Michael McGrath (Cork South Central, Fianna Fail)
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195. To ask the Minister for Finance his views on whether the current rules regarding capital gains tax retirement relief on the transfer of certain business assets are fair and equitable in view of the fact that, for example, it imposes a tax charge of €125,000 on an 85 year old who has been in business for 50 years, but zero tax on a 55 year old selling a similarly valued business after just ten years; if is satisfied that the law introduced last year to promote early business transfers has failed to achieve its intended purpose and is in fact serving to act as an impediment to such transfers; and if he will make a statement on the matter. [20155/13]

Michael Noonan (Limerick City, Fine Gael)
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There are two provisions that provide relief in respect of capital gains tax to individuals who dispose of their business or farming assets on attaining certain ages, whether they retire or not. These are Section 598 of the Taxes Consolidation Act 1997 (which in the main is aimed at individuals who dispose of their business or farming assets outside of the family) and Section 599 of the Taxes Consolidation Act 1997 (which is aimed at individuals who transfer their business or farming assets to their children).

Both reliefs are aimed at smaller businesses and have been a feature of the capital gains tax system since its enactment in 1975. In the Finance Act of 2012 the terms of the relief were modified as follows:

Under Section 598, full relief from capital gains tax is granted to an individual aged 55 or over but less than 66 years who disposes of a business or farm where the consideration does not exceed €750,000. Where the consideration exceeds €750,000, any capital gains tax that may be payable is limited so that it cannot exceed 50% of the difference between the amount of the consideration and €750,000.


With effect from 1 January 2014, where an individual aged 66 or over disposes of a business or farm, the threshold by reference to which relief is granted is reduced to €500,000, again with a limit on any capital gains tax payable, where the consideration exceeds €500,000, so that it cannot exceed 50% of the difference between the amount of the consideration and €500,000.


As an interim measure, to facilitate any individual who wants to avail of the relief before the age and threshold changes take effect, an individual aged 66 or over who disposes of a business or farm in the year to 31 December 2013 will qualify for full relief by reference to the €750,000 limit.

As I mentioned in my Budget Speech of 2012, the intention of modifying the retirement relief from Capital Gains Tax is to better incentivise the timely transfers of farms and businesses before the current owners reach the age of 66. This approach is in keeping with the policy of the Minister for Agriculture, Food and the Marine of encouraging timely transfer of farm assets and improving the age profile of farming. Both the Commission on Taxation and the Department of Agriculture, Food and the Marine made recommendations regarding the capping of the Section 599 relief at €3 million and these recommendations were considered in the context of the amendments made to the reliefs. The intention of the more favourable reliefs for individuals who dispose of their businesses or farms between the ages of 55 and 66, relative to those who do so from 66 onwards is to encourage the passing on of those businesses or farms to a younger generation, thereby encouraging entrepreneurship and the increased productive use of business assets and farms.

In your question you state that an 85 year old person could incur a capital gains tax liability of €125,000. Based on the current rate of capital gains tax, this would mean that the person would have made a chargeable gain of in the region of €380,000 and where the business or farm was sold, would have realised a significant consideration on the disposal. In such circumstances, a contribution in the form of capital gains tax is considered appropriate. In the case of a farmer transferring his or her farm to a child, the threshold of €3 million is considered to be sufficiently high to ensure that in all but the exceptionally large farms this threshold will ensure that no capital gains tax charge will arise. If a capital gains tax charge should arise on the exceptionally large farms, it is considered appropriate that capital gains tax should be paid on any gain arising. The changes to these reliefs will apply to disposals arising on or after 1 January 2014. Accordingly, it is too soon to comment definitively on their impact at this stage. However, the reliefs will be kept under review.