Budget 2026

There were little in the way of income tax measures announced today, however, the Minister for Finance announced a change in the USC bands to ensure that the increased minimum wage of €14.15 remains outside the higher rates of the USC. It is also important to note that all workers will be impacted by the increase of 0.1 percent employee PRSI from 1 October 2025 and another 0.15 percent is expected on 1 October 2026.   Budget 2026 has also extended the rent tax credit and mortgage interest relief that were due to expire in 2025.  The Minister also announced that there is to be a reduction in the rates of taxation that apply to certain investments from 41 percent to 38 percent which includes Exchange Traded Funds (ETFs).   USC  To ensure that the salary of a full-time worker on the minimum wage will remain outside the 3 percent rate of USC when the minimum wage increases from €13.50 to €14.15 from 1 January 2026, the ceiling of the 2 percent USC rate band will increase by €1,318 from €27,382 to €28,700.    As a result, the USC rates and bands from 1 January 2026 will be:  €0 – €12,012 - 0.5% (no change);  €12,013 – €28,700 - 2%;    €28,700 – €70,044 – 3%    €70,045+ - 8% (no change); and  Self-employed income over €100,000 - 3% surcharge (no change).  Incomes of less than €13,000 remain exempt from USC.  The estimated cost of the changes in USC is €72 million in 2026 and €76 million per annum thereafter.   Medical card holders with income not exceeding €60,000 will continue to qualify for the reduced USC rate to 31 December 2027.  Rent tax credit  The rent tax credit, which was due to expire on 31 December 2025, has been extended for a further three years to 31 December 2028. The value of the tax credit for 2026 is a maximum of €1,000 per single individual and €2,000 per jointly assessed couple. The cost of retaining this credit to the Exchequer is estimated to be €350 million per annum.  Mortgage interest relief  Mortgage interest relief has been extended on a tapered basis to 31 December 2026. The current level of relief will be maintained for the increase in interest paid in the tax year 2025 over 2022, with a maximum tax credit of €1,250 per property available, this relief can be claimed by taxpayers from 2026. A reduced level of relief will be available for the increase in interest paid in the tax year 2026 over 2022, with a maximum tax credit of €625 per property applicable, this relief can be claimed by taxpayers from 2027.  The cost of extending the relief to 31 December 2026 and maintain the current level of relief for 2025 and reduce the level of relief applicable for 2026 is estimated to be €38 million.  Vehicle benefits in kind  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 2026. This will taper to €5,000 in 2027, €2,500 in 2028 before it is abolished from 1 January 2029.  The tables used to calculate BIK liability on employer-provided cars are being amended to incorporate a new category for vehicles with zero emissions. The new A1 category introduces reduced BIK rates for electric vehicles, with rates of 6 percent to 15 percent, depending on business mileage.  Micro-generation of electricity   The income tax relief that exempts income up to €400 per annum from the micro-generation of electricity is extended to 31 December 2028. The cost of extending the relief is estimated to cost €10 million per annum.  Taxation of Investments  The rates of taxation that apply to investments in Irish domiciled funds and life assurance policies, other than those applying to companies, personal portfolio investment undertakings and personal portfolio life assurance policies will be reduced, as will the rates that apply to equivalent offshore funds and certain foreign life assurance policies. The tax rate applicable to relevant investments is being reduced from 41 percent to 38 percent. The overall cost of the reduction is estimated to be €19 million.  The rate change will apply to Exchange Traded Funds (ETFs) including Irish domiciled ETFs.  Auto Enrolment   The Finance Bill 2025 will provide for additional amendments to the tax treatment for the Auto Enrolment (AE) Retirement Savings Scheme to  address the tax treatment of AE retirement savings on the death of the participant;  exempt AE provider schemes from investment undertaking tax; and   provide an exemption from USC for employer contributions to AE.  Manufacture of Uilleann Pipes and Irish Harps   The Income Tax disregard on up to €20,000 of a person's profits from the manufacture, maintenance and repair of sets of uilleann pipes, early Irish harps and Irish lever harps, is being extended to 31 December 2028. The relief is expected to cost €500,000 per annum.   

The main VAT changes announced relate to the introduction of 9 percent VAT rate for certain areas of the hospitality and retail sector and on the construction of new apartments. VAT on food and catering businesses and hairdressing services From 1 July 2026, the VAT rate applied to businesses in food and catering and hairdressing services is being reduced from 13.5 percent to 9 percent. It is estimated that this measure will cost €232 million in 2026 and €681 million in a full year. VAT on gas and electricity The reduced VAT rate of 9 percent on gas and electricity bills which was due to expire on 1 November 2025 will be extended until 31 December 2030. VAT on new apartments The VAT rate applied to the construction of new apartments is to be reduced from 13.5 percent to 9 percent. This reduced rate will apply from 8 October 2025 and will last until 31 December 2030. In our Pre-Budget submission, we have called for a targeted, time limited measure to address market failures in the delivery of apartments. It is hoped that the VAT reduction will address this market need effectively and efficiently. VAT Modernisation and electronic invoicing The Minister announced the commencement of a phased implementation of domestic electronic invoicing for business-to-business (B2B) transactions. This implementation supports the EU approved VAT in the Digital Age (ViDA) initiative which aims to modernise the EU’s VAT system.  Further details on this initiative will be outlined in a paper to be published by Revenue tomorrow.

Budget 2026 includes enhancements to the Research and Development (R&D) tax credit and to various other reliefs including the Key Employee Engagement Programme (KEEP), the Special Assignee Relief Programme (SARP) and the Foreign Earnings Deduction (FED).   Improvements to the dividend participation exemption were also announced including an extension of the geographical scope of the exemption. The Minister also announced that a public consultation on withholding tax will be launched shortly.  R&D tax credit  The Minister announced several important updates for the R&D tax credit in Ireland following the feedback received through the public consultation earlier this year (you can read our response here) and acknowledging the importance of the relief in driving competitiveness in Ireland. The three main enhancements are as follows: The rate of the tax credit has been increased from 30 percent to 35 percent,   An increase in the first-year payment threshold from €75,000 to €87,500 aimed at supporting smaller R&D projects, and An administrative simplification measure was also announced which will allow 100 percent of an R&D employee’s emoluments as qualifying costs where at least 95 percent of time is spent on qualifying R&D activities. The Minister also announced the forthcoming publication of an R&D Compass, which will outline the strategic direction for future developments in research, development, and innovation supports. The R&D compass will also consider changes to the R&D tax credit with respect to the definitions of outsourcing and qualifying expenditure. Key Employee Engagement Programme The Key Employee Engagement Programme (KEEP) has been extended to 31 December 2028. This extension is subject to approval by the European Commission. Special Assignee Relief Programme The Special Assignee Relief Programme (SARP) is being extended for five years, to 31 December 2030. From 1 January 2026, an annualised salary of €125,000 or above will be required to qualify for the relief. New entrants to the scheme from 2026 onwards may benefit from an income tax exemption on 30 percent of relevant annual employment income between €125,000 and €1 million. This change will not apply to existing claimants who continue to avail of SARP in 2026 and further years. Simplification of certain relevant administrative requirements are expected to be announced in Finance Bill 2025. Foreign Earnings Deduction The Foreign Earnings Deduction (FED) will be extended for a further five years, up to 31 December 2030. In addition, from 1 January 2026, the scheme will be enhanced by increasing the cap on qualifying employment income for Income Tax relief from €35,000 to €50,000. The scope of the relief is also to be broadened to include qualifying workdays spent in the Philippines and Turkey. Changes will also be introduced in Finance Bill 2025 to streamline certain administrative requirements. Participation exemption for certain foreign dividends The participation exemption for foreign dividends, introduced in the Finance Act 2024, marked a significant enhancement to Ireland’s tax framework. The Minister announced that several changes to the exemption will be provided for in Finance Bill 2025 which include: Broadening the geographic scope to include qualifying dividends received from jurisdictions that apply a non-refundable dividend withholding tax. The period for which companies must have been resident in a jurisdiction within the geographic scope of the relief before paying a dividend will be reduced from five years to three years. Clarification was provided that the acquisition of a shareholding is not considered to be an acquisition of business assets for the purposes of the participation exemption. The Institute welcomes these changes as we had previously raised these recommendations in a letter which you can read here. Further details will be set out in Finance Bill 2025. Film Tax Credit The Film Tax Credit is being enhanced to introduce a new 40 percent rate for productions with a minimum eligible expenditure of €1 million on relevant Visual Effects work. The rate will apply on qualifying expenditure up to a maximum of €10 million per production. The changes are subject to approval by the EU. Digital Games Tax Credit The Digital Games Tax Credit is being extended by six years to 31 December 2031. In addition, the credit is being enhanced to allow for claims in respect of Post-Release Content work, subject to certain conditions being satisfied. The changes are subject to approval by the EU. Accelerated Capital Allowances for Energy Efficient Equipment The Accelerated Capital Allowances Scheme for Energy Efficient Equipment which provides for an accelerated deduction of 100 percent of the asset cost in year one for qualifying equipment is being extended to 31 December 2030. Accelerated Capital Allowances for Gas Vehicles and Refuelling Equipment The Accelerated Capital Allowances Scheme for gas vehicles and refuelling equipment is being extended to 31 December 2030. This scheme provides a tax incentive for companies and unincorporated business that invest in vehicles which run on compressed natural gas, liquefied natural gas, biogas or hydrogen, and in related refuelling equipment. Capital Allowances for Intangible Assets The Minister indicated that amendments are being made to the intellectual property capital allowances legislation regarding how balancing allowances, which arise on certain events such as the disposal or transfer of the asset, can be used. A Financial Resolution will be brought forward on the night of Budget 2026 to provide for these amendments with immediate effect and will be followed by legislation in Finance Bill 2025. Capital Gains Tax Revised Entrepreneur Relief The lifetime limit on which the Revised Entrepreneur Relief can be claimed will be increased to €1.5 million from 1 January 2026. The relief now provides for a reduced rate of CGT of 10 percent on gains of up to €1.5 million, over a lifetime, arising from the disposal of qualifying business assets. Bank Levy The Bank Levy is being extended for a further year and will apply in 2026. Withholding Taxes As part of his Budget speech the Minister announced that a public consultation on withholding tax will be launched soon.