Denis Naughten (Longford-Roscommon, Fine Gael)
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Question 153: To ask the Minister for Finance the position regarding the introduction of roll-over relief on capital gains tax for farmers who have had their lands purchased for road construction or wish to consolidate their farms; and if he will make a statement on the matter. [26179/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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As previously advised to the Deputy in replies to parliamentary questions on 30 November 2004, 28 June 2005 and 28 September 2005, capital gains tax is a tax on a capital gain arising on the disposal of assets. A 20% rate of CGT applies on the gains arising on the disposal of assets, including land which is the subject of a compulsory purchase order. It was announced in the 2003 budget that no roll-over relief would be allowed for any purpose on gains arising from disposals on or after 4 December 2002. This relief was introduced when CGT rates were much higher than current levels. In effect, it was a deferral of tax to be paid, where the proceeds of disposal were re-invested into replacement assets. The taxation of these gains would take place following the eventual disposal of the new assets without their replacement. The abolition of this relief was in accordance with the overall taxation policy of widening the tax base in order to keep direct tax rates low. Such reliefs and allowances made sense when CGT rates were 40% and above. In budget 1998, the rate was halved from 40% to 20%. Taxing capital gains when they are realised is the most logical time to do so, and this change brought CGT into line with other areas.

In budget 2005, I announced a special stamp duty relief relating to an exchange of farm land between two farmers for the purposes of consolidating each farmer's holding. The relief is contained in section 121 of the Finance Act 2005, which provides that no stamp duty will be charged on an exchange of such lands where the lands are of equal value. In a case where the lands exchanged are not of equal value, stamp duty will only be charged on the amount of the difference in the value of the lands concerned. Guidelines on the application of this relief are available from the Department of Agriculture and Food.