Employment Tax

Ireland | Budget 2025: Key measures impacting employers and employees

Summary

Budget 2025 is the final budget of this government and a pre-election “give away” was anticipated. From an income tax perspective, the most notable change for individuals is a 1% decrease in the 4% USC rate. Combined with USC band changes, this will result in a reduction in tax in excess of €400 for those on incomes over €70,044. For employers, there was welcome news that the Small Benefit Exemption limit will be increased to €1,500 per year, with up to five non cash benefits now being allowed.

There was no mention of extensions to the Special Assignee Relief Programme (SARP) or the Foreign Earnings Deduction (FED), both of which are due to cease at the end of the 2025 tax year. As such, extensions to the relief will likely be a consideration for the next government.

The detail

Key tax measures impacting both employers and employees

• €0.80 increase to the minimum wage, bringing it to €13.50 per hour.
• As previously signalled in Budget 2024, PRSI (employee and employer social security) increases by 0.1% from October 2024 (to 4.1% and 11.15%, respectively). A further 0.1% increase (to 4.2% and 11.25%, respectively) is due to come into effect from October 2025.
• Increase of €500 to the annual limit of the Small Benefit Exemption, bringing this to €1,500. Employers will be able to provide up to five non-cash benefits per year to employees (provided the cumulative value does not exceed €1,500), an increase from the existing two.
• The €10,000 reduction in the Original Market Value (OMV) of company cars in categories A-D is extended to 2025.
• Introduction of a benefit in kind exemption for the provision of electric vehicle chargers at the home of a director or employee.

Key tax measures impacting individuals

• €2,000 increase to the standard rate (single person) tax band, with proportionate increases for married couples and civil partners.
• Increase in the entry point to the 3rd USC band to €27,382, to account for the increase to the minimum wage.
• 1% reduction in the 3rd USC rate band, from 4% to 3%, which will apply to income between €27,382 and €70,044.
• €125 increase to personal, employee and earned income credits.
• €250 increase to the Rent Credit from 2024 inclusive, bringing the total Rent Credit to €1,000 from this year onwards.
• €150 increase in the Home Carer credit.
• €65,000 Increase to the Group A Capital Acquisitions Tax (CAT) threshold to €400,000, with proportionate increases to Groups B and C also.

Updated personal tax bands and credits
Income tax bands	2024	2025	Change in standard rate band
Single person	€42,000 @ 20% Balance @ 40%	€44,000 @ 20% Balance @ 40%	↑ €2,000
Single person qualifying for Single Person Child Carer Credit	€46,000 @ 20% Balance @ 40%	€48,000 @ 20% Balance @ 40%	↑ €2,000
Married or in a civil partnership (one income)	€51,000 @ 20% Balance @ 40%	€53,000 @ 20% Balance @ 40%	↑ €2,000
Married or in a civil partnership (both with income)	€51,000 @ 20% Balance @ 40% (with a max increase of €33,000)	€53,000 @ 20% Balance @ 40% (with a max increase of €35,000)	↑ €2,000
Tax credits	2024	2025	Change in tax credit
Single person	€1,875	€2,000	↑ €125
Married Person or Civil Partner	€3,750	€4,000	↑ €250
Single Person Child Carer Credit	€1,750	€1,900	↑ €150
Home Carer Tax Credit (max)	€1,800	€1,950	↑ €150
Employee PAYE Credit	€1,875	€2,000	↑ €125
Earned Income Tax Credit	€1,875	€2,000	↑ €125
Single Person Rent Tax Credit	€1,000*	€1,000	↑ €250*
Married Person or Civil Partner Rent Credit	€2,000*	€2,000	↑ €500*
USC rates & thresholds	2024	2025	Change
0.5%	First €12,012	First €12,012	N/A
2%	Next €13,748	Next €15,369	↑ €1,622
3%	N/A	Next €42,662	New rate
4%	Next €47,123	N/A	Rate reduced
8%	Balance	Balance	–

*Single person Rent Tax Credit for 2024 was originally €750. This was increased to €1,000 on Budget Day. Similarly the Married Person or Civil Partner Rent Credit was increased from €1,500 to €2,000.

Other measures impacting individuals and targeted groups

• The majority of social welfare benefit payments will increase by €12 per week.
• The Help to Buy Scheme will be extended to 31 December 2029.
• Mortgage interest relief for certain homeowners will be extended to 2025.
• Extension of tax relief for pre-letting expenses to 31 December 2027.

Other upcoming changes to be aware of

Share Based Remuneration

The Government also confirmed they have today published the findings of an independent review of share based remuneration, which was undertaken earlier this year, and that the recommendations will be considered in due course. Such recommendations include the introduction of a sourced basis of taxation to Restricted Stock Units (RSUs) to align with the treatment of Stock Options, as well as a review of the employer social security exemption to share based remuneration, given the generosity of this compared to other countries.

Pension Auto Enrolment

The long signalled pension auto-enrolment scheme is due to come into effect in September 2025. As a reminder, auto-enrolment will apply to employees:

• aged between 23 and 60,
• earning a minimum of €20,000 per year across all employments, and
• not already part of an occupational pension scheme.

Employers will be required to have processes in place to enrol employees who satisfy the above eligibility criteria. Employers will have to set up a new payroll element to capture the employee and employer pension contributions under the auto-enrolment scheme. No tax relief will apply to employee contributions; instead, the Government will contribute a certain amount to the employee’s pension fund.

It is important that employers communicate with employees in relation to the changes and, in particular, make employees aware of the difference in tax treatment that applies to employee contributions under auto-enrolment versus employee contributions to an occupational pension scheme.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Keith Connaughton
Partner

Aoife Reid
Partner

Ian McCall
Partner

Clara Flynn
Director

Further information on Vialto Partners can be found here: www.vialtopartners.com

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