Budget 2025

In addition to the targeted VAT supports announced under the banner of cost of living and supporting climate action, the VAT registration thresholds will also increase for a second year in a row. The flat rate compensation for farmers who are not registered or required to register for VAT will also increase.  VAT registration thresholds   From 1 January 2025, the VAT registration thresholds will increase from €40,000 for services to €42,500, and from €80,000 to €85,000 for goods. The increases aim to ensure that small businesses remain below these thresholds and do not have to register. The full year cost of the increases is estimated to be €15 million.  Farmer’s flat rate compensation  The flat rate compensation for farmers will increase from 4.8 percent to 5.1 percent from 1 January 2025.  The flat-rate compensation scheme is a special scheme for farmers who are not registered, or required to register, for VAT. The scheme is designed to compensate flat-rate farmers for the VAT they incur on farming costs without having to register for VAT. 

A range of measures to further the transition to an ever “greener” economy were also announced which included the expected €7.50 increase to carbon tax, a reduced VAT rate for heat pumps, and a new benefit in kind exemption for electric vehicle charging facilities.   Carbon tax   The rate per tonne of carbon dioxide emitted for petrol and diesel will increase from €56.00 to €63.50 from 9 October as per the trajectory set out in the Finance Act 2020. This increase will be applied to all other fuels with effect from 1 May 2025.   Emissions based Vehicle Registration Tax (VRT) for Category B Vehicles   An emissions-based approach to VRT for category B commercial vehicles is being introduced. This proposal will introduce a lower 8 percent rate for category B vehicles with CO2 emission of less than 120 grams per kilometre with a view to incentivising uptake of these lower emissions vehicles.  The weight carriage ratio for electric commercial vehicles is also being changed to enable them to qualify for the VRT rate of €200.  VAT rate on the supply and installation of heat pumps  Following amendments in the VAT Directive it is possible to apply a reduced VAT rate on heat pumps meeting specific technical standards. A VAT reduction to 9 percent for heat pumps is proposed from 1 January 2025 to incentivise homeowners to install heat pumps.  Accelerated Capital Allowances: gas and hydrogen vehicles  The Accelerated Capital Allowances scheme for gas and hydrogen-powered vehicles and refuelling equipment provides a tax incentive for companies and unincorporated businesses who invest in such vehicles and equipment for the purposes of their trade. The relief will be extended for a further year, to 31 December 2025, to allow the Department of Transport time to review the climate policy objectives underlying the scheme and to determine its future trajectory.  Benefit In Kind (BIK) treatment of Battery Electric Vehicle home chargers  A BIK exemption is being provided in circumstances where an employer incurs an expense in connection with the provision of a facility for the electric charging of vehicles at the home of a director or employee.  Emission thresholds for vehicle capital allowances  The CO2 thresholds for claiming capital allowances on business cars are being adjusted downward in light of improved vehicle emissions standards.   From 1 January 2027, an expenditure of €24,000 will be allowable for cars with CO2 emissions of 0-120g/km. A reduced amount of €12,000 will be allowable for vehicles with CO2 emissions of 121-140g/km. There will be no allowable expenditure for vehicles with emissions >141g/km. 

The announcements featured a range of supports in recognition of the importance of agriculture and the agri-food sector in the economy.   Accelerated Capital Allowances: Farm Safety Equipment  Accelerated capital allowances for expenditure incurred by farmers on certain farm safety equipment, and adaptive equipment for farmers with disabilities are available at 50 percent per annum over two years for eligible equipment.   Under Budget 2025, this measure is being broadened to allow for relief in respect of expenditure by famers on certain Targeted Agriculture Modernisation Schemes (TAMS).   Stock Reliefs   Stock reliefs are given as a deduction from trading income and are available in respect of the computation of farming profits. Subject to meeting certain conditions, a person carrying on the trade of farming is entitled to a stock relief deduction for an accounting period in which there is an increase in the value of the trading stock of the farming trade over the accounting period.   The following three stock reliefs, which were due to expire on 31 December 2024, are now being extended for a further three years to 31 December 2027:   General Stock Relief,   Young Trained Farmer Stock Relief, and   Stock Relief for Registered Farm Partnerships. 

An additional €1.37 billion in funding for childcare provision and extended mortgage interest tax relief for a further year were the main features. The 9 percent rate of VAT on gas and electricity will continue until April 2025.  Childcare provision  This additional funding will support the continued implementation of the National Childcare Scheme (NCS) subsidy, the Early Childhood Care and Education (ECCE) programme as well providing additional allocations toward Core Funding to support employers in meeting further increases in minimum rates of pay for those working in the sector.   In addition, two double payments of Child Benefit will be made to all qualifying households before the end of the year.  Mortgage interest tax relief  Mortgage interest tax relief, which was introduced on a temporary basis in Budget 2024, is being extended by one further year. Qualifying homeowners will be eligible for the relief in respect of the increased interest paid on their mortgage in the calendar year 2024 over the calendar year 2022 at the standard rate of income tax (20 percent), capped at €1,250 per property.   There is no change to the qualifying criteria for the relief, including that qualifying homeowners must have an outstanding mortgage balance on their principal private residence of between € 80,000 and €500,000 on 31 December 2022.  9 percent VAT for gas and electricity  It is proposed to extend the 9 percent VAT rate from 1 November 2024 to 30 April 2025 to address cost of living pressures associated with the price of gas and electricity. 

The key changes announced in Budget 2025 are: Increases to tax credits and bands as well as a 1 percent reduction in the USC,  An increase in the rental tax credit to €1,000, including a retrospective increase to its level in 2024,  The first increases in the CAT group tax free thresholds since 2019,  Enhancements to some business and investor reliefs, including a change to the proposed €10 million cap on retirement relief for family transfers of businesses, The small gift exemption which allows an employer to reward employees has been enhanced to allow five non-cash gifts up to a value of €1,500 per year,  Revenue will conduct a range of targeted compliance management activities in 2025, and  Confirmation that the participation exemption for foreign sourced dividends will commence as expected from 1 January 2025.  The Institute has a webpage dedicated to Budget 2025 where you can find further information. 

Budget 2025 saw the announcement of a series of tax measures to benefit both prospective buyers in addition to renters, alongside the announcement of €1.25 billion in additional funding to accelerate the building of new homes by the Land Development Agency. Stamp duty rates were also increased for higher value residential properties and bulk purchases, effective from today.   Rent tax credit   The rent tax credit is being amended to increase the amount that can be claimed from €750 to €1,000 (or €2,000 in the case of a jointly assessed tax-payer unit). This increase will apply in respect of the 2025 year of assessment.  In addition, the Minister also announced in his speech that in recognition of the cost-of-living pressures facing many renters right now, the credit will also be increased in 2024 to €1,000 and €2,000 respectively.  Help To Buy scheme   The Help to Buy scheme is an income tax measure intended to assist first-time buyers with the deposit required to purchase or self-build a new house or apartment to live in as their home. The scheme will be extended for a further four years, from the end of 2025 to the end of 2029.  Vacant Homes Tax  The rate of the Vacant Homes Tax is being increased from five times to seven times a property’s existing base Local Property Tax liability. This increase will take effect from the next chargeable period, commencing 1 November 2024.  Stamp duty changes   A third rate of Stamp Duty on higher value residential properties is to apply where the value/acquisition price involved exceeds €1.5 million. A new rate of 6 percent will now apply to the element of the value above €1.5 million. This change has immediate effect with normal transitional arrangements applying to transactions in process.  The existing 1 percent rate on residential properties valued up to and including €1 million, and 2 percent on any value above €1 million but below €1.5 million will continue to apply.   In addition, the Stamp Duty rate applied where 10 or more houses are acquired in any 12-month period is being increased from 10 percent to 15 percent, again with effect from Budget night. Transitional arrangements will also apply.   Pre-letting expenses  A deduction (capped at €10,000 per premises) from rental income for certain pre-letting expenditure is already available. This relief will be extended for a further three years to 31 December 2027.  Residential Zoned Land Tax (RZLT)  The RZLT is a new tax on land both zoned for residential development, and which has the necessary services in place to develop housing. The tax is designed primarily as a behaviour changing measure and not to be a significant revenue raising measure. RZLT is an annual tax, to be calculated at 3 percent of the market value of the land in scope.   Provision was made in the Finance Act 2021 for the RZLT. Amendments to the RZLT legislation will feature in Finance Bill 2024 which will provide for a further opportunity for RZLT landowners to seek a change in zoning in 2025 to a zoning which reflects the economic activity they undertake on the land.   Legislation will also be introduced to allow for 12-month deferral of RZLT liability between the grant of planning and commencement of development, exemption during Judicial Review  Proceedings brought by a third party as well as technical amendments.   To ensure local authorities appropriately consider requests the Minister for Housing, Local Government and Heritage will issue guidelines to local authorities indicating that they should consider and accommodate rezoning requests where landowners seek to continue undertaking existing economic activity.