Budget 2026 is fast approaching, and as always, speculation is rife about what the government’s financial plans will look like. The spotlight will be back on Paschal Donohue come October 7th as he delivers his first budget as Minister of Finance since 2022. With his return, the fiscal plans are expected to strike a more cautionary tone, after a series of big-spending budgets focused on making the most of Ireland’s gargantuan surplus.
Based on what we know from financial policy statements like the Tax Strategy Papers and the Summer Economic Statement, we can expect to see more modest tax cuts than previous years, and fewer (perhaps no) large one-off spending announcements.
But as they say the devil is in the detail, and scrutiny will no doubt fall heaviest on how the budget seeks to address two of Ireland’s most pressing challenges – the sustainability of family-owned businesses and the ongoing housing crisis. From what we’ve already heard on tax policy, there is a real danger of the government backing itself into a corner with Inheritance Tax reforms that inflict further pain on family businesses, while we believe there is room to be bolder with tax levers to stimulate residential development.
Inheritance Tax Reforms: A Risk to Family Businesses?
The Budget 2026 Tax Strategy Group papers published over the summer suggest the government is looking at a more progressive Inheritance Tax system, with a potential top rate of 40% mentioned. However, there is also talk of limiting business-related reliefs and introducing tighter compliance measures.
We’d be concerned by the ‘anti-business’ implications of this. Small family businesses, and particularly family agricultural and farming businesses, already face challenges in ensuring continuity down through generations. Limiting Business and Agricultural Relief on Inheritance Tax would increase the number of cases where family businesses need to be sold just to cover the tax liability, breaking ties that go back decades and damaging local economies and communities, And let’s not forget, this is effectively a double taxation – tax will already have been paid on inherited assets, whether via Income Tax or Capital Gains Tax (CGT).
We therefore hope that the government chooses to protect Business and Agricultural Relief while moving to a more progressive Inheritance Tax regime. We also hope it considers reforming gift tax laws. The Strategy Group papers made reference to the UK Inheritance Tax system as a model but made no explicit mention of the fact that the UK has much more generous tax allowances on gifts, providing an opportunity for disponers to pass on assets during their lifetime with a reduced tax liability.
Allowing more flexibility for tax-free transfers during a person’s lifetime would speed up the flow of wealth into younger hands, creating more opportunities for entrepreneurial investment and helping more young people onto the housing ladder. For similar reasons, we’d like to see more flexibility on beneficiary rules, such as allowing a disponer to nominate one person outside their family to avail of the Class A threshold.
We’d also advocate for greater transparency and consideration for beneficiaries in the rules, especially around valuations. We often see Revenue challenge the valuation of inherited shares and property, even when the valuations are carried out by Revenue-approved valuers. A fixed and clear valuation system would benefit everyone.
Finally, on the topic of property valuations, we believe it is well past time that Inheritance Tax thresholds were updated to reflect the way house prices have soared in recent years. Static thresholds have dragged thousands of people into the Inheritance Tax regime without any similar change in their material wealth.
Housing: Tax Relief Can Be a Lever for Change
Successive governments have tried to use tax levers to stimulate faster, bigger urban housing development, but the simple fact is that the policies haven’t gone far enough. The country needs to build up to 50,000 new homes a year and is currently getting nowhere near that number.
There are necessary changes to be made in planning law, of course, particularly around the sheer complexity of planning processes and in land zoning. But the government could be bolder with the use of tax reliefs, too, especially in terms of incentivising the building, purchasing and renting of city apartments and co-living spaces.
For example, the existing Living City Initiative offers up to €200,000 in tax credits towards the refurbishment and conversion of both residential and commercial properties in inner-city areas designated ‘Special Regeneration Areas’. That incentive is currently available on a per-project basis and, for residential projects, you have to either be a landlord or an owner-occupier to apply.
The impact of the scheme could be greatly increased by extending it to developers and offering the relief on a per-unit basis. That would go a long way to making the typically expensive work of renovating existing properties in historic urban areas more financially attractive to entities that have the capacity and the know-how to turn underutilised building stock into residential properties, quickly and at scale.
Other measures the government could consider include reducing VAT on the sale of apartments, again to make multi-dwelling projects more viable for developers and more affordable for buyers. Along similar lines, we also see scope for targeted tax relief to encourage investors to back apartment complex developments – an Apartment Living relief scheme, perhaps?
Speaking of investment, we also feel the government needs to think out of the box more in terms of encouraging access to capital for residential developments. One idea could be to look at the EIIS scheme, which currently offers tax relief to encourage individuals to provide equity-based finance to qualifying trading companies. Could the definition of a trading company be extended to include the development of apartments in urban areas?
Finally, another positive move would be to change the tax treatment of landlords with large rental holdings. If they operate as a company, they should be treated like any other business and pay Corporation Tax on profits at the 12.5% rate, rather than rental earnings being treated as personal income.
Tax reforms and their impacts are always one of the big talking points to come out of the Budget. Come October 7th, businesses and citizens across Ireland will no doubt be doing their calculations for how the announced changes impact them. Whether it’s Inheritance Tax, tax credits, CGT or anything else that affects you or your business, why not get in touch with us, and we’ll connect you to a local tax specialist in your area to talk through what lies ahead in 2026.
