As we all know, Ireland is facing a severe housing crisis that affects a broad cross-section of society and urgent action is required. Housing affordability and availability have reached unprecedented lows, impacting economic stability and the well-being of citizens. While the past government has taken commendable steps to address this issue, there is an urgent need to accelerate the improvement in housing supply. We are reiterating our previous calls for targeted and controlled tax incentives in this area and are also suggesting some improvement to legislation that would remove some disincentives that are unfair to trading real estate and construction businesses.
More generally, Budget 2026 must address key priority areas with relevance across the economy.
Firstly, increasing the threshold amount for the 40% income tax rate to apply would offer immediate relief to middle-income earners and support broader talent retention goals.
Secondly, a moratorium on the expansion of employer reporting requirements would ease the administrative burden on businesses - especially SMEs - facilitating them to focus on growth rather than administration.
Thirdly, reform and expansion of the Key Employee Engagement Programme (KEEP) would unlock new opportunities for employee ownership and help high-potential businesses compete for skilled workers.
Fourthly, enhancing the value and accessibility of R&D tax supports, particularly for SMEs, is vital to ensuring that innovation remains a cornerstone of our economic model.
And finally, reforming Capital Gains Tax by reducing the rate to 20% and increasing the annual exemption would incentivise entrepreneurship and capital formation.
Ireland’s continued prosperity depends on our ability to remain agile and competitive. Budget 2026 presents an opportunity to deliver meaningful reforms that address systemic challenges and empower businesses to thrive in a fast-changing global landscape. BDO Ireland stands ready to work alongside government and industry to help shape that future.
Context: Ireland at an Economic Crossroads
Ireland’s status as a competitive, open economy has been hard-earned but it cannot be taken for granted. Rising costs, infrastructural deficits, a complex tax environment, global competition for talent and evolving international frameworks demand targeted action to protect and enhance Ireland’s appeal as a destination for investment, enterprise and innovation.
As a small, open economy, Ireland is particularly sensitive to international developments and must act decisively to maintain its attractiveness to business. Budget 2026 offers an opportunity to reinforce our resilience by addressing structural issues in housing, talent retention, personal tax reform, FDI incentives and innovation.
The Case for Action in Budget 2026
Ireland’s competitiveness depends on strategic reform across five interconnected pillars:
- Real Estate and Construction Sector Reform
- Personal Tax Reform
- Foreign Direct Investment (FDI)
- Research, Development and Innovation (R&D)
- Talent Attraction and Retention
We believe that the re-introduction of targeted tax incentives is a crucial step in addressing the critical housing shortages, particularly in the areas of apartments, student accommodation, nursing homes, and independent living facilities for older people. History shows that tax incentives can stimulate the supply of residential units where the market has failed to operate efficiently. However, careful controls and reviews should be implemented to avoid repeating past mistakes.
Real Estate and Construction Sector Reform
Ireland’s housing and commercial property challenges are well documented. While there are concerns in Government relating to the introduction of tax incentives to stimulate supply, we are of the opinion that tax incentives introduced in a controlled manner at the targeted areas of apartment, student accommodation and age related living would be impactful.
We have identified a number of aspects of Irish tax legislation that disadvantage genuine trading businesses that are in the Real Estate sector. BDO’s proposed introduction of Trading Real Estate Companies (TRECs) offers a targeted, practical solution without compromising the principles that the measures were introduced to address. A TREC would be a newly defined class of trading company focused on active property development and trading, designed to receive tax treatment aligned with other trading businesses. This model aims to remove disincentives on developers to increase housing and commercial supply through granting them access to tax treatments currently denied to them.
Key Recommendations
- Establish TRECs as a distinct entity class for active property trading businesses.
- Apply 12.5% Corporation Tax rate to rental income for TRECs.
- Apply Case I principles to profit calculations, ensuring deductibility of relevant costs.
- Remove Close Company Surcharge and exempt TRECs from 25% CT rate on property-related income.
- Introduce a 20% CGT/income tax rate for land sales to TRECs to encourage landowners to sell to active developers.
- Offer enhanced deductions (e.g., 150%) for ESG retrofitting costs.
- Ensure TRECs benefit from CGT Retirement Relief and CAT Business Asset Relief for intergenerational transfers.
These measures would support active development businesses, incentivise sustainability and address barriers to scaling within the sector.
Personal Tax Reform to Sustain Competitiveness
Ireland’s personal tax system remains overly complex and punitive at middle-income levels, hampering competitiveness and deterring investment and talent.
Key Recommendations
- Income Tax reform
- Increase the threshold for the application of the 40% rate.
- Introduce a 30% intermediate rate, between standard and higher bands.
- Provide additional relief for charitable donations.
- USC reform
- Align USC reliefs with existing income tax deductions (pensions, medical, EII).
- Remove the 3% USC surcharge on self-employed individuals.
- PRSI reform
- Ensure alignment of PRSI caps and thresholds with competitive norms to remove barriers to progression
- Introduce a cap on employee PRSI at a defined income threshold.
- Capital Taxes reform
- Reduce CGT from 33% to 20%.
- Increase annual CGT exemption from €1,270 to €5,000.
- Align CGT pay-and-file dates.
- Increase CAT thresholds and small gift exemption to €5,000.
Enhancing Ireland’s FDI Offering
Ireland’s continued success in attracting FDI cannot be assumed. Complexity and unpredictability in tax policy undermine confidence. Simplification, alignment with emerging sectors and targeted incentives are needed.
Key Recommendations
- Establish an Office of Tax Simplification.
- Reform interest deduction rules and align rates across income types.
- Enhance dividend participation regime and introduce a branch exemption regime.
- Support emerging sectors (e.g., AI) through targeted tax incentives.
- Provide Year 1 deductions on capital expenditures.
- Broaden the definition of IP for depreciation purposes.
- Extend the geographic reach of foreign dividend participation exemptions.
- Amend definitions of “relevant subsidiary” and “relevant territory.”
- Expand scope to include Section 110 companies and foreign branch income.
- Simplify and modernise the Employment Investment Incentive Scheme (EIIS)
Research, Development and Innovation (R&D)
R&D is central to Ireland’s competitiveness, driving innovation, productivity, and high-value employment.
Key Recommendations
- Broaden eligibility criteria to better support SMEs and early-stage innovators.
- Simplify definitions of qualifying activities.
- Enhance supports for third-level collaborations.
- Increase outsourcing thresholds.
- Streamline compliance through digital-first solutions.
- Introduce targeted tax credits or expand R&D credits to include AI-related expenditure.
- Consider 100% capital allowances for AI companies in their first year.
Talent Attraction and Retention
A skilled, mobile workforce remains Ireland’s most important asset. However, challenges in attracting and retaining global talent are mounting. A reformed approach to incentives, taxation and supports is essential to maintain competitiveness.
Key Recommendations
- Make SARP more competitive and permanent
- Expand SARP to enhance Ireland’s attractiveness for global talent, ensuring Ireland remains competitive in attracting senior executives and key skills
- Legislate for SARP on a permanent basis to provide certainty.
- Simplify processes and remove barriers such as the 90-day filing requirement.
- Reform Benefit-in-Kind (BIK) rules
- Introduce exemptions for employer-provided accommodation in high-cost areas.
- Allow flexibility in valuing non-cash benefits, particularly for SMEs.
- Reduce the 13.5% notional interest rate on employer loans.
- Provide BIK exemptions where employers temporarily fund foreign tax liabilities.
- Promote share-based compensation
- Simplify reporting.
- Enable CGT treatment on share redemptions.
- Introduce pragmatic valuation rules and greater flexibility for share buybacks.
- Expand the Key Employee Engagement Programme (KEEP)
- Extend KEEP beyond 2025.
- Introduce safe-harbour valuation provisions.
- Remove market value and annual emolument caps.
- Introduce a graduated penalty regime for technical breaches.
- Ease Employer Reporting Requirements (ERR)
- Impose a moratorium on ERR expansion for three years.
- Remove the requirement to report on or before payment dates.
- Review penalties to ensure fairness.
- Section 996 reform
- Amend to apply only where tax avoidance is a principal purpose.
Supporting Domestic Investment through Funds Sector Reform
Despite Ireland’s strength as an international centre for asset management, domestic retail participation in investment products remains low. Targeted reforms to the taxation of investment and savings products would encourage greater participation and support long-term savings.
- Remove the 8-year deemed disposal requirement for funds and life products.
- Align Investment Undertaking Tax (IUT) and Life Assurance Exit Tax (LAET) with the CGT rate.
- Introduce limited loss relief provisions.
- Repeal the 1% Life Assurance Levy.
- Simplify and consolidate the tax regime for offshore funds.
- Explore incentivised savings and investment accounts as a future priority.
Conclusion: A Budget to Secure Ireland’s Future
Budget 2026 represents a pivotal opportunity to reinforce Ireland’s competitiveness. Targeted reforms in real estate, tax policy, FDI incentives, innovation, and talent attraction, will future-proof our economy, support sustainable growth and maintain our position as a global hub for business.
BDO Ireland stands ready to support Government in delivering these ambitions, leveraging our insight and expertise to help shape policies that drive growth, foster innovation, and secure Ireland’s economic future.
