Finance Minister Paschal Donohoe announced a reduction in the exit tax that applies to Irish and offshore funds and exchange-traded funds (ETFs) from 41pc to 38pc. There had been calls for it to be reduced to 33pc, the same as Capital Gains Tax (CGT).
There is no change to the ‘deemed disposal’ rule, which means an investor is taxed on the supposed “gains” they make after eight years, even if they haven’t sold the investment product.
Mr Donohoe instead promised to publish a roadmap early next year setting out how he intends to simplify and change the tax framework in order to encourage retail investment.
Finance Minister Paschal Donohoe. Photo: Collins
He said this would take into account the recommendation issued last week by the European Commission that governments should encourage the establishment of tax-incentivised savings and investment accounts, ensuring local businesses have more access to capital.
As a way to support markets, the Finance Minister introduced a stamp duty exemption for businesses with a market cap of less than €1bn that are trading on regulated markets. For companies below this market cap, the usual 1pc stamp duty paid on share transactions will not apply.
“This change is essential to the growth of homegrown businesses, especially those aiming to expand internationally,” Mr Donohoe said.
John Mullane, chief investment officer at Cantor Fitzgerald Ireland, said the reduction removes a barrier to investment for both individuals and institutions, and will encourages promising Irish companies to scale up by using the public markets.
Patricia Callan, director of the Ibec group that represents the financial services sector, welcomed the reduction in the 41pc rate of tax on investment in funds products. She said it was an important first step to address issues in the tax system that disincentivise consumers from investing in funds.
“Further steps are needed, however, and we also welcome the proposal for a roadmap that will set out plans for future measures in this area, including the introduction of savings and investment accounts here in Ireland,” she said.
“The bottom line is that about €167bn of Irish household wealth is currently held in bank deposits. Mobilising a portion of this into more productive areas via the capital markets will make a meaningful difference for Irish society.”
Colum Carroll of Castle Capital said reducing the exit tax by three percentage points was just a “slight win” for long-term investors and household savers.
Removing the “punitive” eight-year deemed disposal rule would eliminate a cost that erodes returns, he said, and bring the fund taxation system into line with standard CGT.
The change in the lifetime limit of the CGT Entrepreneur Relief, which is to increase to €1.5m from January 1, will mean that business people selling their companies can get a reduced rate of 10pc on gains up to that limit.
Úna Ryan of Grant Thornton Ireland, said: “Previously, the relief applied to gains up to €1m. This provides for a potential tax saving of €345,000 given the standard CGT rate of 33pc. However, this may have an unintended consequence of delaying certain pending sales until early 2026.”
Meanwhile, a tax incentive designed to lure highly skilled and well paid international workers to Ireland has been tightened up. The Special Assignee Relief Programme (Sarp), due to expire at the end of the year, gives relief from income tax on 30pc of a salary over €100,000. It will now be extended for five years, but the minimum qualifying income will increase to €125,000.
Mr Donohoe promised to simplify some of the requirements attached to the scheme, with further details to be set out in the Finance Bill. The scheme cost the Exchequer over €56m in 2023, with 2,925 foreign workers benefiting.
Michael Rooney, a tax partner at EY Ireland, said 953 of those executives earned less than €150,000. The increase in the qualifying threshold would mean some of these would miss out, but the savings to the Exchequer would be minimal.
“Of the 953 that qualified in 2023, let’s say 400 of those earned €125,000 or less, then the savings to the Exchequer of 12pc per taxpayer would be €1.2m at best and probably less than €1m,” he said.
Daryl Hanberry, head of tax and legal at Deloitte Ireland, said the extension of Sarp would provide certainty for companies, “although the increase in the minimum limit to €125,000 is not helpful.”
The hope, he said, is that the simplification measures to be introduced will relate to “the removal of certain unnecessary filing requirements.”
A tax exemption for foreign dividends, introduced last year, was extended in a bid to increase Ireland’s attractiveness to multinationals.
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