John McGuinness (Carlow-Kilkenny, Fianna Fail)
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114. To ask the Minister for Finance his plans to make changes to the capital acquisitions tax and capital gains tax rules in order to facilitate seamless business succession; and if he will make a statement on the matter. [19260/15]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that the following measures are currently in place to facilitate business succession.

Capital Gains Tax

Capital Gains Tax (CGT) is charged at the rate of 33% in respect of gains on the disposal of assets. The first €1,270 of gains made by an individual in any year is exempt from CGT.

A relief from CGT, known as retirement relief, is available where an individual aged 55 or over is disposing of business or agricultural assets. In order to qualify for the relief, those assets must have been owned and used for business or farming purposes for a period of 10 years prior to the disposal. Retirement relief has been available since the introduction of CGT in 1975.

In the case of disposals outside the family, full relief applies where the consideration for the disposal is €750,000 or less. The threshold is reduced to €500,000 where the person disposing of qualifying assets is aged 66 or over and the disposal takes place on or after 1 January 2014. Marginal relief applies where the consideration slightly exceeds the relevant thresholds.

Where the disposal is within the family, for example, a disposal by a parent to a son or daughter, there is no upper limit on the relief except where the person who is disposing of the qualifying assets is aged 66 or over and the disposal takes place on or after 1 January 2014. In such a case, the relief is capped at €3m.

Capital Acquisitions Tax

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.

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 €225,000applies 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.

Where a gift or inheritance consists of business property (such as land, buildings, plant and machinery), the value of the business may be reduced by 90% for CAT purposes provided certain conditions are met, for example, minimum periods of business usage of the property both before and after the gift or inheritance. This specific relief from CAT on the transfer of businesses by way of gift or inheritance was introduced in 1994 and is known as CAT Business Relief.

The introduction of business relief was an acknowledgement by the government of the day that it wished to encourage entrepreneurial activity and also prevent the forced sale of trading entities to pay significant CAT liabilities.

As stated, business relief reduces the taxable value of qualifying business property by 90% when calculating CAT.

Therefore, when business relief applies in full, business property with a market value of, say, €1m, would be treated as worth only €100,000 when calculating CAT. This can have the effect of reducing the effective rate of CAT from 33% to 3.3% on the transfer of a business. Business relief or CAT agricultural relief may also be availed of in the farming sector

It would be inappropriate for me to discuss specific potential measures which may be reviewed as part of the Budget process. However, I am open to the consideration of proposals the Deputy or others may wish to put forward as part of the pre-Budget consultation process.