Derek Nolan (Galway West, Labour)
Link to this: Individually | In context | Oireachtas source

201. To ask the Minister for Finance if recent changes in the cap on the finance-benefit in kind transfers that parents can gift to their children tax free also refer to the transfer of land, either as a site for a house or as a farm; if land is an asset for inheritance or gift during lifetime purposes in transactions between parents and offspring; and if he will make a statement on the matter. [3445/15]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Capital Acquisitions Tax (CAT) is the overall name for both Gift and Inheritance Tax. The tax is charged on the amount gifted to, or inherited by, the beneficiary of the gift or inheritance.

I am informed by the Revenue Commissioners that, for the purposes of CAT, the relationship between the person who provides the gift or inheritance (i.e. the disponer) and the person who receives the gift or inheritance (i.e. the beneficiary), determines the maximum life-time tax-free threshold known as the "Group threshold" -  below which gift or inheritance tax does not arise.

There are, in all, three separate Group thresholds based on the relationship of the beneficiary to the disponer.

Group A: tax free threshold €225,000 - applies where the beneficiary is a child (including adopted child, stepchild and certain foster children) or minor child of a deceased child of the disponer. Parents also fall within this threshold where they take an inheritance of an absolute interest from a child.

Group B: tax free threshold €30,150 - applies where the beneficiary is a brother, sister, a nephew, a niece or lineal ancestor or lineal descendant of the disponer.

Group C: tax free threshold €15,075 - applies in all other cases.

In the case of the Group A tax-free threshold, each child is separately entitled to receive life-time gifts or inheritances up to the total value of €225,000 from his or her parents before that child would have any liability to CAT.  Gifts or inheritances received by the child since 5 December 1991 from his or her parents are aggregated for the purposes of determining whether this threshold is exceeded.  CAT is charged on the amount of the gift or inheritance that exceeds the child's tax-free threshold of €225,000 at the rate of 33% and on that excess only.

Land, either as a site or as a farm, is an asset for both gift and inheritance tax purposes and the transfer of such capital assets by parents to children, either during the lifetime of the parents, or on the death of the parents, is within the scope of CAT. The transfer of such capital assets has always been subject to CAT and the Finance Act 2014 changes in restricting the CAT exemption for normal and reasonable payments made by parents to children for their support, maintenance or education has not changed this position.

It should be noted that since the introduction of CAT in 1975 special treatment has been afforded to gifts or inheritances of agricultural propertyhowever, this does not apply to gifts of sites for house building. Agricultural Relief is available provided the conditions applicable to the relief are fulfilled. The effect of the relief is that market value of agricultural property gifted or inherited is reduced significantly for the purposes of determining the amount of CAT, if any, payable on a gift or inheritance of such property.Currently, the market value of agricultural property is reduced by 90%.  

This means that, where agricultural relief applies, parents can normally transfer agricultural property up to the value of €2,250,000 to each of their children, provided the children satisfy the conditions applicable to the relief, without any liability to CAT arising on the transfer. If the agricultural property is worth €2,250,000 and agricultural relief applies, the taxable value of the agricultural property is reduced by 90% from €2,250,000 to €225,000 for CAT purposes. Assuming the child has received no previous gifts or inheritances from the parent since 5 December 1991, the reduced value of the gift or inheritance equals the €225,000 tax-free threshold resulting in no CAT liability for the child.

This special treatment of agricultural property for CAT purposes ensures that the transfer of most family farms by parents to children, either by way of gift or inheritance, is not subject to CAT. 

1. Agricultural Property includes: agricultural land, pasture and woodland, crops, trees and underwood growing on such land, farm buildings, farm houses, farm machinery and livestock and bloodstock.