Speech by Minister Paschal Donohoe on the Second Stage of the Finance Bill

Check against delivery

I move: "That the Bill be now read a Second Time."

We are here today to begin our consideration of the Finance Bill 2025, which will give the necessary legal basis to the decisions announced in the Budget and make a number of other necessary changes to tax legislation.

In Budget 2026, Minister Chambers and I announced a budgetary package of €9.4 billion, as set out in the Summer Economic Statement. Eight point one billion euro has been allocated for public spending and one point three billion euro for taxation measures. The Budget measures we announced seek to protect our economic stability, support our citizens, and prepare Ireland for the challenges and opportunities of the future.

The Finance Bill implements a range of targeted tax changes, including specific measures to support households, jobs and businesses and to encourage and promote investment.

The changes provided for in the Bill also seek to address the many challenges facing our society, including those of housing and climate. It also contains a number of administrative changes to the tax code, reflects recent international developments and seeks to protect and enhance the integrity of our tax system. I look forward to bringing this important legislative instrument through the Oireachtas over the coming weeks.

We are making the best possible use of the resources available, to invest in our future and to strengthen our foundations. This is why I have introduced a tax package that does not put our economy at risk. To safeguard against risk, we are running budget surpluses, reducing public debt and building up funds so that we are prepared for the future.

As we navigate uncertainty in our international trading environment, it is more pressing than ever that this government chooses to prioritise measures that will support jobs and growth. Having a job is the single best contributor to a person’s standard of living, to providing an opportunity for a better future.

The measures announced in the Budget, such as the enhancements to the Research and Development Tax Credit, the Participation Exemption and Audio-Visual incentives will protect jobs and build on our progress, enhancing our offering as a country to do business with and in. Looking ahead, we expect to add a further 63,500 jobs by the end of next year, with the economy remaining at full employment over the coming period.

Housing continues to be one of the biggest challenges facing the country and a whole-of-government approach is being taken to address this challenge.

In preparing for Budget 2026, the challenges facing people seeking to access housing - either to rent or buy - was to the forefront of my mind. I have considered how the tax system can contribute to supporting additional supply, promoting and encouraging regeneration and tackling dereliction.

I am introducing a range of measures, in this Bill, including a reduction in the rate of VAT, from 13.5 per cent to 9 per cent, applying to the sale of completed apartments. This was introduced via Financial Resolution on Budget night and the Bill will provide for it for a further five years, until 31 December 2030. I will be bringing forward an amendment at Committee stage to clarify that the 9 per cent rate applies to Purpose Built Student Accommodation that falls within the definition of apartment blocks. This is in line with the policy intention.

In order to maximise the impact of this measure on the supply of new apartments, I have asked my officials to examine the potential to broaden the scope of the 9 per cent rate to also include site and construction services provided for qualifying new apartment developments. This is with a view to bringing more apartments within the scope of the 9 per cent rate.

Accordingly, I may bring forward further amendments during this legislative process, subject to further advice on the matter.

I am also providing another opportunity for landowners to seek to have their land rezoned to reflect the genuine economic activity being carried out, and for those who do so to apply for an exemption from Residential Zoned Land Tax in 2026.

Further changes to enhance the operation of the RZLT are also included in the Finance Bill.

In line with Government’s commitment to accelerate the delivery of affordable homes, I am exempting the rental profits arising from homes that fall within the Cost Rental Scheme from Corporation Tax. This exemption will apply to developments that are designated as falling within the Cost Rental Scheme by the Minister for Housing, Local Government and Heritage from on or after the 8th of October 2025.

I am also introducing an Enhanced Corporation Tax deduction for certain costs incurred on the construction of apartment developments, and for the conversion of non-residential buildings into apartments, to improve the viability of such developments. It will be available for projects where a first Commencement Notice is submitted on or after the 8th of October 2025, and on or before the 31st of December 2030.

To support more people to live in our city centres, I am making substantial changes to strengthen the Living City Initiative which supports the enhancement of older housing and commercial properties in the designated Special Regeneration Areas in Cork, Dublin, Galway Kilkenny, Limerick and Waterford.

In this year’s Finance Bill, I am extending the Residential Development Stamp Duty Refund Scheme until the end of 2030 and making a number of amendments, including providing for a full Stamp Duty refund to be claimed in respect of a multi-phase development at the commencement of the first phase of that development.

I am extending the Income Tax deduction for small landlords, who retrofit their properties, for a further three years. To support renters, I am extending the Rent Tax Credit for a further 3 years until 31 December 2028.

In line with a Programme for Government commitment, I am reducing the rate of VAT that applies to hairdressing services as well as the sale of food and certain drinks in the hospitality sector from 13.5 per cent to 9 per cent from 1 July 2026. This will help protect the jobs of the many people employed in our small coffee shops, restaurants and hairdressers nationally.

I am also extending the 9 per cent rate of VAT on gas and electricity bills. This measure will support households across the country as energy prices remain high.

This was introduced by way of Financial Resolution on Budget night and the Bill gives effect to it until 31 December 2030.

This Finance Bill confirms the Budget night increase in Tobacco Products Tax. Smoking remains Ireland’s leading cause of preventable death, and the government is committed to reducing smoking prevalence. This public health policy objective drives Ireland’s tobacco tax: our annual rate changes are designed to raise the price in order to lower the level and uptake of smoking. Such a tax policy is promulgated by the World Health Organisation for supporting public health, and in 2022 the Commission on Taxation and Welfare endorsed using tobacco taxation to fight tobacco consumption.

I now turn to the contents of the Bill itself. It is a substantial Bill, running to 102 sections and over 140 pages. The first sections deal with income tax items.

Section 2 increases the Universal Social Charge (USC) 2 per cent ceiling by €1,318 to €28,700 for the 2026 year of assessment onwards. This change is made in line with the national minimum wage applicable in 2026 and will ensure that the 2 per cent remains the highest rate of USC that is charged on the income of a full-time worker on the national minimum wage. It also provides for a two-year extension of the reduced rate of USC for medical card holders.

Section 3 extends the Rent Tax Credit in its current form for a further three years, until 31 December 2028.

Section 4 extends the Mortgage Interest Tax Relief for the 2025 and 2026 years of assessment. For claims relating to 2025, the maximum value of the credit will remain at €1,250 with a 50 per cent reduction applying for claims relative to 2026.

Section 5 updates the underlying legislative provisions for the compensation payable to a living donor of a kidney or a lobe of a liver under conditions defined by the Minister for Health so that such payments remain exempt from Income Tax.

Sections 6 – 10 provide for several amendments pertaining to charities and sporting organisations.

Section 11 extends the Income Tax disregard of €400 for income received by households who sell electricity from micro-generation back to the grid for a further three years to the end of 2028.

Sections 13 – 17 are related to pensions, they introduce a new reporting obligations for qualifying fund managers in respect of Approved Retirement Funds and also set out the taxation and relief rules for the Automatic Enrolment Retirement Savings Scheme.

Section 18 provides for an extension of the Key Employee Engagement Programme (KEEP) until 2028. This extension is subject to Commencement Order, as the scheme is a notified State Aid and must be approved by the EU Commission.

Section 21 extends the Foreign Earnings Deduction (FED) scheme until 31 December 2030. From 1 January 2026, the level of relief is increased to €50,000 and the Philippines and Türkiye are included as relevant states for purpose of the scheme. The Bill also includes additional amendments to simplify the relief, while ensuring it is appropriately calibrated.

Section 22 extends the Special Assignee Relief Programme (SARP) until 31 December 2030. From 1 January 2026, the minimum salary requirement is increased to €125,000. Additional amendments are also being introduced to make the relief more practical.

Section 23 introduces a new vehicle category for zero emission cars, where the lowest Benefit in Kind (BIK) rates will apply. This section also extends the temporary reduction in the Original Market Value (OMV), for the purpose of determining the BIK payable on certain categories of cars. The OMV will be reduced by €10,000 for the 2026 year of assessment, €5,000 for 2027 and €2,500 for 2028.

Section 24 provides for the same reduction in the OMV for vans, including electric vans, for the purpose of determining BIK.

Section 25 provides for an extension, until 31 December 2030, of the accelerated wear and tear allowances on capital expenditure incurred on certain energy efficient equipment used for the purpose of carrying on a trade.

Section 26 provides for an extension, until 31 December 2030, of the acceleration of wear and tear allowances on capital expenditure incurred on gas and hydrogen vehicles and refuelling equipment used for the purposes of carrying on a trade.

Section 28 provides for an extension of the Accelerated Capital Allowances scheme for capital expenditure incurred on slurry storage to 31 December 2029.

Section 29 provides for the changes to the Living City Initiative that I referenced earlier in this speech. These include an extension until the end of 2030 and an expansion in scope to include properties built before 1975, amongst other measures.

Section 30 extends the deduction that is available to landlords that incur certain retrofitting expenditure in respect of rented residential properties until 31 December 2028.

Section 31 inserts a new section to the TCA to allow Revenue to estimate the Income Tax or Corporation Tax due for those that are registered for these taxes but that fail to make returns, in line with their statutory obligations.

Section 32 provides for a Corporation Tax exemption for rental income arising from dwellings designated as cost rental under Part 3 of the Affordable Housing Act 2021.

Section 34 makes changes to the Research and Development Tax Credit including increasing the rate of the credit from 30 to 35 per cent and in the first-year payment threshold from €75,000 to €87,500.

Section 36 reduces from 41 per cent to 38 per cent the rates of taxation that apply to investments in Irish domiciled funds and life assurance policies, and to equivalent offshore funds and certain foreign life assurance policies.

Section 38 introduces a Dividend Withholding Tax Exemption for Investment Limited Partnerships and equivalent EU/EEA partnerships. This seeks to support opportunities for growth in the funds industry.

Section 40 introduces the new Section I mentioned at the start of my speech to provide for the enhanced Corporation Tax deduction for apartment construction expenses.

Section 43 amends the Film Corporation Tax Credit to introduce an enhanced credit of 40 per cent for qualifying visual effects projects, subject to certain conditions.

Section 44 extends the Digital Games Corporation Tax Credit for a period of 6 years until 31 December 2031. It also extends the scope of the credit to the development of post-release digital context.

Section 49 enhances the existing Capital Gains Tax Revised Entrepreneur Relief by increasing the lifetime limit on gains to which the relief applies, from €1 million to €1.5 million for disposals made from the 1st of January 2026.

Section 53 provides for the Budget increases in the rates of tobacco products tax of 50 cent on a pack of 20 cigarettes in the most popular price category, on a VAT-inclusive basis, with pro rata increases on other tobacco products.

Section 66 provides for an extension of the 9 per cent rate of VAT on gas and electricity until 31 December 2030.

Section 67 provides for the 9 per cent rate of VAT to apply to the sale of new apartments until 31 December 2030.

Section 68 provides for the application of the 9 per cent rate of VAT to apply to the supply of hairdressing services, and food and certain drinks supplied in the hospitality sector, from 1 July 2026.

Section 79 introduces a new market cap exemption Stamp Duty threshold of €1 billion for Irish SMEs and start-ups trading on regulated markets. For companies below this threshold, the 1 per cent Stamp Duty charge paid on share transactions will not apply.

Section 80 extends the bank levy for a further year.

Section 82 provides for a 4-year extension of the Stamp Duty Relief that is available for qualifying young, trained farmers.

In the miscellaneous provisions section of the Bill, Section 89 inserts a new section to the TCA to for the transposition of Part I of the OECD International Standards for Automatic Exchange of Information in Tax Matters: Crypto-Asset Reporting Framework.

Sections 94 – 98 provide for technical and care and management amendments.

Section 99 makes a number of changes to the Residential Zoned Land Tax, including to provide a further opportunity to landowners whose land will appear on a revised map to be published by 31 January 2026 to request the rezoning of such land by the Local Authority in whose functional area the land is situated.

With the time available today, I have not been able to speak to every section of the Bill. Further detail is set out in the Explanatory Memorandum published alongside the Bill. As is customary with the Finance Bill, there are still a number of matters under consideration which I may bring forward as amendments during future legislative Stages.

The Bill sets out the legislative provisions to bring effect to the tax measures announced in the Budget. These measures seek to support households, businesses, jobs and investment and overall, to protect our economy. I look forward to working with everyone in the House as we bring forward this important legislation in the coming weeks.

I commend the Bill to the House.