Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I thank the Deputy for raising the matter. I apologise that the Minister for Finance, Deputy Noonan, cannot be here, as he is still in Brussels. However, I am very pleased to be here. I do not believe capital acquisitions tax, CAT, is a tax only on the super-wealthy. It has an impact on many normal families in terms of the inheritance of family homes. CAT applies to the beneficiary of a gift or inheritance rather than to the person making the gift or inheritance. While the rate of CAT is 33%, each person has a number of lifetime thresholds for gifts and inheritances which they can receive tax-free. These are based on the relationship with the person who has made the gift or bequest. The group A threshold of €225,000 applies primarily in cases in which an asset passes from a parent to a child. The group B threshold of €30,150 applies primarily to transfers between other close relatives. The group C threshold of €15,075 applies between more distant relations and people who are not related.

The 33% rate of CAT applies to assets received by a person above the relevant threshold. Gifts and inheritances between spouses and civil partners are exempt from CAT. Over recent years, the CAT thresholds have been reduced a number of times, while the rate has been increased. These changes were necessary in order to maintain the yield from capital taxes in a period of falling asset prices so that such taxes would continue to make a contribution to our efforts to consolidate the public finances. I welcome the fact that the Deputy has recognised this point. Moreover, the view of the OECD, supported by our own economic research, is that taxes on immovable property and certain other capital are less harmful and distortionary to economic growth than taxes on work or consumption.

As the economic recovery continues to take hold, the Minister for Finance began, in this year's budget, to focus available resources on reducing the burden of taxation on earned income and take-home pay where high taxes impact on competitiveness, economic growth and job creation. The Minister has indicated that this will continue to be his main focus. That said, the Minister recognises that recent growth in property values has implications for the liabilities that can arise from CAT. It is for this reason that he has already indicated to the House that he is reviewing the various aspects of this tax in the context of his preparations for the 2016 budget and the subsequent Finance Bill. While the Minister is not in a position to say at this point what specific changes he may or may not propose, he will be glad to take note of the views of the Deputy on this issue in the context of his review of the tax.

I have some comments to make on issues that have been raised in this area. When considering the inheritance of a family home, for example, it is worth noting the existence of the CAT dwelling house exemption, which allows for a property to be inherited tax free when the inheritor is already living in the home. While certain restrictions apply to ensure proper use, this exemption is designed to prevent cases of hardship or displacement for inheritors who are home sharers. In cases where the dwelling house exemption applies, the tax-free thresholds are unaffected and continue to apply separately and are available to an individual to cover the value of other gifts or inheritances which he or she may benefit from over his or her lifetime. The tax-free thresholds were previously indexed to inflation through the consumer price index. This link was ended following the financial crash, given that inflation was positive while property values were declining considerably. Fixed property makes up a large proportion of gifts and inheritances, especially inheritances.

The Minister will examine the question of whether it might be appropriate to index the thresholds in the future. A number of issues must be considered, including, for example, the availability of an appropriate index and the current functioning of the property market generally. Concerns have been expressed about the hardship that may be caused by the scale of CAT liabilities in certain circumstances. When a person who receives a gift or inheritance is not in a position to pay the CAT charge arising in one go, it may be possible, in certain circumstances, to arrange to pay the tax by instalments.

I will run out of time. In general, we take the Deputy's point. The Minister is considering the tax in the context of the forthcoming budget and will take the Deputy's views on board.

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