Budget 2024: Key Financial Changes and Their Impact on Our Clients 

The recent Irish Budget has introduced several changes that will have significant implications for individuals and businesses alike. These changes are particularly important for estate planning, retirement planning, and tax-efficient wealth management. Below, we’ll break down the three most notable adjustments—Capital Acquisitions Tax (CAT) threshold increases, pension fund adjustments, and restrictions on PRSA contributions—and what they mean for our clients.

Increase in CAT Thresholds

Capital Acquisitions Tax (CAT) is the tax levied on inheritances or gifts above certain thresholds. The government’s decision to increase these thresholds comes as a welcome change, especially for families planning generational wealth transfers. 

What’s Changing?

The CAT thresholds will rise across all three categories: 

1. Group A (Children): The threshold is being increased from €335,000 to €400,000. This category typically covers inheritances or gifts from parents to children. 
2. Group B (Other family members): The threshold is increasing from €33,500 to €40,000. This applies to inheritances from relatives like siblings, nieces, nephews, or grandchildren. 
3. Group C (Everyone else): The threshold rises from €16,000 to €20,000. This category applies to all others, such as non-relatives or friends. 

The annual gift exemption remains at €3,000 per person, meaning you can still give up to €3,000 each year to an individual without it counting toward their lifetime CAT threshold. 

Impact on Clients

For those engaged in estate planning, this increase in thresholds means there’s more flexibility to transfer wealth to family members without triggering CAT at the 33% rate. For many families, especially those with valuable property, this provides a greater buffer before substantial tax liabilities kick in. 

However, it’s essential to continue proactive planning, especially as property values rise. Clients considering passing assets to their children, in particular, will benefit from a reduced tax burden, but it’s still critical to structure these transfers efficiently to avoid any unnecessary tax exposures.

Increase in Standard Fund Threshold (SFT)

The Standard Fund Threshold (SFT) is the cap on how much you can accumulate in a pension across all employments without facing an additional tax charge. This is particularly relevant for high earners or those with significant retirement savings. 

What’s Changing?

For the last decade, the SFT has been set at €2 million, but this figure had not kept pace with inflation or rising salaries. The Budget 2024 announcement provides a much-needed adjustment: 

• The SFT will increase to €2.2 million in 2026. 
• It will rise by €200,000 annually until it reaches €2.8 million by 2029. 
• For 2030, the SFT will be increased if the growth in average earnings between Q1 2025 and Q1 2029 is more than 40% 
• For 2031 onwards, the SFT will be increased annually in line with the growth in average earnings in the proceeding year. 

Impact on Clients

Clients with substantial pension savings—especially executives, business owners, and professionals with long careers—will now have more room to grow their pensions without breaching the SFT. For those nearing retirement or with pension assets close to €2 million, this is an excellent opportunity to plan for further contributions without facing hefty tax charges. 

Furthermore, the SFT’s annual indexation post-2029 ensures that retirement savings can continue to grow without being eroded by inflation, making long-term retirement planning more predictable.

Restrictions on Employer Contributions to PRSAs

Personal Retirement Savings Accounts (PRSAs) have grown in popularity since the removal of the Benefit-in-Kind (BIK) restriction on employer contributions in the Finance Act of 2022. However, this has also led to potential for misuse, as there were no firm limits on how much employers could contribute. 

What’s Changing?

In a move to curtail potential abuses, the Budget has introduced a new restriction: 

• Employers can now contribute to a PRSA only up to the employee’s gross salary for that year. 

This new rule was formalised in the Finance Bill 2024 passing this week

Impact on Clients

For employers, especially small businesses, this limits the ability to make very large PRSA contributions on behalf of employees, potentially as part of an attractive compensation package. While PRSAs remain a valuable retirement planning tool, the cap on contributions tied to gross salary means that businesses will need to be more strategic in how they structure retirement benefits. 

For employees, particularly those on higher salaries, this may limit the potential pension funding they can receive from their employer, though the new SFT increases (as discussed earlier) may help offset some of these restrictions. 

However, the traditional method of funding occupational pensions via normal revenue maximum limits may still present broad opportunities for employer contributions. 

What Should Clients Do? 

With these Budget changes, now is an opportune time to review your financial plans. Here’s how clients can make the most of the new rules: 

• Estate planning: If you’re considering transferring assets or gifting money to family members, the increased CAT thresholds provide an opportunity to reduce tax liability. However, it’s still crucial to plan efficiently. 
• Pension strategy: The higher SFT offers more headroom for pension savings, and those approaching the current €2 million limit should review their contributions in light of the coming changes. 
• PRSA contributions: Employers need to reassess their pension funding strategies for employees, ensuring they stay within the new limits while still offering competitive benefits. 

These changes underscore the importance of regularly reviewing your financial plans and working closely with your financial advisor to adapt to the evolving tax landscape. By acting proactively, you can take full advantage of these updates to optimise your wealth and retirement strategies. 

If you’d like to discuss how these changes impact your specific situation, feel free to reach out for a consultation. 

Source: Brokers Ireland Finance Bill 2024 & Budget 2025 Update  

Revenue.ie