The Finance Bill 2024 introduces several key taxation changes that will have significant impacts on personal finances, businesses, and retirement planning. In addition to changes in income tax and various reliefs, the bill outlines reforms related to Personal Retirement Savings Accounts (PRSA), Benefit in Kind (BIK), the Standard Fund Threshold (SFT), and Auto Enrolment—all of which are critical in shaping the financial future of employees and employers alike.
This article will address the effects of the most significant changes in the Finance Bill 2024, especially those related to retirement savings, tax reliefs, and how these updates will affect individuals and businesses in Ireland.
The Finance Bill 2024 has introduced crucial updates to the PRSA system, making it easier for employers to contribute to employees’ retirement savings while offering tax benefits. Under the new legislation, the maximum employer contribution to a PRSA is now capped at 100% of an individual’s salary in the year of payment.
For instance, if an employee or director has a salary of €50,000 in 2025, the maximum employer contribution to their PRSA would also be €50,000. This is a significant development as previously, employer contributions to PRSAs were more restrictive, and this change incentivises greater retirement savings for employees.
However, any contributions that exceed this 100% cap will be treated as a Benefit in Kind (BIK) for the individual. This means that any amount over the capped limit would be considered taxable income and subject to income tax. Employees and employers should carefully monitor contributions to avoid unintended tax liabilities. For businesses, the Finance Bill still allows them to claim a deduction against Corporation Tax for contributions to PRSAs up to 100% of an individual’s salary. However, the same deduction cannot be claimed for contributions beyond this threshold.
One of the most critical aspects of the Finance Bill 2024 is the clarification of BIK treatment concerning PRSAs. As mentioned, employer contributions beyond 100% of an individual’s salary are deemed BIK, adding a new layer of complexity for businesses managing employee benefits. This means therefore that organisations must monitor PRSA contributions to avoid unintentionally exposing their employees to additional income tax liability.
For employees, this treatment of BIK can result in larger liabilities being incurred for income tax bills where their employer has made excessive contributions to their retirement savings. This shift emphasises the importance of payroll and financial management, as contributions will need to be carefully controlled to stay within the tax-free limits.
The Standard Fund Threshold (SFT), which is the lifetime limit on the amount of tax-relieved pension savings an individual can accumulate, has also been addressed in the Finance Bill 2024. As developments in pension saving environments progress, the finance bill makes adjustments to how funds that exceed the SFT are treated.
Previously, pension savings over the SFT were subject to tax penalties, which limited the amount individuals could save through tax-advantaged pension schemes. The Finance Bill has brought much-anticipated clarity to this area, with changes expected to simplify retirement planning while ensuring that pension contributions are effectively capped. The exact threshold changes are still pending, but the bill makes it clear that the government intends to ensure that the retirement saving benefits remain appealing without overburdening the public purse.
Another key element introduced in the Finance Bill 2024 is the Auto Enrolment Retirement Savings Scheme, seeking to increase the number of workers who save towards retirement. Auto-enrolment is a significant change, especially for those who may not currently be saving enough for their retirement. It ensures that employees are automatically enrolled in a pension scheme, with contributions coming from both employees and employers.
The bill defines how the taxation of such schemes and their administration will be carried out. In particular, employee benefits including employer contributions and the state’s top-up payments will be relieved from taxation which is a critical feature of the scheme. This means that while employees contribute to their retirement savings, they benefit from both employer contributions and a government top-up without having to worry about tax deductions on those amounts.
The growth within these retirement savings will be tax-exempt, although withdrawals upon retirement will be taxed, except for the 25% tax-free lump sum that many pension schemes in Ireland already provide.
Auto-enrolment is designed to tackle Ireland’s pension gap, ensuring that more people are financially secure in retirement. The scheme will especially benefit lower and middle-income workers, who often do not have access to employer-provided pensions.
For employers, the scheme introduces new obligations. Under the new system, companies will be obligated to make pension contributions on behalf of their employees, potentially increasing their financial and administrative responsibilities. However, the tax relief available on employer contributions provides a silver lining, allowing businesses to claim deductions that reduce their tax burden.
Additionally, as auto-enrolment is phased in, there will be a period of adjustment for employers to ensure compliance with the new regulations. This shift towards greater pension participation will require payroll systems to adapt to these changes, ensuring that both employer and employee contributions are correctly processed and managed.
Read more about The Implications of Auto Enrolment for Business Owners in the following link.
Beyond changes to retirement savings, the Finance Bill 2024 introduces a host of other tax measures designed to support individuals and businesses. Notably, the bill includes a personal income tax package worth an estimated €1.6 billion for 2025. Key elements include increases to the main personal tax credits and an adjustment to the standard rate income tax band.
These changes are intended to ease the plight of employees by enhancing disposable income, especially in the face of higher costs of living. The bill also adjusts the Universal Social Charge (USC), raising the 2% rate band ceiling and reducing the 4% USC rate to 3%, further easing the tax burden on those on medium earnings.
The Small Benefits Exemption has been a popular way for employers to reward employees with tax-free vouchers or gifts. Under the Finance Bill 2024, this exemption has been expanded. Effective 1 January 2025, employers will be allowed to offer up to five tax-free incentives per year (up from two), and the total annual value that can be given tax-free will increase from €1,000 to €1,500.
This change makes it possible for businesses to pay and motivate employees in different ways as providing non-cash benefits that are free from BIK taxation becomes easier.
The Finance Bill 2024 introduces several important changes impacting both businesses and employees, including updates to Benefit in Kind (BIK) related to PRSAs, adjustments to the Standard Fund Threshold (SFT), and the introduction of auto-enrolment for retirement savings. These changes reshape the landscape of taxation and employment benefits, requiring businesses to stay informed and adapt to comply with new rules.
As for the employees, the bill enlarges the tax reliefs and improves the Small Benefit Exemption, while employers now can have some deductions on PRSA contributions and offer more non-cash flexible benefits. These changes bring opportunities but also challenges.
Fairstone’s expert financial advisors are equipped to help you understand and navigate these updates. Whether it’s ensuring compliance with PRSA contribution limits, managing BIK implications, or leveraging auto enrolment benefits, Fairstone can guide you through the evolving financial landscape.
Staying informed and receiving professional advice will be key to effectively managing these changes. Fairstone is ready to assist both businesses and individuals in adapting to the new regulations and maximising the available benefits. Book today your no-obligation financial planning consultation with Fairstone.
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