The Government’s financial standing when crafting Budget 2025 was impressively strong, boasting a projected surplus of €25 billion for 2024. A few key resources bolstered this position: €14.1 billion from the Apple Tax ruling, €3.1 billion from selling AIB shares, and a €1.5 billion surplus in the National Training Fund.

When putting Budget 2025 together, several priorities clearly stood out:

• Managing the impact of high inflation and rising interest rates on everyday living costs.
• Easing the pressure on middle-income earners who have felt the squeeze.
• Helping small businesses tackle rising operational costs.
• Easing the ongoing housing challenges for both buyers and renters.
• Investing in long-term infrastructure improvements.
• Getting ready for a general election before March 22, 2025.

As outlined in the Summer Economic Statement, the core budget package amounts to €8.3 billion, with €1.4 billion in taxation measures and €1.6 billion dedicated to personal income tax adjustments. The core expenditure sits at just under €6.9 billion. On top of this, a €2.2 billion cost-of-living package was added, bringing the total to €10.5 billion.

The Government has also charted a plan for long-term investment. An allocation of €3 billion is earmarked for infrastructure, divided across water (€1 billion), housing (€1.25 billion), and the electricity grid (€750 million). These funds will be managed by the Land Development Agency (LDA), Eirgrid, ESB, and Uisce Éireann. Moreover, in September, €4.3 billion was transferred into the Future Ireland Fund, with an additional €2 billion going into the Infrastructure, Climate, and Nature Fund. Next year, €4.1 billion more will flow into the Future Ireland Fund, and nearly €2 billion will head to the Infrastructure, Climate, and Nature Fund. By the end of 2025, a combined total of over €16 billion will have been invested in these initiatives.

Budget 2025 is clearly an expansionary one, with significant stimulus injected to help fuel the economy and bolster consumer spending into 2024.

Key Highlights

Pensions

• The new auto-enrolment pension scheme will kick off on September 30, 2025. This will see around 800,000 workers automatically signed up for a private pension, in addition to their state pension.
  Workers without an existing pension scheme, aged between 23 and 60, and earning over €20,000 will be enrolled automatically. Those outside this range can opt in voluntarily. Contribution rates will start at 1.5% of gross salary, gradually rising to 6% by year 10.
  The government will match €1 for every €3 participants contribute, and employers will be required to match €3 for every €3 contributed by employees.
• The Finance Bill 2024 will define how the Automatic Enrolment Retirement Savings Scheme (AE) is taxed. Its treatment will mostly align with that of Personal Retirement Savings Accounts (PRSAs), except for employee contributions. Employer contributions will receive tax relief, AE funds will grow tax-free, and participants can take a 25% lump sum without tax (up to €200,000), with further funds taxed at 20% up to €500,000 and 40% beyond that. As the state will directly contribute to AE participants, no tax relief will be provided for employee contributions.
• The standard fund threshold, previously reduced to €2 million in 2014, will increase to €2.8 million in four stages between 2026 and 2029.

Taxation

• The capital acquisition tax-free threshold for children inheriting from parents (Group A) will be raised from €335,000 to €400,000. For Group B, it goes from €32,500 to €40,000, and for Group C, from €16,250 to €20,000.
• The 4% Universal Social Charge (USC) rate will see a 1% reduction, applying now to incomes between €27,382 and €70,044. The ceiling for the 2% rate band will increase by €1,622, with incomes below €13,000 remaining exempt from USC.
• The threshold for the standard income tax rate has been increased from €42,000 to €44,000.
• Various tax credits will also see increases, including €125 more for the personal, employee, and earned income credits, €150 for the home carer credit, €300 for incapacitated child and blind person tax credits, and €60 for the dependent relative tax credit.
• The small benefit exemption allowing employers to provide non-cash rewards to employees without tax liability is rising from €1,000 to €1,500.
• Temporary Benefit-in-Kind (BIK) relief for company cars will extend for another year, and the €35,000 electric vehicle (EV) relief will also continue.
• Excise duties on a pack of 20 cigarettes are up by €1.
• Carbon tax on petrol and diesel has increased from €56 to €63.50 as of October 9.
• VAT on heat pump installations has been slashed from 23% to 9%.

Cost-of-Living Package

• An electricity credit of €250 will be provided in two instalments, one before the end of the year and one early next year.
• A fuel allowance payment of €300 will be distributed in November.
• Recipients of long-term social protection payments will receive a bonus double payment in October, alongside two double child-benefit payments before Christmas.
• In November, €200 will go to those receiving the living alone allowance, and €400 will be paid to recipients of the carer’s support grant, disability allowance, and related benefits.
• Student fees are being reduced by €1,000, bringing them down to €1,500 for the current academic year, with more students now eligible for grants.
• The reduced VAT rate of 9% for gas and electricity has been extended from the end of October to the end of April 2025.
• The main social welfare rates for working-age recipients and pensioners will rise by €12.

Social Welfare in 2025

Social welfare expenditure will see an increase of nearly €2 billion in 2025, including a €12 rise in the main rates for working-age recipients and pensioners.

Housing

• The rent credit for private renters has been increased, rising from €750 to €1,000 for individuals, and from €1,500 to €2,000 for couples, available for claims in 2024.
• Mortgage Interest Tax Relief, introduced for homeowners with outstanding mortgage balances on their primary residence, will be extended for another year. This relief applies at 20% of income tax on increased interest paid in 2024 compared to 2022, up to €1,250.
• The Help-to-Buy scheme is being extended until 2029, enabling first-time buyers of new homes to claim up to €30,000 back in income tax for use as a deposit.
• Relief for pre-letting expenses for landlords has been extended to the end of 2027.
• Investment funds buying 10 or more houses will face an additional 5% in stamp duty, bringing the total rate to 15%.
• The Residential Zoned Land Tax is set to go ahead in 2025, with landowners given the chance to rezone property to reflect their economic activity.
• The Vacant Homes Tax rate is rising from 5 to 7 times the property’s LPT charge.

Other Measures

• The Motor Insurers Insolvency Compensation Levy will be reduced from 1% to 0%.
• The minimum wage will increase from €12.70 per hour to €13.50 as of January 1, 2025.
• The bank levy is extended and is expected to generate €200 million.
• Enhanced energy grants will be available for businesses.
• Free public transport will now cover children under nine (previously under five).
• Funding for childcare will increase by 24%.
• The free schoolbook scheme will be extended to secondary schools.
• A new tax on vapes and e-cigarettes is being introduced.
• Parents of newborns will receive a once-off triple child benefit payment.
• Junior Cert and Leaving Cert fees will be waived.
• All welfare payments, including pensions, will be increased by €12 per week.

Income Tax

• Standard rate income tax bands are being increased by €2,000 for single taxpayers, with similar increases for married couples. The main tax credits are also getting a €125 bump.

USC Bands

• USC bands are being adjusted, with the 2.0% rate now applying to incomes up to €13,747 in 2025, reducing the income band taxed at 4.0%.

No Changes in Other Taxes

• There are no changes to DIRT, Exit Tax, or Capital Gains Tax rates.
• Capital Acquisition Tax rates remain unchanged, though thresholds are adjusted.
• The 1% levy on life assurance premiums will stay as is.
• All PRSI rates will increase by 0.1% starting October 1, 2024.

The Finance Bill is expected towards the end of October, and there could be additional taxation or pension changes added during its legislative journey.

Summary and Next Steps

Budget 2025 brings a wave of initiatives to stimulate economic growth, ease cost-of-living pressures, and ramp up investment in key areas like housing and infrastructure. Whether it’s the increase in rent credits, new pension options, expanded social welfare, or enhanced support for businesses, the measures aim to benefit a broad spectrum of the community. If you’re looking for personalised financial guidance on how these changes affect you or your business, reach out to F J Hanly & Associates today. Let us help you navigate the new budget landscape and make the most out of every opportunity.