has asked requested that it be introduced at an appropriate time, being mindful of the cost pressures SMEs in particular are under.
According to the Budget publications, the tax treatment “aligns as much as possible with that of Personal Retirement Savings Accounts (PRSAs), other than for employee contributions.”
Employer contributions will be tax relieved, the growth in the AE funds will be exempt from tax and the AE funds will be taxed on draw down, other than the 25 percent tax free lump sum.
The lump sum will be able to be taken tax free up to €200,000, will be taxed at 20 percent between €200,000 and €500,000 and taxed at 40 percent above €500,000.
As the State will be making a direct contribution for employees within the AE scheme, no tax relief will be provided for employee contributions to AE.
The temporary universal relief of €10,000 applied to the Original Market Value of a vehicle (including vans) for vehicles in Category A-D and the amendment to the lower limit of the highest mileage band is being extended to 31 December 2025.
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