Pensions:
Limit on Employer PRSA/PEPP Contributions:
In a measure not announced in the Budget, a limit is to be introduced on the amount of employer paid contributions that can be made into an employee’s Personal Retirement Savings Account (PRSA) or Pan European Pension Plan (PEPP) without incurring a benefit in kind charge. The new limit, to be known as the ‘employer limit’, will be an amount not exceeding 100 per cent of the employee’s earnings from that employer in the year of assessment. Where the earnings are reduced due to sickness, unemployment or unpaid leave, the earnings figure for the previous year will apply. This measure appears to be intended to prevent excessive funding of employee pension funds in certain circumstances following the abolition of the BIK charge on employer paid PRSA contributions in last year’s Finance Act.
Changes to the Standard Fund Threshold (SFT):
Commencing in 2026, the Standard Fund Threshold (the maximum amount that can be accumulated in an individual’s pension fund without incurring an excess fund charge) will rise by annual increments of €200,000, reaching €2,800,000 in 2030. From 2031 onwards, the ceiling will be automatically linked to growth in the quarterly estimate for average weekly earnings published by the Central Statistics Office. The restoration of the link between the SFT and wage increases is welcome, if long overdue
Taxation of Auto Enrolment Pensions:
The Bill sets out the tax treatment that will apply to the Auto Enrolment Pension scheme, which is due to commence in September 2025. Briefly, this will follow the treatment of PRSAs, i.e.
• Employer contributions will not be treated as a BIK
• Income and gains accrued in the scheme during the time that the contributions are invested will be exempt from tax
• Amounts paid from the fund (after any tax-free lump sum) will be taxed.
Other provisions applying to PRSAs, such as the Standard Fund Threshold, will also apply to AE funds. Employee contributions will not attract tax relief, since the government will instead pay a contribution directly into the employee’s AE fund.
Company Cars:
The Bill provides for the introduction of an exemption from benefit in kind (BIK) for the installation of an EV charger in the home of an employee. The Bill clarifies that the exemption is only applicable where it is provided in conjunction with the provision of a company owned EV, and that the charger must remain the property of the employer.
The Bill also confirms the renewal for another year of the temporary reduction of €10,000 in the ‘original market value’ of a car on which the BIK figure is calculated. This reduction is only applicable to cars in the emissions categories A to D.
Split Year Treatment:
‘Split year treatment’ applies to individuals who change tax residence in the course of a year, whether leaving Ireland to work abroad, or coming to Ireland for such purpose. The relief in effect allows the earnings for the part of the year post departure, or prior to arrival, to be disregarded for Irish tax purposes. In recent years an issue had arisen concerning the availability of the relief where a claim had not been made ‘in year’. The amendment, which provides that the relief will apply even if no claim has been made during the year in question, will apply in respect of 2026 and subsequent years, and will first apply to cases where an individual arrives in or departs from the State on or after 1 January 2025.
Small Benefit Exemption
The Small Benefit Exemption allows employers to give employees up to two small benefits, tax-free, each year. These benefits must not be in cash, and the combined value of the two benefits cannot exceed €1,000. The exemption allows for non-cash benefits such as vouchers or small gifts without incurring income tax, PRSI, or USC.
The Minister announced that the limit of the “Small Benefit Exemption will increase to €1,500 and the number of benefits that an employer can give will increase from two to five per year (cumulative total of first five benefits in a year shall not exceed €1,500).
This amendment will take effect from 1 January 2025.
For more detailed information on any of the issues or how BDO can help, please contact Mark Hynes (mhynes@bdo.ie) or Laura Murray (lmurray@bdo.ie).
For more specific changes included in the Finance Bill 2024, read the following expert insights: