Personal Tax

Key measures

In the area of income tax, a package valued at €1.3bn has been announced. The package includes the following measures:

• The standard rate band for income tax (the amount of income that is subject to tax at the 20% rate) is to be increased by €2,000. This will mean that the first €42,000 of an individual’s income will be taxable at the 20% income tax rate.
• A number of tax credits (personal tax credit, employee tax credit, earned income credit, home carer tax credit and single person child carer credit) will be increased by €100. The incapacitated child tax credit will increase by €200.
• The 4.5% rate of USC will be reduced to 4%, the first reduction in this rate in five years. The exemption from the top rate of USC for medical card holders will be extended to the end of 2025.
• The rent tax credit has been increased from €500 to €750 per year for 2024. Parents who pay for their student children can now claim for rent paid in rent a room properties or digs accommodation. The latter change will apply retrospectively to the years 2022 and 2023.
• A one year mortgage interest relief has been announced for homeowners who have a mortgage balance of between €80,000 to €500,000 on their primary dwellings as of 1 December 2022. The relief will be available in respect of the increased interest paid on the mortgage in 2023 compared to 2022 at the standard rate of income tax of 20% income tax. The relief is capped at €1,250 per property.
• Temporary tax relief for landlords has also been announced. The following amounts of rental income will be disregarded at the standard rate of income tax: €3,000 for 2024, €4,000 for 2025 and €5,000 for 2026 and 2027.
• Some key farming reliefs that were due to expire at the end of the year have been extended and further measures to support farming families were announced, in particular the all-important Consanguinity Relief which reduces the rate of stamp duty from 7.5% to 1% on land transfers.
• In terms of CAT, the only change related to the extension the Group B CAT threshold to foster children.

Who will be affected?

There has been an increased focus on property in this budget with benefits announced for renters, landlords and homeowners. Self-employed individuals, as well as employees will benefit from the income tax package announced.

When? What to do now?

Most measures outlined are to be introduced in 2024 with the increased reliefs for landlords due each year up to 2027. 

Our view

Given the current cost of living crisis, any measures which reduce the effective rate of income tax for individuals is welcomed. While the changes announced will benefit middle income earners in particular, further reform of the income tax system is needed in general, to honour a previous commitment by the Government in this respect.

With the decline in the number of landlords and the increase in interest rates, it is no surprise that the property sector was a key focus in this year’s budget. Landlords will welcome the measures announced which provide for income tax relief up to and including 2027 with the key condition that they must remain in the rental market for 4 years. Renters will benefit from the increased rent tax credit and parents can now claim the credit for students living in rent a room/digs accommodation. The measures provide for parents to make a back-dated claim for the credit for 2022 and 2023 which is welcomed. Homeowners will also welcome the introduction of mortgage interest relief, even if it is a temporary measure.

Further to the budget announcement, the following updates were published in the Finance (No.2) Bill 2023

• The 2% band for USC has been increased by €2,840 bringing the 2% band ceiling to €13,748. The 4% band has been reduced by the same amount to €44,284. le income earners in particular, further reform of the income tax system is needed in general, to honour a previous commitment by the Government in this respect.
• The bill has introduced an exemption from income tax, PRSI and USC in respect of payments of clinical placement allowances to undergraduate nursing and midwifery students. An exemption has also been introduced from income tax, PRSI and USC in respect of payments of maternity support allowance to local authority elected members.
• The sea-going naval personnel tax credit has been extended by one year to 2024.
• As mentioned above, mortgage interest tax relief will be available to taxpayers in respect of their mortgage on their principal private residence in the State where the outstanding mortgage balance was between €80,000 and €500,000 on 31 December 2022 and the taxpayer is compliant with Local Property Tax requirements. Mortgage Interest Tax Relief will be available at the standard rate of income tax in respect of the increased interest paid on that loan between the year of assessment 2022 compared to the year of assessment 2023. The value of the relief is equal to the lesser of 20 per cent of the increased interest paid or €1,250, applying on a per property basis. Pro-rating of the relief will apply in circumstances where the interest paid in either or both years of assessment is less than 12 months. The relief will operate by way of a credit offset against the taxpayer’s income tax liability in 2023. To claim the mortgage interest tax relief, the taxpayer must file a tax return with Revenue.
• There has been some changes to pensions in the finance bill as follows:
  • The bill has introduced a tax charge on an individual who holds an Approved Retirement Fund (ARF) where the assets of the ARF are used as a loan or as security for a loan to a closely held company and the ARF owner is a participator in that company. A tax charge will also apply to a beneficiary of an occupational pension scheme, a PRSA and a Pan-European Personal Pension Product where the assets of the scheme or product are used in this way.
  • New and existing PRSA holders can now make initial withdrawals from their PRSA beyond the current upper age limit of 75 years.
• Landlords of residential properties that were previously subject to rent controls are now eligible to claim a deduction for retrofitting expenditure.
• The lifetime aggregate amount of relief available for certain farm related reliefs, such as young trained farmer stock relief, succession farm partnerships relief and young trained farmer stamp duty relief, has been increased from €70,000 to €100,000.
• Consanguinity relief, which reduces the rate of stamp duty to 1% on certain sales and transfers of farmland between blood relatives, has been extended to 31 December 2028.
• The bill has introduced a mandatory reporting requirement in relation to interest free loans. Where a person receives an interest free loan for less than full consideration, he or she is deemed to take a gift for CAT purposes. The gift is the interest free element of the loan. The beneficiary of the loan is required to file a CAT return in respect of such loans between close relatives where the total amount outstanding on the loan exceeds €335,000 in the reporting period.
• The bill provides for amendments to the provisions providing for the clawback of agricultural relief and business property relief from CAT. The bill provides for the alignment of the clawback for business property relief more closely to that of agricultural relief and changes the commencement of the clawback period to the valuation date rather than the gift or inheritance date, along with technical changes to agricultural relief to address inconsistencies in the provisions.