Ireland’s Budget 2026: Key Tax Changes

A comprehensive overview of updated tax policy and its impact on businesses and individuals

Ireland’s Budget 2026 introduces a wide-ranging package of tax reforms designed to support economic growth, enhance business competitiveness, strengthen social protection, and stimulate investment.

The tax measures cover multiple areas — from income tax and USC to corporate tax, VAT changes, R&D incentives, and international taxation reforms.

Below is a detailed overview of all major tax measures included in Budget 2026.

1. Personal Taxation Changes

— Increase in the 2% USC rate threshold

The threshold for the 2% USC rate is rising from €27,382 to €28,700.

This allows employees and self-employed individuals to retain more of their income.

— Indexation of tax credits and thresholds

Several tax credits and income thresholds will be adjusted to reflect cost-of-living pressures.

— Extension of the Rent Tax Credit to 2028

The credit remains available at:

• €1,000 for individuals
• €2,000 for couples

— Mortgage Interest Relief extended until 2026

The relief continues, though the level of support will gradually reduce.

2. VAT Changes

— VAT reduced to 9% for selected service sectors

From 1 July 2026, VAT in the following areas will drop to 9%:

• Restaurants and catering
• Hairdressing
• Certain hospitality services

This provides targeted support to the service economy.

— VAT on gas and electricity remains at 9% until 2030

A long-term measure benefiting both businesses and households.

— 9% VAT on new apartment developments

The reduced rate applies from October 2025 to December 2030 to encourage residential construction.

3. Corporate Tax and Business Supports

— Expansion of the Participation Exemption

Reforms strengthen the exemption for foreign dividend income, enhancing Ireland’s attractiveness as a global corporate hub.

— Revised Entrepreneur Relief threshold increased to €1.5 million

The enhanced Capital Gains Tax ceiling allows founders and business owners to claim the 10% CGT rate on higher gains.

— Strengthening investment tax incentives

• Exit tax on investment funds reduced from 41% to 38%
• Broader access to certain investment relief schemes

— Extension of the Start-up Relief scheme

Enables qualifying start-ups to reduce corporate tax liabilities during their first three years.

4. R&D and Innovation Tax Measures

Budget 2026 places strong emphasis on supporting innovation and technological development.

Key updates:

— R&D Tax Credit increased to 35% (from 30%)

One of the most significant measures in the entire budget.

— First-year R&D instalment increased from €75,000 to €87,500

— Improved rules for companies conducting R&D across Europe

A major advantage for multinational and cross-border structures operating in Ireland, Malta, the UK and the EU.

5. International Taxation Changes

— Foreign Earnings Deduction (FED) extended to 2030

Updated limits and country lists:

• Relief cap increased from €35,000 to €50,000
• New eligible countries added, including Turkey

This is particularly beneficial for companies with staff working abroad.

— Updated Controlled Foreign Company (CFC) rules

Reflects alignment with EU and OECD standards.

— Enhanced compliance mechanisms for multinationals

Including improvements related to Pillar Two (15% global minimum tax).

6. Property and Capital Taxes

— Introduction of a new Derelict Property Tax

Replaces the existing vacant sites levy and aims to encourage redevelopment of unused buildings.

— Capital Gains Tax improvements for the housing sector

Additional incentives support long-term rental development and renovation projects.

7. Environmental and Climate-Related Taxes

— Carbon Tax increased to €71 per tonne of CO₂

• Applied to motor fuels from October 2025
• Extended to home heating fuels from May 2026

— Accelerated Capital Allowances (ACA) extended to 2030

Allows businesses to write off “green” equipment more quickly.

— Expanded supports for energy-efficient investment

Particularly relevant for the construction, manufacturing, and logistics sectors.

8. Other Tax Measures

— Increase in tobacco excise duties

Part of the Government’s ongoing public health strategy.

— Extension of the Bank Levy

Continues to contribute additional revenue from the financial sector.

— Improvements in tax administration and Revenue digitalisation

Including automation, modernised systems, and enhanced taxpayer services.

Conclusion