Danny Healy-Rae (Kerry, Independent)
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213. To ask the Minister for Finance if he will consider extending the favourite nephew or niece relief to favourite successor to reflect changing demographics and family structures; and if he will make a statement on the matter. [31091/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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A fundamental principle of the Capital Acquisitions Tax regime is that inheritance or gift tax is levied on the beneficiary and that the level of taxation is determined according to their relationship with the disponer. The reason for this approach is that the capital being transferred has not been earned by the beneficiary. In this context, the effective taxation of windfall capital is an important tool for addressing income and wealth inequality, thus enabling our tax code create a fairer society.

There are a number of valuable reliefs from Capital Acquisitions Tax available. Once such relief is the CAT Favourite Nephew or Niece relief. This relief allows a nephew or niece to be treated as a child for CAT purposes, subject to certain conditions. This means that they will be entitled to the Group A tax-free threshold of €335,000, instead of the Group B tax-free threshold of €32,500, which would normally apply to this relationship.

The aim of this relief is to target a nephew or niece who has worked for their aunt or uncle over a 5-year period prior to inheritance for a minimum number of hours per week, putting their labour and expertise at the disposal of the aunt or uncle and making a sustained contribution to the business before inheritance.

When combined with CAT Agricultural Relief or CAT Business Relief, this relief is intended to support the intergenerational transfer of a family farm or a family business and is particularly important in circumstances where there may not be a direct descendant (e.g. child) to whom the family farm or business can be bequeathed.

However, extending the Favourite Nephew or Niece relief to allow the nomination of a ‘Favourite Successor’ would clearly represent a fundamental departure from the principles underpinning our current CAT regime, as well as a significant departure from the policy rationale of the Favourite Nephew or Niece relief. Such a move would also lead to an erosion of the revenue base. For example, this could result in a beneficiary who does not have a family relationship with the disponer becoming entitled to the same tax-free threshold as a child of the disponer, currently €335,000, instead of a tax-free threshold of €16,250.

In addition, this would most likely be followed by pressure to extend this more broadly, such as for disponers to seek to nominate a ‘Favourite Successor’ for their estate.

On this basis, there are currently no plans to extend the CAT Favourite Niece or Nephew Relief or to amend the operation of CAT Agricultural Relief to allow for the nomination of a Favourite Successor.

John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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214. To ask the Minister for Finance if a distinction is made across the various enterprise tax schemes such as employee investment incentive, EII, key employee engagement programme, KEEP, and capital gains tax, CGT, entrepreneur relief for high risk and high potential innovation start-ups as opposed to more traditional asset-backed enterprises; and if he will make a statement on the matter. [31109/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that no distinction is made across the various enterprise tax schemes such as the Employee Investment Incentive (EII), Key Employee Engagement Programme (KEEP) and CGT entrepreneur relief for high risk and high potential start-ups. Each scheme has its own specific criteria which must be fulfilled for qualification for that individual relief.

KEEP is a focussed share option programme, intended to help SMEs attract and retain talent in a highly competitive labour market, while the EII is a tax relief which aims to encourage individuals to provide equity based finance to trading companies. These reliefs operate through payroll taxes. Both schemes are subject to the requirements relating to size and apply only to micro-enterprises and SMEs carrying out qualifying trades.

The revised CGT Entrepreneur Relief CGT applies in respect of a chargeable gain or chargeable gains on a disposal or disposals of qualifying business assets on or after 1 January 2016 up to a lifetime limit of €1 million. This relief operates through the capital gains tax system and is subject to certain conditions and qualifying criteria that must be met prior to disposal.