CGT Entrepreneur Relief
This relief currently provides a reduced 10% CGT rate on the disposal of certain qualifying assets by relevant individuals up to a lifetime limit of €1 million. In a welcome change, the Bill now increases this limit to €1.5 million in respect of disposals from 1 January 2026.
Under the revised rules, qualifying gains from 1 January 2016 onwards must be aggregated when assessing the €1.5 million threshold. However, importantly, gains realised before 1 January 2026 will be subject to a €1 million cap. This means that individuals who may have exceeded the previous limit will still be able to benefit from the increased threshold for future qualifying disposals from 2026 onwards.
Offshore Fund Tax
As announced on Budget day, the Bill now gives effect to the reduction in the rate of tax that applies to Irish and equivalent offshore funds and foreign life assurance products from 41% to 38%. The reduced rate will apply in respect of payments and chargeable events on or after 1 January 2026.
CAT Business Relief
In a welcome measure, the provisions relating to CAT Business Relief and “excepted assets” (e.g., excess cash) have been somewhat relaxed. Previously, where an asset was not used wholly or mainly for the purposes of the business in the two years prior to the gift or inheritance, that asset did not qualify for CAT Business Relief.
This condition has been amended to now provide for a period of six years following the gift or inheritance, whereby it won’t be considered an “excepted asset” if it is required to be used for a specific purpose of the business. Where it is not used for such purpose within this timeframe, an effective clawback will apply. This change provides greater clarity and flexibility, particularly in relation to the treatment of excess cash in business transfers.
A technical amendment has also been included in the replacement property rules to clarify the position that the full proceeds from the sale of any relevant business property must be reinvested in other qualifying business property within a year. In addition, where the relevant business property is disposed of for less than market value, the ‘full proceeds’ will be deemed to equal market value.
Estimate of Tax Due
In a measure not previously announced, the Bill introduces new provisions allowing Revenue to estimate tax liabilities where a taxpayer fails to file an income tax or corporation tax return. Under the proposed rules, Revenue may issue an assessment based on the average of the two most recent tax returns or €1,000—whichever is higher.
If the taxpayer submits a return within 30 days of receiving the notice, the estimated assessment can be displaced.
Charities and Sport
Sections 847A and 847AA TCA 1997 provide income tax relief on donations to “approved sports bodies” and “national governing bodies” for funding certain approved sports projects. The Bill includes some technical adjustments to the operation of these reliefs.
USC Changes
The Finance Bill provides for an increase in the 2% rate band ceiling of €1,318 to €28,700 to take account of the increase in the National Minimum Wage hourly rate that will apply from 1 January 2026. This band increase will ensure that full-time workers on the minimum wage will remain outside the top rates of USC.
The Finance Bill also provides for the extension of the USC concession for full medical card holders for a further two years, so that full medical card holders whose income does not exceed €60,000 per annum will continue to a pay a maximum USC rate of 2% until 31 December 2027.
Automatic Enrolment Retirement Savings Scheme
The bulk of the provisions for the tax treatment of the Automatic Enrolment (AE) Retirement Savings Scheme were included in Finance Act 2024. These provide that the employer contributions and the State contribution will be tax relieved, the growth in the retirement savings will be exempt from tax, and drawdowns will be taxed, other than a 25% lump sum. As participants in the AE Retirement Savings Scheme will receive a State top-up payment there will be no tax relief on their contributions.
Additional amendments to those legislated for in Finance Act 2024 are proposed to be included in this year’s Bill. These additional amendments are intended to:
The AE Savings Scheme is due to commence on 1 January 2026.
Mortgage Interest Tax Relief
The Finance Bill extends Mortgage Interest Tax Relief, on a tapered basis, for two further years, to 31 December 2026. Homeowners with an outstanding mortgage balance between €80,000 and €500,000 as of 31 December 2022 will be eligible. The relief will apply in respect of the increase in interest paid in 2025 over interest paid in 2022, as well as the increase in interest paid in 2026 over interest paid in 2022.
The current level of relief will be maintained for the increase in interest paid in 2025, with a maximum tax credit of €1,250 per property available to claim from 2026. A reduced level of relief will apply for the increase in interest paid in 2026, with a maximum tax credit of €625 per property available to claim from 2027.
Changes to the Taxation of Investments
The Bill reduces the rates of taxation that apply to investments in Irish domiciled funds and life assurance policies, other than those applying to companies, personal portfolio investment undertakings and personal portfolio life assurance policies. It also reduces the rates that apply to equivalent offshore funds and certain foreign life assurance policies. The rate applicable to the following taxes and forms of investment are being reduced from 41% to 38%: Investment Undertaking Tax; equivalent offshore investment funds (including Exchange Traded Funds (ETFs) that are subject to this regime); Life Assurance Exit Tax; certain foreign life assurance polices.
Micro-generation of Electricity
The Finance Bill provides for the extension of the Income Tax disregard of €400 for income received by households who sell electricity from micro-generation back to the grid for a further three years to 31 December 2028.
Uilleann Pipes and Irish Harps
The Finance Bill provides for the extension of the Income Tax relief for the makers of uilleann pipes and Irish harps for a further three years to 31 December 2028.