Changes to Benefit-in-Kind (BIK) for Company Vehicles
Within the Government's tax measures to support climate change, some changes were announced to the BIK rules for company-provided vehicles, with a particular focus on promoting electric vehicles.
Firstly, the temporary universal reduction of €10,000 to the Original Market Value (OMV) of company cars in categories A-D and all vans, which reduces the amount of BIK payable, is being extended on a tapered basis for three additional years, ending on 31 December 2028. The relief will remain at €10,000 for 2026, decrease to €5,000 for 2027, and to €2,500 for 2028.
For electric vehicles, this extension will apply in addition to the tapered relief that applies from the OMV for calculating the taxable benefit on company-provided electric vehicles in 2026 and 2027, of €20,000 and €10,000 respectively.
Additionally, a new category for vehicles with zero emissions, Category A1, will be introduced in the BIK calculation tables. This category will offer reduced BIK rates for electric vehicles, ranging from 6% to 15% depending on business mileage, compared to the current rates from 9% to 22.5% for electric vehicles within Category A. This change is expected to take effect from 1 January 2026.
Finally, the Budget 2026 Tax Policy Changes Book confirms the lower limit in the highest mileage band for BIK calculation will be permanently reduced from 52,001km to 48,001km from 1 January 2026.
The following example illustrates the BIK calculation for a company-provided electric vehicle in 2025, 2026 and 2027:
Example
Employee is provided the free use of a company car at the start of 2025. The vehicle is an Electric Vehicle. The original market value of the car was €50,000. The employee incurs less than 26,000 kms per annum. The following outlines the payroll tax position for 2025 to 2027.
| 2027 | 2026 | 2025 | |
| Original Market Value | 50,000 | 50,000 | 50,000 |
| Electric Vehicle Relief | (10,000) | (20,000) | (35,000) |
| Tapering Relief | (5,000) | (10,000) | (10,000) |
| Revised OMV | 35,000 | 20,000 | 5,000 |
| BIK Rate | 15% | 15% | 22.5% |
| Taxable BIK | 5,250 | 3,000 | 1,125 |
| Tax Cost (including ER PRSI)* | 3,331 | 1,904 | 712 |
*Based on marginal income tax rates and PRSI Rates applicable at the start of each year.
Extension of the Special Assignee Relief Programme (SARP)
In a move that was both expected and welcomed, SARP has been extended for an additional five years, now running until 31 December 2030. This extension aims to support employers in attracting key talent from overseas.
Some amendments to the current SARP regime were also announced. Starting from 1 January 2026, new entrants to the scheme will need to have an annualised salary of €125,000 or above to qualify, an increase from the current €100,000 salary requirement. Importantly, existing claimants who continue to avail of SARP in 2026 and beyond will not be affected by this change. While the term "new entrants" is not yet defined, it is anticipated, based on previous legislative provisions, to refer to individuals arriving in Ireland on or after 1 January 2026. Those who arrived in 2025 and for whom 2026 will be their first year of claim are expected to remain within the current SARP rules.
Additionally, further amendments to SARP are set to be introduced to simplify some of the administrative requirements. Details of these changes will be outlined in Finance Bill 2025. The official Budget 2026 papers included a paper on “Review of the Special Assignee Relief Programme” that incorporates stakeholder views on administrative requirements and may hint at the forthcoming changes.
Extension of the Foreign Earnings Deduction (FED)
FED is also being extended for five years, to 31 December 2030. The scheme is being amended so that from 1 January 2026 the maximum amount of relevant employment income that may qualify for income tax relief will increase from €35,000 to €50,000. In addition, the relief will be extended to apply in respect of qualifying time spent working in two additional countries: the Philippines and Turkey.
Further amendments to FED are set to be included in Finance Bill 2025 to simplify some of the administrative requirements and to ensure the relief is appropriately calibrated. A paper “Review of [FED]” addressing these and other considerations was published with the Budget 2026 papers.
Key Employee Engagement Programme (KEEP)
Finance Bill 2025 will provide for an extension of KEEP to 31 December 2028. This extension is subject to approval from the European Commission and will be commenced by Ministerial Order on receipt of such approval.