On 10 October 2024, the Department of Finance published the Finance Bill 2024, which includes legislative provisions for tax measures that were already announced as part of Budget 2025 and new measures and amendments to the Irish tax code. Here Goodbody Head of Tax Catriona Coady details significant measures contained in the Bill and how they may apply to our clients.
1. Pensions
Employer Pension Funding to PRSAs and PEPPs
A number of changes were announced to the employer funding limits that currently apply to PRSAs and PEPPs. Effectively, the employer contribution will be limited to the amount of the employee’s emoluments (anything assessable to tax under Schedule E). Any amount in excess of this will be treated as a Benefit in Kind (BIK) for the employee. An employer will be able to claim a tax deduction for the contribution up to the new employer limit. These changes are effective from 1 January 2025.
This is a more restrictive measure than was anticipated as it was expected that the rules that apply to employer contributions to other occupational schemes (by reference to salary and service) would be applied to employer contributions to PRSAs.
Maximum Tax Relieved Pension Fund – Standard Fund Threshold (SFT)
The Bill also gives effect to the decision announced by Finance Minister Jack Chambers on 18 September 2024 to increase the SFT. The SFT will be increased from its current level of €2m by €200,000 in each of the years 2026 to 2029. From 2030 onwards, the SFT will be the higher of €2.8m or an amount adjusted in line with the Earnings, Hours and Employment Costs Survey (as compiled by the CSO). This is a welcome measure but an increase to the SFT sooner than 2026 was hoped for.
Pension lump sum
From 1 January 2025, the pension lump sum will no longer be linked to 25% of the SFT. Instead, the amount of the lump sum exceeding €200,000 will be capped at €500,000 effectively meaning that the portion of the lump sum between €200,001 and €500,000 will be subject to tax at 20%.
Benefit Crystallisation Event (BCE)
The Bill also provides that from 1 January 2025 transfers from unvested PRSAs to vested PRSAs are considered a Benefit Crystallisation Event (BCE), which means an individual will have a chargeable excess tax liability (currently at 40% on the excess above €2m) if their pension entitlements exceed the SFT at the time of transfer.
While the increase to the SFT is a positive measure, it is disappointing that employer contributions to PRSAs have been curtailed to a greater extent than applies to such contributions to other occupational schemes.
2. Enterprise measures
Employment Investment Incentive (EII) Scheme
The Bill provides clarification on the tax relief rate applicable for follow-on investments made under EII, within the seven- or 10-year eligibility period. In the case of a RICT Group (the fundraising company and broadly all its partner and linked businesses), the rate is 35% and in all other cases within the seven- or 10-year eligibility period it is 20%.
The Bill also confirms the Budget announcement that the limit an investor can claim EII relief on is doubled from €500,000 to €1m with effect from 1 January 2025.
Angel Investor Relief
As announced on Budget Day, the Bill confirms the increase to the lifetime limit of €10m from €3m on which relief will be available under Angel Investor Relief. This relief provides a 16% CGT rate (18% via a partnership) on such investments subject to meeting a number of conditions. The relief has not yet commenced but is expected to commence shortly by way of Ministerial Order.
3. Capital Gains Tax Relief and Capital Acquisitions Tax (CAT – gift and inheritance tax)
CGT Retirement Relief
Retirement Relief provides relief from CGT to individuals on the disposal of qualifying business assets and farms. From 1 January 2025, a €10m lifetime cap on the value of such assets was due to come into effect on the transfer of such assets to a child where the individual making the disposal is age 55 to 69. The Bill provides for this limit by way of a deferral and clawback mechanism such that where a CGT liability arises to an individual on the transfer of such assets to a child on or after 1 January 2025, the value of which exceed the €10m lifetime limit, the CGT liability may be deferred by the individual making the disposal. Where the child disposes of the qualifying assets within 12 years of the transfer, the CGT liability deferred will crystalise and will be assessed and charged on the child, in addition to any CGT chargeable in respect of the gain accruing to the child on their disposal of such assets. Should the child retain ownership of the assets for 12 years following the transfer, the child may claim an abatement of the CGT which was deferred in respect of such assets.
The operation of the €10m limit in the manner outlined in the Bill is more welcome than a €10m cap on the relief without any deferral mechanism. However, the 12-year clawback could be viewed as excessive. Currently a six-year clawback provision applies on a disposal to a child without any cap on value.
CAT – gift and inheritance tax
Agricultural Relief
There were a number of changes introduced to Agricultural Relief in the Bill. This relief provides for a 90% reduction in the taxable market value of agricultural property that qualifies for the relief on the gift or inheritance of such property. To be eligible for the relief in its current form, several conditions need to be satisfied. The Bill introduces further qualifying conditions as follows:
- For the six-year period prior to the date of the gift or inheritance, agricultural land must have been owned by the donor (the person who provided the gift or inheritance) and used for the purposes of farming by the donor or a person to whom the land was leased. Currently the donor does not have to meet this requirement. A transitional provision is included which gradually increases the length of time the donor is required to meet this test by treating the six-year period as commencing on 1 January 2025 and ending on the date of the gift or inheritance until 30 December 2030 when the full six-year period will be required to be met.
- Currently, where a gift or inheritance is taken subject to a condition that it is invested in agricultural property, it could qualify for agricultural relief if it was so invested within two years of the date of the gift/inheritance. However, for gift and inheritances taken on or after 1 January 2025, this provision will no longer apply.
These changes are viewed by the Minister as being required in recognition of the fact that agricultural land has increased in value above inflation, and it is difficult for genuine farmers to purchase the land they need for farming.
In a welcome change to facilitate more flexible use of the land and to ensure that the entirety of the agricultural property is used for the purposes of farming, the current active farmer test for a beneficiary can be satisfied where part of the agricultural property is used for farming by an active farmer beneficiary and the remaining part of the agricultural property is leased to an active farmer lessee. This change is effective from 1 January 2025.
Interest free loans – reporting requirements
The reporting regime that was introduced last year on interest free loans has been amended to include loans on which interest is paid at a below market rate. This revised provision is applicable from 1 January 2025. This provides welcome clarity on the reporting requirement where a below market interest rate is charged on the loan.
4. Charitable donations and philanthropy
Donations to sports bodies and National Governing Bodies (NGB)
Currently the way in which tax relief on donations to sporting bodies is provided depends on whether the donor is a self-assessed individual, a PAYE-only taxpayer, or a company.
Commencing in 2025 and subject to regulations Revenue may make regarding an election, the Bill provides more flexibility such that individuals, can elect to obtain a deduction for a donation against their total income or surrender the relief to the approved sports body (where the donation(s) is at least €250).
The Bill also introduces similar tax relief on donations to certain NGB where the donations are used to fund projects to purchase certain sporting equipment, to support elite athletes in competitive sport and to support the participation of women and people with disabilities in sport.
These are welcome changes for those wishing to support these bodies.
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 Finance Bill 2024 and what it means for you.
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.