Budget 2025: Everything you need to know

Pension changes

Automatic Enrolment Retirement Savings Scheme (referred to as AE)

Finance Bill 2024 will provide for the taxation of the Automatic Enrolment Retirement Savings Scheme (referred to as AE).

The tax treatment aligns as much as possible with that of Personal Retirement Savings Accounts (PRSAs), other than for employee contributions. Employer contributions are tax relieved, the growth in the AE funds is exempt from tax and the AE funds are taxed on draw down, other than a 25% lump sum.

The lump sum can be taken tax free up to €200,000, is taxed at 20% between €200,000 and €500,000 and is taxed at 40% above €500,000. 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.

Standard Fund Threshold

We expect some changes in relation to the Standard Fund Threshold to be included in the Finance Bill 2024 which is due to be published next week. 

The Taxes Consolidation Act (Chapter 2C of Part 30) imposes a limit or ceiling on the total capital value of pension benefits that an individual can draw in their lifetime from tax-relieved pension products, where those benefits come into payment for the first time on or after 7 December 2005. This is called the Standard Fund Threshold (SFT) and is currently €2 million. There are significant additional tax liabilities where the limit is exceeded.

The Minister for Finance Jack Chambers published the report of the independent examination of the Standard Fund Threshold (SFT) on the 18th September 2024. The targeted review of the Standard Fund Threshold (SFT) regime was led by an independent expert, Dr. Donal de Buitléir.

Click here for the full report 

As you can see from the report a multi-year plan will be put in place to implement the recommendations of the report which include phased increases in the Standard Fund Threshold of €200,000 per year beginning in 2026 until 2029. 

We will need to wait until next week to see if the proposed recommendations are implemented in the Finance Bill 2024. Read more about the Standard Fund Threshold below:

TechTalk: The future of the Standard Fund Threshold 

Social Welfare Pensions

Budget 2025 confirmed that the State Pension (Contributory) Personal Rate will increase by €12 per week from €277.30 per week to €289.30 per week from January 2025.

Pensions - No Changes

In summary, there were no changes in Budget 2025 to the following:

Employer Pension Contributions - Corporation Tax relief will continue to be available on Employer Pension Contributions paid to an approved Occupational Pension Scheme - subject to the overall maximum pension funding and benefit limits.

Employer Contributions to a PRSA - the Finance Act 2022 removed the Benefit-in-Kind Charge on an Employer Contribution to a PRSA. Corporation Tax relief will continue to be available on Employer Contributions to a PRSA and there is currently no limit on employer contributions to an employee’s PRSA, although there has been a lot of discussion in the media on this subject recently. 

Tax Relief - Employee Pension Contributions - This relief will continue at the marginal rate of income tax but subject to the Age-Related Contribution Limits and Earnings Cap (and overall Revenue Maximum Approvable Benefit limits).

Employer Corporation Tax - The Corporation Tax Rate remains at 12.5% for the vast majority of businesses in Ireland (and a rate of 15% applies to large firms which have a turnover of €750 million or more).

Retirement Lump Sum - up to €200,000 remains tax-free and amounts from €200,000 to €500,000 will be taxed at 20%.

Life & Taxation

In Budget 2024 Minister McGrath said that he is undertaking a "review of the funds sector". He said the review will report to him in Summer 2024 and will examine a "Life Assurance Exit Tax". Mr McGrath added that once the review is completed, he will then consider any changes to the taxation framework.

We have not seen the results of the review and Minister Chambers did not make any announcements about this issue in Budget 2025.

Until any such the review is finalised the DIRT tax remains at 33%, the 1% Insurance Levy also remains in place and the rate of Exit Tax on Life Assurance Policies and Investment Funds remains at 41%.

Income Tax

There was an increase of €2,000 in the income tax standard rate band cut-off point for all earners:

• Single, widowed or surviving civil partner from €42,000 to €44,000
• Single, widowed or surviving civil partners, qualifying for the Single Person Child Carer Credit from €46,000 to €48,000
• Married couples or civil partners (one income) from €51,000 to €53,000
• Married couples or civil partners (two incomes) from €51,000 to €53,000 (with the maximum increase in the rate bands capped at the lower of €35,000 or the income of the lower earner).

There was also an increase each of the Personal Tax Credit, Employee PAYE Tax Credit and Earned Income Credit by €125, from €1,875 to €2,000 and an increase of €150 in the Home Carer Tax Credit from €1,800 to €1,1950 and an increase of €300 in the Incapacitated Child Tax Credit.

Universal Social Charge (USC)

Incomes less than €13,000 are exempt from USC. Otherwise, the following USC rates will apply

from 1 January 2025:

€0 – €12,012 @ 0.5%

€12,013 – €27,382 @ 2% (there was an increase of €1,622 to the ceiling for the 2% rate band)

€27,383 – €70,044 @ 3% (there was a reduction from 4% to 3%)

€70,045+ @ 8%

Self-employed income over €100,000 = 3% surcharge

PRSI

There were no changes in the Pay Related Social Insurance (PRSI) contribution rates for 2025.

Savings: Corporate Deposits

The current corporate exit tax rate remains at 25%, in line with corporation tax for non-trading income.

Capital Acquisition Tax (CAT)

There were some welcome increases in the CAT Thresholds, as follows:

The Group A Threshold (gifts or inheritance from a parent) increased from €335,000 to €400,000.

The Group B Threshold (gifts or inheritance from a brother/sister/aunt/uncle/grandparent/foster child) increased from €32,500 to €40,000.

The Group C Threshold (relationship other than A or B) increased from €16,250 to €20,000

The rate of Capital Acquisition Tax remains at 33%.

Capital Gains Tax (CGT)

Capital Gains Tax rate remains at 33%.

If you have a query on any of the above points, please feel free to contact our Technical Services Team on 01 209 2020 or techsupport@zurich.com or your Zurich Life Broker Consultant.