Yesterday, the government unveiled a €10.5bn bumper budget package. How will it impact the individuals, families, and entrepreneurs that we, at Goodbody, serve? We sat down with Catriona Coady, Head of Tax, and Aodhán Deane, Tax Specialist, to examine some of the key takeaways from Budget 2025.
Takeaway 1 – Succession planning
With another bumper budget package, what are six main takeaways for our clients?
When it comes to succession planning, there were significant changes announced yesterday to the Capital Acquisitions Tax thresholds and to succession planning reliefs, in particular, what appears to be an important rollback on a change to Retirement Relief.
The Capital Acquisitions Tax thresholds
Effective from 2 October 2024, the Capital Acquisition Tax (CAT) thresholds which apply to gifts and inheritances will increase, the Minister for Finance Jack Chambers confirmed. The Group A threshold (applying typically to gifts/inheritances from parents-to-children) will increase from €335,000 to €400,000, the Group B threshold (gifts/inheritances from grandparents, siblings, cousins, etc.) from €32,500 to €40,000 and the Group C threshold (applying typically to gifts/inheritances from unrelated persons) from €16,250 to €20,000.
While the increase to the parent-to-child tax free threshold was expected, there was no definitive expectation of an increase to the Group B and Group C thresholds. This is the first change to the Group B and C thresholds since 2016, so all of these increases are a very welcome move given inflation and other cost pressures since then. In particular, we see a lot of lifetime gifting from grandparents to grandchildren to which the Group B threshold applies, so for those that have not already done so or have not gifted the full threshold, it would be a good time to reassess lifetime gifting strategies or indeed to update estate plans.
Business succession
CGT Retirement Relief supports the intergenerational transfer of businesses and farms and works to ensure their smooth transition from one generation to the next. Around this time last year, Budget 2024 announced a significant limitation to Retirement Relief by introducing a limit of €10m in the case of a parent transferring business assets or other assets that qualify for the relief to the next generation. It also extended the upper age limit for the relief from age 65 until age 70. These changes had been due to take effect from 1 January 2025.
The €10m limit was expected to create a significant tax burden for parents transferring businesses to children and in many cases would have resulted in parents retaining their shareholding until death, at which point there would not be CGT. This would not have supported a smooth transition of businesses from one generation to the next.
Importantly, Budget 2025 appears to be rolling back on this €10m limit but outlines a change to the rules that apply to a clawback of the relief where the qualifying asset is disposed of by a child following its transfer. It appears that this clawback will be doubled from a current six-year requirement to 12 years where the value of the qualifying asset disposed of exceeds €10m. This means that on a disposal to children, they must retain the relevant asset received above the €10m limit for a period of 12 years otherwise there will be a full clawback of the relief. We wait to see the precise wording of this change in the Finance Bill, which is due to be released on 10 October.
Additionally, Budget 2025 retains the extension of the upper age limit for the relief from 65 until the age of 70 to reflect current work practices. This is a welcome move, as otherwise the relief would be curtailed from age 66 onwards.
Those considering a transfer of a business to children should now look at this plan in more detail to fully determine the impact of these changes. There are still a number of conditions to satisfy to avail of Retirement Relief so the early review of the reliefs that may be due on such a transfer is recommended.
Farm succession
Agricultural Relief is a valuable relief for agricultural property which effectively reduces the market value of a gift or inheritance of such assets by 90% such that only 10% of the value is taxable. Currently to avail of the relief, there is a requirement for the beneficiary to meet an active farmer test for a minimum of six years in order to be in a position to avail of Agricultural Relief. To ensure that the relief supports current farmers, the next generation and applies for genuine farming activity, this six-year test is being extended to those who provide the gift or inheritance of agricultural land.
Land to which this relief applies can be a significant component of individuals wealth and not in all situations does the owner farm the land. However, it is already difficult to avail of this relief in its current form given the conditions that the beneficiary of the land must satisfy.
Takeaway 2 – Business and entrepreneurship
Budget 2025 introduces several measures aimed at encouraging business and entrepreneurship; can you talk us through the main changes?
Employment Investment Incentive (EII)
In a welcome move, the scheme has been extended for a further two years to the end of 2026 and the amount an investor can claim tax relief on under the scheme is doubling from €500,000 to €1 million. There was no indication of any changes to the rates of tax relief that apply on the amount invested.
Angel investor CGT relief
Linked to the EII increase was the announcement that the lifetime limit on gains to which Angel Investor CGT Relief applies will be increased from €3m to €10m. This relief provides a reduced rate of CGT of 16% (or 18% for investment via a partnership). This relief was originally announced as part of last year's Budget and has yet to commence. However, given that it is a new relief, uptake of it will need to be monitored as the conditions that need to be satisfied to qualify for the relief are onerous.
Businesses scaling-up
Additionally, for businesses scaling-up, there will be a new relief for expenses incurred in connection with a first listing on an Irish or European stock exchange, subject to a cap of €1 million.
Takeaway 3 - Property
The Budget introduced a number of changes aimed specifically at property, can you talk us though the main changes?
In somewhat of a surprise announcement, and effective from 2 October 2024 (subject to transitional arrangement for contracts already in progress), a new 6% rate of stamp duty is applicable to residential property valued above €1.5m.
Also, the Vacant Homes Tax, which was introduced almost two years ago is currently based on five times the property’s basic Local Property Tax rate. The Minister announced that this will increase to seven times the property’s basic Local Property Tax rate for the next chargeable period which commences on 1 November 2024.
Takeaway 4 - Pensions
Last month the Government announced some changes to pensions, in particular the pension Standard Fund Threshold, which are to be further detailed as part of the upcoming Finance Bill, but was there any mention of any further changes to private pensions in the Budget?
While there was no specific mention of the changes announced by the Minister in relation to the Standard Fund Threshold and the impact on the taxation of pension lump sums, it was mentioned that Finance Bill 2024 will set out how the Automatic Enrolment Retirement Savings Scheme will be taxed. The tax treatment will follow as far as possible that of PRSAs, other than for employee contributions.
This means that employer contributions are tax relieved, the growth in Auto-Enrolled (AE) pension funds is exempt from tax and AE funds will be taxed on draw down, other than the 25% lump sum. As the State is making a direct contribution for employees within the AE scheme, there is no tax relief being provided for employee contributions to AE.
For a higher rate taxpayer, the substitution of a State contribution in place of tax relief appears to mean that they would fare better in a traditional occupational pension scheme, assuming the employer contribution remains consistent with the AE requirement.
We look forward to further details on this in the Finance Bill.
Takeaway 5 – Taxation of investments
Did the Minister give an update following the anticipated review of the Irish funds sector?
Yes, the Minister mentioned in his speech that last year his department established a Funds Review Team and began a detailed forward-looking review of the Funds sector, to which Goodbody contributed to as part of the consultation process. During his speech, the Minister mentioned that he has received the report of the Review Team and intends to bring the report to Government shortly and to publish it thereafter. Following consideration of the findings, the Minister will then outline the next steps.
So, at this moment, there are no changes to report in relation to the tax treatment of investments.
Takeaway 6 – Tax relief on donations to sporting bodies
Charitable and philanthropic strategies are also important to many of our clients. Were these addressed in Budget 2025?
Yes, the Minister discussed measures his department have been looking at in relation to sports, charities and philanthropy and in the Finance Bill we are likely to see a change to the tax relief on donations to sports bodies. It is the Minister’s intention that both PAYE and self-assessed donors will be able to choose whether the tax relief on donations goes to themselves or to the sporting body itself.
This at least provides some personal tax relief for a donation if the individual wishes to claim it themselves.
How we can help
At Goodbody, our wealth planning team works closely with individuals, families and business owners to build the wealth they need to realise their ambitions and ensure their wealth is protected for generations to come by creating financial plans. So, whether your focus is inheritance tax planning, family business succession, pension planning or you’re thinking about gifting wealth - we're here to help.
Please contact your Goodbody representative if you’ve any questions on Budget 2025 and what it means for you.
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Important information:
Goodbody Stockbrokers UC does not advise on the tax consequences of investments and you are advised to contact an independent tax advisor. Please note in particular that the basis and levels of taxation may change without notice. Private customers having access to this document, should not act upon it in anyway but should consult with their independent professional advisors.
