Budget 2025 Highlights
Minister for Finance Jack Chambers announced his first Budget to the Dáil, detailing a host of tax and cost of living measures. This announcement will be followed by the Finance Bill next week, which we expect to confirm other measures, such as amendments to the Standard Fund Threshold. This along with the other recommendations outlined in the report of the independent examination of the Standard Fund Threshold (SFT) may have an impact on your retirement planning. A lot of these recommendations for change are long overdue and we have outlined the most important details that may affect you below.
What the recent Standard Fund Threshold changes could mean for you
On 18th September, Minister Chambers announced several positive changes with regards to pensions ahead of the Finance Bill for 2025. These were announced on the back of a review & recommendations conducted by an independent expert, Dr. Donal de Buitléir. While these changes are still at a very high level and with additional details still to emerge with regards to some of the finer details, they could have a significant impact on how you can plan for your retirement.
Standard Fund Threshold (SFT)
The SFT is the maximum tax-efficient pension fund in Ireland, and it has been set at €2million since 2014. However, the recent announcement is set to see this rise to €2.8million by 2029, with the threshold rising by €200,000 per annum from 2026 – 2029. From 2030 onwards, the threshold is then set to rise in line with an applicable level of growth each year (yet to be determined).
Chargeable Excess Tax (CET)
The reason the SFT plays such a key part in retirement planning is that any funds that exceed this €2million limit are subject to a CET of 40%. This tax has been considered overly punishing for those with high pension potential, as the 40% excess could be taxed again once pension income is drawn.
While the rate of CET is to remain unchanged for now, a review of this is due to take place by 2030, with a rate as low as 10% recommended.
Retirement Lump Sums
Under the current rules, a lifetime tax-efficient lump sum of €500,000 can be taken from all combined pension pots. The first €200,000 of this is tax free, while the remaining €300,000 is subject to a standard rate tax of 20% (up to a total of €60,000).
This lump sum amount is not set to rise and will remain at €500,000. It was previously linked as a proportion (25%) of the SFT, but this link is due to be severed and the €500,000 will instead remain as a fixed amount.
Currently, you can receive a credit for any tax paid on a lump sum above the €200,000 with any CET liability to avoid double taxation in this space (so the first €60,000 of CET could be offset against the €60,000 standard tax on a lump sum amount of €500,000). However, if the CET rate be reduced to the recommended 10% in future, then this credit will also likely be abolished. However, this will be reviewed.
Other recommendations of interest included in the report
• The removal of annual pension and age-related contribution limits on schemes
• A review of the capitalisation factors used to determine the overall value of Defined Benefit pension schemes with regards to the SFT, with a decrease in the current age-related factors recommended. This review will be applicable to benefits accrued since 01 January 2014
• Potential allowance for any CET payments to be spread over 20 years instead of a once-off up-front cost to private sector workers
• A review of the connection between a Pension Adjustment Order (PAO) and the SFT. However, this would need further legal advice to advance any specific proposal.
What this means for you
While some of these recommendations are in their early stages, they could have a significant impact on your overall pension pot at retirement, depending on where you are in your retirement planning journey and your specific circumstances.
This is particularly important if you’re due to retire in 2025 as the changes to SFT limits are not due to come into effect until 2026.
This is equally important if you have previously drawn benefits from a pension plan, as depending on the amounts, you may or may not have scope for additional pension funding.
This is also an opportunity to revise existing contribution and investment strategies to ensure you are maximising your retirement drawdown potential.
Therefore, it is essential to review your pension strategy with your adviser to receive careful and considered retirement planning advice. They will advise you on the best course of action to take in respect of these changes to ensure you achieve your specific retirement goals.
All eyes will now be focused on the Finance Bill announcement next week.
PRSA Contributions for Business Owners
While there was no mention of changes to company contribution limits in the Budget, this may change when the Finance Bill is published next week.
Increase to Capital Acquisitions Tax (CAT) Thresholds
A welcome addition to Budget 2025 was the announcement that the Lifetime CAT thresholds will increase for the first time since 2019. This has mainly been in response to the rapid increase seen in property prices over the past few years and will allow for a greater transfer of wealth between generations without triggering a tax liability.
Group A Threshold (parent to child) increasing from €335,000 to €400,000.
Group B Threshold (grandchildren and other relatives) increasing from €32,500 to €40,000.
Group C Threshold (other) increasing from €16,250 to €20,000.
There was no mention of a change to the CAT rate of 33% so this will still apply to any amounts above the new thresholds.
There were also no changes noted to the Small Gift Exemption of €3,000 per annum.
The changes to the CAT rates allow for new opportunities for lifetime gifting and estate planning, and we recommend you discuss this with your Unio Adviser.
Retirement Relief
This relief is often used when passing on a business to the next generation. CGT at 33% may be due on the gains made by the parent passing on the business to their child. Changes were announced in last year’s budget to the upper age limit and the amounts that can be relieved.
An additional change was announced in Budget 2025 outlining that if the child continues to hold the shares in the business for 12 years, this CGT will be abated in full.
While this is another welcome addition, a cautious approach should be taken until the full mechanics of how this will be implemented are finalised.
Other Changes of Note
• The amount that can be relieved under the popular Employment Incentive Investment Scheme (EIIS) has been doubled from €500,000 to €1 million.
• Further information on tax relief on the auto-enrolment scheme, to be introduced from September 2025 as per latest guidance, was provided. Employer contributions can be relieved for tax, and growth on the pension assets will be free of tax.
• The Standard rate tax cut off increased from €42,000 to €44,000.
• Personal tax credits increased by €125 to a new threshold of €1,875.
• 4% rate of USC decreased to 3% with a new entry point of €27,382.
• Stamp duty on residential property increases with immediate effect. Rates as follows: 1% to €1m, 2% on next €500,000, 6% on excess above €1.5m.
• State Pension increased by €12 per week to €289.70.
• A generous cost of living package was introduced.
View a summary of key Budget 2025 highlights here
At Unio Employee Benefits, we are happy to work with clients to help provide solutions to bridge potential gaps for their scheme members, contact your client manager directly or get in touch at enquiries@unio.ie.