The role of CGT and CAT in the future funding of our State’s finances

01 June 2023

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As part of our social contract, we pay our taxes and in return, those on limited means are supported, we receive a pension when we are older and public services are funded. All good. However, will we have enough tax income to fund the operation of the State into the future? Answering that question was the task allotted to the Commission on Taxation and Welfare, which published its report in September of 2022 but was not the subject of previous blogs. The report (a link to which is set out below) makes for fascinating reading as a snapshot of the overall picture of the States “household budget” and the inner workings of balancing the books and policy choices when it comes to taxation and spending. It gives a tremendous insight into how the State manages to financially survive.

It may come as a surprise to you that CAT and CGT were given a significant focus in the report and were looked at as under-utilised taxes which could be brought into play to help expand the tax base of the State. In particular, the report made the following recommendations

  • That death should be considered a disposal for CGT and that death would trigger a CGT liability
  • That principal private residence relief for CGT should be restricted over time
  • That reform be made in relation to retirement relief. At the moment there is a complete exemption from CGT in relation to the transfer of a business if you transfer it to a child and the disponer is between 55 – 65. There is a € 3 million limit in relation to disposals after the disponer is 66 or over. The Commission recommended lifetime limits on all disposal of businesses and farms to children.
  • The Commission felt that the gap between the Group A and the Group B threshold was too wide and Group A thresholds should come down.
  • The Report also recommended tapering back of the 90% relief in agricultural and business relief. The Report noted that when agricultural relief was first introduced it was a 50% value relief. The Report also recommended that the active farmer test would be a more “genuine” test and so that the option to lease out the land to an active farmer be abolished.
  • Finally, it noted that the 33% tax rate only kicks in when you exceed the threshold. The Commission felt that a modest low tax should apply for all gifts and inheritance before you reach the threshold.

How you view the role of tax in society speaks very clearly to your core beliefs of how society should be organised. So one would be familiar with contrasting approaches in the US where Republican-leaning politics supports the view that taxes should be kept to a minimum to allow free enterprise, supporting business growth and individual effort to support oneself, while Democratic party-leaning politics favours a more interventionist approach and taxes being used as a source to redistribute wealth. In the early 2000s during the height of the boom, this was classed in Ireland as the Boston v Berlin model. The report is very much on the Berlin side of the debate and regardless of where one sits on that spectrum of societal organisation it is clear that capital taxes will be a far more prominent actor in the ongoing drama of how we organise ourselves in Ireland.

Here is a link to the report.

If you have any tax, probate or will drafting queries, please remember to reach out to me on the query service on the probate hub website.