The Government’s decision to reduce the standard rate of capital gains tax (CGT) will cost the exchequer an estimated €186 million in a full year, making it the single most expensive measure announced in Budget 2027 outside the personal income tax package.
Tánaiste and Minister for Finance Simon Harris said the reduction in the CGT rate from 33 per cent to 31 per cent would “reward risk and facilitate the scaling-up of home-grown Irish firms”.
The new 31 per cent rate, which applies to profits from the sale or gifting of an asset, will not apply to sales of development land, which will continue to be taxed at 33 per cent, the Department of Finance said. It will apply to disposals made on or after October 7th.
The measure will cost the exchequer €46.5 million next year and €186 million in a full year, according to the Department of Finance’s estimates, published with the budget on Tuesday.
Úna Ryan, tax partner at Grant Thornton Ireland, said the reduction, while modest, is “very much welcomed”.
However, she said it is “unlikely to materially change investment decisions, encourage significantly greater levels of entrepreneurship or meaningfully accelerate the recycling of capital into the Irish economy”, and a larger cut would have been better in that regard.
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Separately, Harris announced several changes to the research and development (R&D) tax-credit regime. The relief allows businesses undertaking research to claim back a percentage of the total costs of their activities in cash or against their corporation tax bill in annual instalments.
Currently, companies can claim back up to €87,500 in the first year. This threshold will now increase by 20 per cent to €105,000, to provide cash flow support to smaller R&D projects, Harris said in his budget speech.
It comes after his predecessor, Paschal Donohoe, increased the amount of relief available to businesses under the scheme from 30 per cent to 35 per cent of qualifying expenditure in Budget 2026.
At the time, the Coalition also increased the threshold for first-year refunds under the scheme to €87,500 from €75,000 to support smaller projects.
On Tuesday, Harris said the upcoming finance bill will increase the existing limits for work subcontracted to third-level institutions and third-party companies to 20 per cent or €200,000, whichever is greater.
At the moment, companies can claim back subcontracted R&D costs of 15 per cent, up to a maximum of €100,000, against their total qualifying in-house R&D expenditure.
The so-called angel investor relief, which offers reduced rates of CGT to qualifying individuals and partnerships, has also been extended.
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The changes will cost an estimated €58.6 million next year and €118.3 million in a full year.
Commenting on the budget announcement, Ian Collins, tax partner and head of innovation incentives at EY Ireland, said businesses were not expecting movement on the headline rate after the changes announced last year.
“However, they have been looking for continued progress in modernising and broadening the R&D regime to make it more fit for purpose,” he added.
Separately, the Government announced a commitment to invest €1 billion in the scaling-up of indigenous Irish companies through the Ireland Strategic Investment Fund (ISIF).
“This is ISIF’s biggest ever investment in scaling, and it will be a three-year programme running up to 2030,” Harris said.