Ireland's Finance (No. 2) Bill 2026 establishes updated OECD Pillar Two safe harbours, extends the Knowledge Development Box to 2032, and expands R&D relief alongside administrative corporate tax reforms.
Ireland’s Department of Finance announced yesterday, 19 October 2026, the publication of the Finance (No. 2) Bill 2026 and its accompanying Explanatory Memorandum to implement Budget 2027. The Bill includes changes to corporate and personal taxation, Pillar Two legislation, investment tax reliefs and property taxes.
Corporate tax and business measures
Research and development tax credit
The Bill enhances Ireland’s Research and Development (R&D) Tax Credit, which provides a 35% tax credit for qualifying expenditure incurred on activities undertaken to resolve scientific or technological uncertainty.
The limits on qualifying costs subcontracted to third-level institutions and third parties will increase from 15% to 20% of in-house R&D expenditure, or from EUR 100,000 to EUR 200,000, whichever is greater, for each category.
The first-year payment threshold will rise from EUR 87,500 to EUR 105,000. Companies will also be allowed to increase their qualifying cost base by 5% of qualifying R&D wage costs. An additional change will improve recognition of the credit for preliminary Corporation Tax purposes.
Further legislation concerning the treatment of regulated clinical trials under the science test, recognition of Irish companies’ contributions to global trials and administrative simplification is expected to be proposed at Committee Stage.
Knowledge development box
The Knowledge Development Box (KDB), an OECD-compliant intellectual property regime, will be extended to accounting periods commencing on or before 1 January 2032. The Bill will also provide existing claimant companies with a time-limited option to opt out of the regime for all currently qualifying assets.
Start-up tax relief
Tax relief for start-up companies, which applies to Corporation Tax on trading income and certain capital gains during their first five years of trading, will be extended by four years to 31 December 2030.
Preliminary corporation tax
The Bill introduces administrative changes to preliminary Corporation Tax requirements to reduce uncertainty and provide greater flexibility for companies. The changes will not affect the overall amount of Corporation Tax receipts, although the timing of receipts may change in some cases.
Pillar Two
Ireland will amend its Pillar Two legislation to reflect the OECD Side-by-Side Package agreed in January 2026 and further Administrative Guidance published by the OECD in May and September.
The amendments will cover the Simplified Effective Tax Rate Safe Harbour, Substance-based Tax Incentive Safe Harbour, Ultimate Parent Entity Safe Harbour, Side-by-Side Safe Harbour and extension of the existing Transitional Country-by-Country Reporting Safe Harbour. Penalty and filing provisions will also be updated to reflect the agreed changes.
Taxation of interest
Targeted amendments will simplify provisions governing the taxation of interest, including interest relief on borrowings used for certain lending and investment activities. The changes form the first set of amendments under the ongoing review of Ireland’s taxation regime for interest.
Enhanced reporting requirements
Employers will have greater flexibility under the Enhanced Reporting Requirements (ERR). They may continue reporting certain tax-free payments on or before they are made or report them by the 14th of the month following the Income Tax month in which the benefit is provided.
The amendment responds to stakeholder feedback and concerns, particularly among small and medium-sized enterprises, about the existing reporting deadline.
Personal income tax and investment changes
Income tax and USC
The personal income tax package is estimated to cost EUR 1.3 billion in 2027 and EUR 1.5 billion in a full year.
The standard rate cut-off point for a single person will increase by EUR 2,500 to EUR 46,500, with corresponding increases for married persons and those in civil partnerships. The Personal, Employee/PAYE and Earned Income tax credits will each rise by EUR 125 to EUR 2,125. The Home Carer Tax Credit will increase by EUR 100 to EUR 2,050.
For the Universal Social Charge (USC), the ceiling of the 2% rate band will rise by EUR 1,600 to EUR 30,300 from 1 January 2027, reflecting the increase in the National Minimum Wage.
Investment account and investment taxation
A new investment account will become available from 1 July 2027 to Irish-resident individuals aged 18 and over who hold a Personal Public Service Number (PPSN).
The account will apply a flat-rate tax of 1% to the account value exceeding a EUR 50,000 tax-free threshold, with annual contributions capped at EUR 12,000. Tax will be calculated using the average of daily account values. Initially, each person may hold one account, and providers will calculate and pay any tax due to Revenue on behalf of investors. Existing retail investment tax regimes, including the deemed disposal rule, will not apply to qualifying accounts.
Separately, the Investment Undertaking Tax and Life Assurance Exit Tax rates will fall from 38% to 35%. The reduction will also apply to equivalent offshore investment funds and certain foreign life assurance policies, subject to the stated exclusions. New provisions will clarify the taxation of investors holding units in Irish-domiciled investment funds through recognised clearing systems, including Irish-domiciled exchange-traded funds.
Capital gains tax and capital acquisitions tax
The standard Capital Gains Tax (CGT) rate under Section 28(3) of the Taxes Consolidation Act 1997 will decrease from 33% to 31%, effective from 7 October 2026.
The standard Capital Acquisitions Tax (CAT) rate will remain at 33%. However, tax-free thresholds for gifts and inheritances taken on or after 7 October 2026 will increase as follows:
- Group A: from EUR 400,000 to EUR 420,000.
- Group B: from EUR 40,000 to EUR 44,000.
- Group C: from EUR 20,000 to EUR 22,000.
Third-level fees
From the 2026 year of assessment, the disregard amount used to calculate income tax relief on qualifying third-level tuition fees will decrease from EUR 3,000 to EUR 2,350 for full-time students and from EUR 1,500 to EUR 1,175 for part-time students.
Property and housing measures
Derelict property tax
A new Derelict Property Tax will be administered by the Revenue Commissioners using registers compiled by local authorities. From January 2027, local authorities will identify derelict properties in towns with populations of 4,000 or more and provide the details to Revenue.
Owners will be required to pay tax equal to 7% of the property’s value by June 2028 unless they take steps to remediate the property.
Rent tax credit and rent-a-room relief
For 2027 and 2028, the Rent Tax Credit will increase by EUR 150 to EUR 1,150 for a single claimant and by EUR 300 to EUR 2,300 for a jointly assessed couple.
From 1 January 2027, the annual rental income ceiling for Rent-a-Room relief will rise from EUR 14,000 to EUR 16,000. The relief will also cover qualifying auxiliary dwellings, including certain modular homes measuring between 32 and 45 square metres, installed after 27 July 2026 and compliant with the 2026 Planning Regulations.
Help to buy
The maximum Help to Buy relief will increase from EUR 30,000 to EUR 35,000 for eligible first-time buyers. From 7 October 2026, the available relief will be the lowest of EUR 35,000, 10% of the new property’s purchase price, or the Income Tax and Deposit Interest Retention Tax (DIRT) paid during the four years before the application.
The increased limit applies to qualifying new-build purchase contracts or first mortgage drawdowns for self-build homes entered into on or after 7 October 2026.
The Bill also provides a further opportunity for landowners whose properties appear on the revised Residential Zoned Land Tax map for 2027 to request rezoning and, subject to conditions, claim an exemption from the 2027 liability.
Agriculture, childcare and climate measures
The accelerated Capital Allowances scheme for farm safety equipment will be extended to the end of 2029, with 12 additional items bringing the total covered to 31.
For succession farm partnerships registered from 1 January 2027, the annual tax credit will double from EUR 5,000 to EUR 10,000 for up to five years. The minimum three-year holding period before assets can be transferred under the scheme will also be removed for qualifying new applications.
The Farmer’s Flat Rate VAT payment will increase to 4.8% from 1 January 2027. VAT on non-oral respiratory vaccines for livestock will fall from 23% to 9% on the same date.
Childminders providing services in their own homes will be able to earn up to EUR 20,000 exempt from Income Tax and USC, up from EUR 15,000. The existing limit of three children will be removed, while current regulatory requirements will remain. The Bill will also exempt qualifying Nurturing Skills Learner Fund rebates from Income Tax, USC and PRSI where recipients remain in childcare employment for six continuous months after completing a relevant third-level course.
The annual exemption for qualifying income from surplus electricity sold to the grid will increase from EUR 400 to EUR 600. Carbon tax increases on certain fuels will be deferred or adjusted, while the Vehicle Registration Tax relief for eligible electric vehicles will be extended to the end of 2028. From 1 January 2027, Category A Vehicle Registration Tax rates for bands 3 to 20 will rise by one percentage point.
Other tax and excise changes
The Bill will extend the Bank Levy for 2027, retaining its EUR 200 million revenue target and applying it to AIB, EBS, Bank of Ireland and PTSB.
A new 25% duty on commissions earned from totalisator or pool betting activities will take effect on 1 January 2027, with an exemption for on-course pool bets.
The aggregate market value limit for donations of heritage items to Irish national collections will increase from EUR 8 million to EUR 12 million annually from 2027.
Tobacco excise duty increased on Budget night by an amount equivalent to EUR 1, including VAT, on a pack of 20 cigarettes in the most popular price category, with pro-rata increases for other tobacco products. From 1 January 2027, excise duty on e-liquid products will rise by EUR 0.20 per millilitre, excluding VAT, bringing the total excise to EUR 700 per litre.
The Bill also includes technical and administrative amendments to Ireland’s tax code as part of the implementation of Budget 2027.
