Budget 2026: Balancing relief and restraint

Measures to promote tax simplification

The Minister in his address highlighted the role that a stable and transparent tax system places in promoting economic stability and announced a number of measures aimed at simplifying Ireland’s tax system.

Changes to Participation Exemption for Foreign Dividends

Last year’s budget saw the announcement of a participation exemption for foreign dividends. This exemption provides for a full exemption from Irish corporation tax for foreign dividends received by Irish companies subject to certain conditions being met.

At present, the exemption only applies for qualifying dividends received from EU/EEA countries and countries with which Ireland has a double tax agreement (‘relevant territories’). The Minister has announced that the geographical scope of the exemption will be extended to include countries outside of the relevant territories that apply non-refundable withholding taxes.

In addition to extending the geographical scope of the exemption, a number of technical amendments will be made to the legislation implementing it. In the past year, a number of difficulties with the operation of the rules have been identified by practitioners - in particular in relation to the 5-year lookback rule. These changes should go to addressing some of those difficulties.

We can expect to see full details of the amendments once the Finance Bill is published next week. 

Interest Deductibility

A public consultation was concluded in January 2025 on the taxation and deductibility of interest by businesses in Ireland. Although no formal measures were announced in the budget to change Ireland’s existing interest regime, the Minister in the course of his address did commit to publishing an action plan to reform it. 

Withholding taxes

The Minister announced that a joint public consultation will be launched shortly between the Department of Finance and the Revenue Commissioners regarding the modernisation and digitalisation of Ireland’s withholding tax regime.

While it remains to be seen what the outcome of this consultation will be, we expect that one of the key objectives will be ensuring that the Irish tax system is set up to comply with its obligations under the EU Faster and Safer Tax Relief of Excess Withholding Taxes Directive (the FASTER Directive), which is due to be transposed into our national law before 31 December 2028.

The FASTER Directive provides for new rules to make withholding tax procedures within the EU more efficient and secure for investors, financial intermediaries and national tax administrations.

Irish Real Estate Funds (IREFs)

The Minister indicated that he will not seek to introduce an entity level tax for IREFs, a measure recommended in the Funds Sector 2030 Report. He also indicated that in the coming year the department may look at measures which could be implemented to simplify tax administration for IREFs. 

Changes to Ireland’s capital allowances regime for specified intangible assets

In conjunction with the budget speech, the Minister has published a financial resolution with changes to Ireland’s regime for capital allowances on specified intangible assets.

Existing rules provide that the amount of capital allowances which may be deducted annually on IP assets is capped at a maximum of 80% of relevant trading profits for that accounting period. Any unused or capped allowances are carried forward to future periods, subject to the operation of the ring-fence and cap in those periods also.

The technical amendments introduced by the financial resolution will impact on how balancing allowances (i.e. tax reliefs which arise on the disposal of an IP asset which qualified for capital allowances) may be utilised. Companies disposing of IP will from 8 October now also need to restrict the amount of any balancing allowances being claimed in line with the 80% cap. This will have the effect of permanently limiting the amount of overall allowances available for companies who are disposing of IP and who have incurred capital expenditure on the acquisition of a specified intangible asset in their trade.   

Measures to promote investment 

Changes to Taxation of Investments

A number of recommendations were made by the Funds Sector 2030 Report regarding measures which could be taken to promote the development and expansion of Ireland’s capital market regime. Among the report’s recommendations on reforms to the taxation of Irish-domiciled funds, and equivalent products in EU, EEA and OECD territories, were (i) the removal of the eight-year deemed disposal rule, (ii) aligning the investment undertaking tax (IUT), currently at 41%, with CGT rates, currently at 33% and (iii) allowing for a limited form of loss relief.

The Minister did not go as far as implementing all of the recommendations made in the report but has committed to a reduction in the rate of IUT from 41% to 38% and a similar reduction in respect of certain life assurance policies. In addition the reduced rate of tax will also apply to equivalent offshore funds (broadly equivalent offshore funds located in the EU/EEA or in a member state of the of the OECD with which Ireland has a double taxation agreement) and certain foreign life assurance policies.

He has also committed to publishing a road map early next year on tax measures that could be adopted to promote investment in Irish funds. 

Measures to encourage stock exchange listings

In line with statements made in last year's budget, regarding the introduction of a stamp duty exemption for Irish SMEs looking to access equity funding via financial trading platforms, a new stamp duty exemption has been introduced.

This new exemption provides for a full exemption from stamp duty on electronic transfers of shares on a recognised exchange where the market cap of the company is less than €1bn.

Measures to promote home building

The Minister recognised that in order to solve Ireland’s housing crisis, increasing supply is key. In addition to committing a further €5bn in capital investment in housing development, the Minister announced a number of strategic tax measures to promote the construction of housing.

VAT cut for new build apartments

In response to calls from certain industry groups, a temporary reduction to the 13.5% VAT rate on new build apartments has been introduced. The Minister has opted to implement the reduction by way of Ministerial Order meaning that the proposed reduction will be effective as of midnight tonight. The reduction will remain in effect until 31 December 2030.  

It remains to be seen as to whether there will be any pass through effect with respect to the VAT reduction and whether buyers will see any real reduction in apartment prices.

Changes to Residential Zoned Land Tax (RZLT)

RZLT was introduced to promote the development of land which had been zoned residential. The Minister noted that of some 2,000 RZLT returns filed, 526 returns had requested deferrals because the site was being developed. 

For 2026, an additional exemption will be available for RZLT, where the landowner seeks to have their land rezoned for the purposes RZLT ‘to reflect the genuine economic activity being carried out’ on it. There will be central guidelines on the application of this new exemption issued, and it will be for Local Authorities to decide on applications.

Further changes will be introduced to enhance the operation of the tax in the Finance Act

Extension to existing stamp duty rebate scheme for residential developments

The residential stamp duty rebate scheme was introduced to promote the construction of residential property by allowing developers to claim a rebate of stamp duty where commercial land has been developed for residential purposes. The relief, which was due to expire at the end of the current year, has been extended to 2030.

In addition to extending the scheme, the relevant time limits (i) from acquisition of the relevant property to commencement of development and (ii) from commencement of development to completion have been extended from 30 months to 36 months.

Also, a change has been made on the application of the rebate scheme to multi-phase developments which will allow the stamp duty rebate for the whole scheme to be reclaimed on the commencement of the first phase of the development.

New enhanced corporation tax deduction for residential developments

A new enhanced corporation tax deduction will be available for developers with respect to the cost of construction of apartments or the conversion of non-residential properties into apartments. The deduction will be available for developments where the commencement notice is served after the 8 October 2025.

We await further details in the Finance Bill as to how this deduction will operate in practice. 

Changes to R&D Tax Credit

Ireland’s R&D tax credit, originally announced some twenty years ago, has long been recognised as a central component in attracting foreign investment into the country. Building on responses to a public consultation on R&D tax credits earlier this year, the Minister has announced a number of amendments to the regime:

• The rate of the credit has been increased from 30% to 35%. A previous rate increase which came into effect in January 2024 had increased the rate from 25% to 30%.
• The threshold for first instalment payment will increase from €75,000 to €87,500.

The Minister has also said that he will publish a research and development compass in the coming weeks which will ‘consider targeted changes to the R&D tax credit to better align with industry practices, for example in the areas of outsourcing and qualifying expenditure definitions’.

This should be welcome particularly in light of the fact that the existing rules on outsourcing for R&D within the regime have long been criticised for being overly restrictive. Also, amendments to the definition of ‘qualifying expenditure' for R&D should be welcomed in light of changes to the nature of innovation, etc. since the R&D scheme was originally devised.

VAT changes

Measures to stimulate the economy - VAT cut for hospitality sector

As anticipated the VAT rate on certain hospitality has been reduced from 13.5% to 9%. The lower VAT rate will apply to food and drink in bars, restaurants and hotels and hairdressers but will not extend to accommodation. The implementation of the reduced rate will be delayed until July 2026.

Cost of living measures – extension of reduced VAT rate for energy costs

The reduced 9% VAT rate on gas and electricity in Ireland will be extended until 31 December 2030.

VAT and the digital age – new rules for e-invoicing

The EU VAT modernisation package, VAT in the Digital Age (ViDA), provides that electronic invoicing (e-invoicing) will become mandatory for transactions between EU Member States from 1 July 2030. The Minister announced that the Revenue Commissioners will begin a phased roll-out of domestic e-invoicing arrangements for B2B transactions in Ireland this year, with additional details to be published shortly.

Other measures

Bank Levy

The bank levy will be extended for a further year with a target yield of €200m.  

Capital Gains Tax (CGT) Entrepreneur Relief

CGT entrepreneur relief allows for a reduced rate of CGT (10% as opposed to 33%) to apply to gains made on disposals of business assets where certain conditions are met, up to a value of €1m. This €1m threshold is a lifetime limit and gains made in excess of the €1m would be subject to CGT at the normal rate.

Budget 2026 proposes increasing the lifetime limit for CGT Entrepreneur from €1m to €1.5m.

For more information, please contact any member of the  ALG Tax team.

Date published: 7 October 2025