Special Finance (No.2) Bill 2026: Income Tax Provisions Explained

Income Tax, Corporation Tax, EII, SURE, Withholding Tax, Taxation of Investments, Deemed Disposal

The Finance (No.2) Bill 2026 was published today, 19th October 2026. This seventy-nine-section Bill gives legislative effect to the tax measures announced in Budget 2027. These significant changes will directly affect businesses, investors, property owners and individual taxpayers alike. Specifically, the legislation introduces a new Individual Investment Account. It revises the rules on interest deductibility. Furthermore, the Bill updates the R&D Tax Credit, the Knowledge Development Box and start-up relief. It also revises Pillar Two regulations.  In addition, the Bill establishes a new framework for mandatory electronic invoicing and digital VAT reporting. It also introduces amendments to preliminary Corporation Tax requirements and provides greater flexibility for employers under the Enhanced Reporting Requirements (ERR).

INCOME TAX

Income Tax Bands and Credits

Section 3 confirms the key income tax changes starting in 2027. The single person’s standard rate tax band rises by €2,500 to €46,500, with a matching increase to €55,500 for married couples and civil partners with one earner. Additionally, the main personal tax credits, including the Personal, Employee, and Earned Income credits, each increase by €125 to €2,125. The Home Carer Tax Credit rises to €2,050.

Universal Social Charge (USC) Rates and Bands

Ireland’s Budget 2027 increased the 2% Universal Social Charge (USC) band ceiling from €28,700 to €30,300, effective 1^st January 2027. Section 2 of the Finance Bill confirms this €1,600 increase to align with the new National Minimum Wage of €14.94 per hour. By adjusting the tax threshold, the aim is that full-time minimum wage workers do not trigger a higher USC rate on their baseline earnings.

Taxation of Investment Products

The Bill eases the tax treatment of several existing investment products. This measure forms part of a broader Government agenda to make retail investment simpler and more accessible. Specifically, Section 29 reduces the tax rate on income and gains from 38% to 35%, effective from 1^st January 2027. This 35% rate applies to domestic and certain foreign life assurance policies. It also applies to Irish-domiciled investment funds. Equivalent offshore funds in EU, EEA, and DTA partner states will benefit as well.

Separately, Section 28 introduces a clearer regime for investment fund units held through recognised clearing systems. This change directly impacts Irish domiciled exchange-traded funds (ETFs).

Under this section, these investors will no longer be taxed under offshore fund provisions. Consequently, the investment undertaking does not need to operate investment undertaking tax (IUT). Instead, Irish resident investors will self-assess their own tax liabilities at the new 35% rate.

Importantly, this regime retains the existing eight-year deemed-disposal concept.

Housing Reliefs

The Bill introduces several positive changes for renters, homebuyers, and homeowners.

First, Section 4 increases the maximum Rent Tax Credit for the 2027 and 2028 tax years. Single renters will see the credit rise to €1,150 per year. Meanwhile, jointly assessed couples/civil partners or widowed individuals will receive up to €2,300.

Second, Section 17 extends the Help to Buy (HTB) scheme. It also increases the maximum relief by €5,000, raising the threshold from €30,000 to €35,000. This higher limit applies to contracts signed or self-build mortgage tranches drawn down between 7^th October 2026 and 31^st December 2029.

Finally, Section 16 expands Rent-a-Room Relief from 1^st January 2027. The income exemption limit increases from €14,000 to €16,000. This cap now includes income from qualifying “auxiliary dwellings” like granny flats or garden rooms.  To qualify, these auxiliary structures must be installed between 27^th July 2026 and 31^st December 2030. They must also comply with specific planning regulations. Furthermore, claiming this relief will not negatively impact your Principal Private Residence CGT relief or mortgage interest relief.

Tax relief for third level fees

The Bill improves income tax relief for individuals paying qualifying third-level tuition fees. This relief is available for approved courses at approved colleges.

Specifically, Section 6 aligns the tax relief with the current Student Contribution Fee rate. It achieves this by reducing the baseline “disregarded amount” that is ineligible for relief. This change takes effect from the 2026 year of assessment onwards.

For full-time courses, the disregarded amount falls by €650, dropping from €3,000 to €2,350. For part-time courses, the amount drops by €325, falling from €1,500 to €1,175.

Consequently, this change effectively increases the tax relief available to families. The lower €1,175 disregard amount also applies to additional qualifying family members.

Childcare Services Relief

The Bill introduces significant improvements to Childcare Services Tax Relief. This relief provides a valuable tax exemption for individuals who mind children in their own homes.

Specifically, Section 7 increases the exemption ceiling from €15,000 to €20,000 in gross annual income. This means qualifying childminders can earn up to €5,000 more which is exempt from Income Tax and USC. This change will apply for the 2027 tax year and all subsequent years.

Furthermore, the Bill removes the rigid limit on the number of children cared for at any one time. Previously, the scheme capped this at three children.  Instead, childminders can now care for more children. However, they must still comply with prevailing childminding regulatory requirements. This includes official registration on the register of prescribed early year services where required.

Investment Account

Sections 26 and 27 introduce the Individual Investment Account (IIA). Launching on 1^st July 2027, which aims to make retail investing simpler and more accessible. Crucially, the account completely bypasses the eight-year deemed disposal rule.

Key Rules for Investors

The IIA is available to Irish tax-resident individuals aged 18 and over who hold a PPSN.

Strict structural rules apply to the scheme:

• Account limits: Individuals may only hold one account at a time in their sole name.

• Contribution cap: Annual contributions are capped at a maximum of €12,000.

• Residency checks: Investors must pause contributions if they become non-resident.

The New Tax Framework

The IIA replaces standard taxes with a flat 1% annual Investment Account Tax (IAT). This tax applies only to the average account value above a €50,000 tax-free threshold.

Providers will calculate the account value daily to find the average values for the purposes of calculating any tax that may arise. All income and gains within the account are exempt from further income tax, USC, or capital gains tax. Furthermore, individuals do not need to report these gains on self-assessment tax returns. However, investment losses cannot be claimed.

Provider Obligations & Eligible Assets

Only authorised financial firms like regulated banks, investment firms, and insurers can offer IIAs. Providers must register with Revenue in advance. Crucially, they will handle all administration, daily valuations, and tax collection.

Eligible investments include standard shares, bonds, UCITS, and insurance-based investment products. However, the scheme explicitly excludes personal portfolio policies, structured UCITS and shares from employee share schemes.

Succession Farm Partnership Tax Credit

Section 23 introduces major upgrades to the Succession Farm Partnership (SFP) scheme. This tax credit serves as an income tax incentive to encourage farmers to transfer their business to successors in a timely manner.

For partnerships registered on or after 1^st January 2027, the annual tax credit doubles from €5,000 to €10,000. This enhanced credit remains available for up to five years.

Furthermore, the legislation removes the rigid three-year holding period before an asset transfer can take place. Previously, farmers had to wait three years before transferring at least 80% of farm assets.

Finally, the Bill updates the clawback rules to match the higher tax credit. The related income cap will double from €125,000 to €250,000 from 1^st January 2027.

Alongside the partnership changes, farmers will benefit from extended safety incentives. The accelerated capital allowance for farm safety equipment is officially extended to 31^st December 2029. In addition, the legislation introduces an expanded list of qualifying safety equipment.

For full information please click: https://www.gov.ie/en/department-of-finance/press-releases/department-of-finance-publishes-finance-bill-no2-2026/

For all your Income Tax advisory and tax compliance requirements, please contact us at info@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.