The 2024 Tax Landscape – Predictions, Changes, and Proactive Strategies

The 2023 Finance Act introduced several changes to tax legislation, impacting businesses and individuals in Ireland.

Proposals put forward by the Commission on Taxation & Welfare and the potential political changes to come suggest that these changes are only the beginning of a big tax overhaul.

Some of the possible future tax changes have left us nervous, and now is the time to be consulting your financial advisor and tax practitioner about what could be coming down the line and how you can best prepare.

Changes in Tax Legislation 2024

The tax changes that have already been implemented include:

Angel Investor Relief has been introduced. This provides Capital Gains Tax relief to third-party investors who acquire substantial minority stakes in innovative start-up businesses and hold for a minimum of three years. These investors can benefit from an effective CGT rate of 16%, or 18% if they are part of a partnership. This relief applies to gains up to twice the amount of the initial investment, with a lifetime cap of €3 million.

Group B CAT threshold extended to foster children. Up until 2024, individuals could utilise the Group A CAT threshold for gifts and inheritances received from their foster parents. This benefit has now been extended to include gifts and inheritances from broader familial relationships established through foster parents, allowing individuals to claim the Group B CAT threshold.

Retirement Relief updates. The following changes will take effect for disposals occurring on or after January 1, 2025:

• The upper age limit for maximum retirement relief will be raised from 66 to 70, applicable to both disposals to a child and disposals to someone other than a child.
• A new threshold will limit the relief available for disposals to a child by individuals aged 55 to 70 to assets valued at €10 million or less.
• Individuals will be required to claim retirement relief on their tax return.

Proposals from the Commission on Taxation & Welfare

• Capital Gains Tax (CGT) exemption on your home should be restricted. In the UK, Nigel Lawson gave 6 months’ notice of his intention to remove double mortgage interest tax relief. The Lawson boom and subsequent bust took around 13 years to recover from.
• Decrease the Capital Acquisitions Tax (CAT) thresholds, so more gift and inheritance tax will be payable.
• Death should be a taxable disposal for Capital Gains Tax. There is currently no tax due on death, so the beneficiary gets a step up in base cost.
• Agricultural Relief and Business Relief should be restricted to active participants.
• ARFs inherited by someone other than a spouse or civil partner should be subject to both Income Tax and Capital Acquisitions Tax. Should this happen, it would mean that ARF holders would need to take a higher taxable income and use the small gift allowance to give away the excess every year tax free to avoid almost all of their ARF going to Revenue when they die. This would however, put then at a higher risk of running out of money. If this transpired, an annuity would almost always the best option.
• Reduce the tax-free lump sum on pensions. The cap on pension savings subject to tax relief was introduced in 2005, originally at €5 million. That was cut after the financial crash to €2.3 million in 2010 and then to €2 million in 2014, with an upper limit of €200,000 on the value of any tax-free lump sum that could be taken on retirement. The same pensions have also already been raided for a “pension levy” don’t forget. Yet, despite all this, the recommendation is for further reductions of the Standard Fund Threshold.
• Income tax changes – including PRSI & USC.
• PRSI extension beyond the current cut off at age 70.

Change of Government – Potential Impact

Now, above are all policy proposals before the current government. If there is a protest vote for change what’s the worst that can happen?

• We know that there are proposals for a Wealth Tax (surely that is already there with inheritance tax).
• ALSO increase CAT to 36%.
• Similar desire to attack pension tax free thresholds.
• Increase in PRSI for employers to 13.05% on incomes over 100k to make it even harder to attract and retain key staff in small businesses.
• Tapered or reduced tax credits perhaps for those on incomes over €140K.
• Additional 3% income tax on incomes over €140k. This would result in a marginal rate for the self-employed of 58%! Not quite Jim Callaghan’s top rate of 83% in the UK in the 1970s but heading that way.
• Increase on Stamp Duty up to 5%.

Dates for your Diary

Not all of this will happen but those are genuine policy proposals that could be implemented by the Autumn of 2025.

Some significant deadlines to bear in mind over the next year, that will likely result in more clarity and further changes to taxation.

• 1st deadline is Budget 2025, coming up in the autumn.
• 2nd deadline is February next year, as latest date for the general election to be held is March.
• 3rd deadline is Budget 2026, in the autumn next year.

What Should I Do Now?

So, in light of the above, what do you need to do? Well, if you’ve any significant milestones coming up in your life then you need to act now. Retirement and death (although difficult to predict) are the big ones.

It’s essential to speak to your financial advisor to discuss your financial plan and ensure you have a strategy in place if you think any of the above changes or potential changes are relevant to you.