In 2024’s final edition of Construction Magazine, Milestone Advisory’s Darragh Hogan writes. 
On October 1st, 2024, Ireland’s Minister for Finance, Jack Chambers TD, and Minister for Public Expenditure, Paschal Donohoe TD, presented the Budget 2025 to the Dáil. For those planning for retirement, there are key updates that will shape pension planning, income taxation, and financial strategy in the coming year.
Pension Reforms: Automatic Enrolment and Standard Fund Threshold
One of the most significant developments in Budget 2025 involves the introduction of the Automatic Enrolment Retirement Savings Scheme (AE). This long-awaited initiative will automatically enrol workers into a retirement savings plan. The Finance Bill 2024 outlines how contributions to this scheme will be taxed, aligning its structure as closely as possible to Personal Retirement Savings Accounts (PRSAs).
Under the AE scheme, employer contributions will be tax-relieved, while growth in AE funds remains tax-exempt until drawdown. Upon retirement, individuals can withdraw up to 25% of the fund as a tax-free lump sum, with limits set as follows:
- The first €200,000 is tax-free.
- Amounts between €200,000 and €500,000 are taxed at 20%.
- Withdrawals exceeding €500,000 will be taxed at 40%.
While employer contributions are tax-relieved, employee contributions will not receive direct tax relief due to the State’s contribution for workers within AE.
Additionally, attention has been focused on the Standard Fund Threshold (SFT), which sets the cap on the total value of pension benefits an individual can draw from tax-relieved pension products. Currently, the SFT is set at €2 million. Exceeding this limit triggers significant tax liabilities.
In September 2024, the independent review of the SFT, led by Dr. Donal de Buitléir, proposed a phased increase in the threshold starting in 2026, with €200,000 annual increments until 2029. These changes, were confirmed in the Finance Bill.
The Benefit in Kind (BIK) exemption for employer PRSA contributions is restricted to a maximum of 100% of the employee’s annual remuneration in the tax year in which the employer contribution is paid. Any employer contribution exceeding this will be treated as a BIK.
Social Welfare Pensions
For those dependent on state pensions, Budget 2025 offers positive news. The State Pension (Contributory) Personal Rate will rise by €12 per week, bringing the rate from €277.30 to €289.30 starting in January 2025. This increase is an important adjustment to rising living costs, offering retirees additional stability.
Income Tax Adjustments: Relief for Earners
Income tax bands will offer modest relief, especially for middle-income earners. There has been a €2,000 increase in the income tax standard rate band across various categories. Tax credits such as the Personal Tax Credit, PAYE Tax Credit, and Earned Income Credit have each been increased by €125, bringing them to €2,000. This is supplemented by a €150 increase in the Home Carer Tax Credit to €1,950 and a €300 increase in the Incapacitated Child Tax Credit.
Universal Social Charge and Capital Taxation
The Universal Social Charge (USC) will see adjustments in 2025, with the ceiling for the 2% rate band increasing by €1,622, and the rate for incomes between €27,383 and €70,044 reducing from 4% to 3%.
Capital Gains Tax (CGT) and Capital Acquisition Tax (CAT) remain at 33%, but there has been an increase in CAT thresholds:
- The Group A threshold (inheritance from a parent) rises from €335,000 to €400,000.
- Group B and Group C thresholds also saw modest increases.
No Major Changes to PRSI or Exit Tax
PRSI rates remain unchanged for 2025, while Deposit Interest Retention Tax (DIRT) continues at 33%, and Exit Tax on Life Assurance Policies and Investment Funds holds steady at 41%. The funds sector is under review, but no changes were announced for 2025.
Conclusion
Budget 2025 brings stability and incremental improvements for investors and retirees, enhancing pension planning, income tax relief, and the Standard Fund Threshold. Changes in capital taxes and pension thresholds continue to offer more favourable conditions for wealth management and succession planning. Staying updated and adapting financial strategy to these changes is essential.
Here to help you navigate your way to financial security.
The Milestone Advisory team are qualified financial services consultants. We specialise in helping professionals in the construction sector and related industries.
Our team will work with you to review your finances, explaining your options in clear English.
No jargon – just the facts.
For more information, contact Darragh Hogan (darragh@milestoneadvisory.ie).
For the latest updates, subscribe to our newsletter here.
