Yesterday, the government unveiled a €14bn spend-and-save budget package. How will it impact the individuals, families, and entrepreneurs that we serve? We sat down with Catriona Coady, Head of Tax, to examine some of the key takeaways from Budget 2024.
A key area of focus for many of our clients is succession planning. How will yesterday’s announcement impact the business community?
When it comes to succession planning, the most significant change announced yesterday relates to Retirement Relief. This relief provides for an exemption from capital gains tax on the transfer of a business or a farm from the age of 55 once qualifying conditions are met. Importantly, there was no limit on the proceeds that qualify for relief on a disposal to children where the parent was under the age of 66. So, what’s changed? From 1 January 2025, there will be a new limit of €10m on the relief available for disposals to a child from parents aged 55 until the age of 70. While increasing the limit applicable from age 66 until the age of 70 is a welcome move, the overall €10m limit could be viewed as a way of excluding businesses with a large value from the relief and therefore disincentivising a transfer to the next generation.
Importantly, Finance Minister Michael McGrath announced that his department has completed a Cost Benefit Analysis of Revised Entrepreneur Relief. This is commonly referred to as Entrepreneur Relief and provides a 10% rate of tax on €1m of gains, subject to meeting qualifying conditions, with the balance liable to capital gains tax at 33%. Over the years, there have been calls to make the qualifying conditions for this relief less difficult to satisfy and while no changes were signalled to the existing conditions in the Budget, Minister McGrath stated that he has asked his officials to further examine opportunities to refocus the relief with a view to further improving the incentives for founders and entrepreneurs in the innovative start-up phase, and to ensure it is contributing to employment creation.
While the lack of any change to Entrepreneur Relief may come as a disappointment to some, the announcement of a new targeted capital gains tax relief for angel investors in innovative start-up small and medium enterprises (SMEs) is welcome news. It will allow angel investors to benefit from a reduced rate of capital gains tax when they dispose of a qualifying investment, for gains up to twice the value of their investment.
The new relief, which is in line with the recommendation from the Commission on Taxation and Welfare, will be available to an individual who invests in an innovative start-up SME for a period of at least three years. The investment by the individual must be in the form of fully paid-up newly issued shares costing at least €10,000 and constituting between 5% and 49% of the ordinary issued share capital of the company. The scheme will include a certification process, which will be carried out by Enterprise Ireland, to ensure the relief is targeted at innovative SMEs that can demonstrate financial viability and compliance with the requirements of the EU General Block Exemption Regulation. Qualifying investors may avail of an effective reduced rate of capital gains tax of 16%, or 18% if through a partnership, on a gain up to twice the value of their initial investment. And it’s worth noting that there is a lifetime limit of €3m on gains to which the reduced rate of capital gains tax will apply.
In keeping with the theme of tax relief on investments that support enterprise, Minister McGrath also announced enhancements to the Employment Investment Incentive scheme (EII), which provides SMEs and start-ups with an alternative source of funding. The changes include:
- standardising the investment period to four years for all investments, and
- doubling the amount an investor can claim relief on for four-year investments to €500,000.
However, the Minister signalled that there will be further changes to the scheme to come which will be detailed in the Finance Bill due for publication next week. These changes are to reflect Department of Finance amendments to the EU General Block Exemption Regulation.
These were among some of the important takeaways for the business community – but it’s important to note that the Minister acknowledged that tax reliefs and schemes are by their nature complex, and that can make them difficult to access. As a result of this he announced his intention to establish a dedicated group to look at the simplification and modernisation of reliefs and supports available for businesses. At Goodbody, we are passionate about ensuring business owners, particularly SMEs, know what they are entitled to claim and can access all appropriate schemes and reliefs available to them. We can help business owners prepare so they can optimise their position – so, please reach out to us, if you need help in this regard.
The Budget introduced a number of property changes aimed at encouraging the letting of more properties on the market. Can you talk us through the changes made in relation to property?
Yes, so let’s start with landlords. A temporary tax relief is being introduced that will primarily benefit small landlords. Subject to certain conditions being met, rental income of €3,000 for the year 2024, €4,000 for 2025 and €5,000 for the years 2026 and 2027, will be disregarded at the standard rate of tax. An important condition of this measure is that the properties held by the landlord availing of the relief must remain in the rental market for four years, otherwise the full amount of the relief will be clawed back.
The Vacant Homes Tax, which was introduced last year, was increased from three to five times the property’s existing basic Local Property Tax rate to incentivise the use of existing housing stock nationwide. This increase will take effect for the next chargeable period which commences on 1 November 2023.
And finally, the liability date of the Residential Zoned Land Tax – an initiative to activate suitably zoned and serviced land for housing – was extended by one year to allow the planned 2024 review of maps to take place and to afford affected people with a further opportunity to engage with the process.
Philanthropic strategies are also important to many of our clients. Was philanthropy addressed in Budget 2024?
Minister McGrath briefly alluded to his commitment to considering how the tax system can better encourage and support philanthropy. So, we will continue to watch this space.
It is also worth noting a change to the limits that apply to the tax relief available on donation of heritage items. Currently a tax credit equal to 80% of the market value of the item donated can be set against donors’ liabilities for income tax, corporation tax, capital gains tax or gift and inheritance tax. However, the total value of donated items on which tax relief is available is €6m per year. The Minister announced that he is increasing this limit to €8m.
At Goodbody, we can help families with significant wealth reduce their tax bills, more easily transfer an asset, or speed up and simplify the inheritance process. Were there are any changes to the taxation of gifts and inheritances in Budget 2024?
There were no changes to the existing tax-free thresholds but we very much welcomed yesterday’s announcement that foster children will now be entitled to the Group B Capital Acquisitions Tax threshold on gifts and inheritances rather than the lower Group C threshold that currently applies from foster siblings, foster grandparents and foster aunts and uncles.