Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

A fundamental principle of the capital acquisitions tax, CAT, regime is that inheritance or gift tax is levied on the beneficiary and that the level of taxation is determined according to his or her relationship with the disponer. The reason for this approach is that the capital being transferred has not been earned by the beneficiary and the effective taxation of windfall capital is an important tool for addressing income and wealth inequality.

There are a number of generous reliefs and exemptions to CAT available, one of which is the favourite niece or nephew relief. This relief allows a niece or nephew to be treated as a child of the disponer for CAT purposes in certain circumstances. A person may qualify for this relief if he or she receives a gift or inheritance of business assets, including farming assets. This means the person is entitled to the group A tax-free threshold, currently €335,000, when calculating the CAT liability for the gift or inheritance, rather than the group B threshold, which is currently €32,500. The use of this relief is not restricted to circumstances in which the disponer or beneficiary has no family. To qualify for this relief, the niece or nephew must have worked for the disponer for five years immediately before receiving the gift or inheritance and for a minimum number of hours per week. This is a targeted relief. The policy rationale underpinning the relief is to recognise a niece or nephew who has placed his or her labour and expertise at the disposal of the disponer for an ongoing period to the benefit of the business or farm.

If the Deputy's question refers to potentially extending this scheme, it would clearly represent a fundamental departure from the principles underpinning our CAT regime. It would also be a significant departure from the policy rationale of the relief. Such a move would undermine the basis of our CAT regime and could lead to a significant erosion of the revenue base. That is the reason I currently do not have plans to amend the favourite niece or nephew relief scheme.

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