Fergus O'Dowd (Louth, Fine Gael)
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231. To ask the Minister for Finance if consideration will be given to cases in which a person with a disability is left an inheritance (details supplied); if a mechanism will be put in place to ensure that the disabled recipient can benefit from the entire inheritance without losing the capital gains tax due which takes significant amount away from the registered disabled person who may need the money for their future care needs; and if he will make a statement on the matter. [48463/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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It is assumed that the Deputy is referring to tax on an inheritance in the form of capital acquisitions tax (CAT) rather than capital gains tax.

For CAT purposes, the relationship between the person giving a gift or inheritance (the disponer) and the person who receives it (the beneficiary) determines the maximum amount, known as the “Group threshold”, below which a charge to CAT does not arise. Any prior gift or inheritance received by a beneficiary since 5 December 1991 from within the same Group threshold is aggregated for the purposes of determining whether any CAT is payable on a benefit. Where a person receives gifts or inheritances that are in excess of the relevant Group threshold, CAT at a rate of 33% applies on the excess. There are three Group thresholds:

- the Group A threshold (currently €335,000) applies, inter alia, where the beneficiary is a child (including adopted child, stepchild and certain foster children) of the disponer;

- the Group B threshold (currently €32,500) applies where the beneficiary is a brother, sister, nephew, niece or lineal ancestor or lineal descendant of the disponer;

- the Group C threshold (currently €16,250) applies in all other cases.

Accordingly, where a person receives a gift or inheritance from his or her aunt or uncle, the Group B threshold of €32,500 will apply. CAT will be payable by the person at a rate of 33% to the extent that the benefit received, when aggregated with any prior gift or inheritance received since 5 December 1991, exceeds this threshold, unless a specific relief or exemption applies.

There is an exemption from CAT, provided for in section 84 of the Capital Acquisitions Tax Consolidation Act 2003, for gifts and inheritances taken exclusively for the purpose of discharging qualifying expenses of an individual who is ‘permanently incapacitated’ by reason of physical or mental infirmity.

Permanently incapacitated in this context, means being unable to support oneself by earning an income from working. Qualifying expenses mean expenses relating to medical care including the cost of maintenance in connection with such medical care. A gift or inheritance of this nature will be exempt from CAT where Revenue is satisfied that it will be used for such purposes. Accordingly, if an aunt or uncle through a legal will leaves large sums of monies to a niece or nephew, the relief will be available to the niece or nephew if he or she is permanently incapacitated by reason of physical or mental infirmity and it can be established that the monies were taken exclusively for the purposes of discharging the medical expenses of the niece or nephew.

As noted above, the gift or inheritance must be taken exclusively for the purposes of discharging the medical expenses of the incapacitated person. In this regard, Revenue will consider the intention of the person providing the gift or inheritance in determining whether the exemption is available, by reference to appropriate evidence. While such evidence may include the existence of a trust to provide for the ongoing medical care of an individual, Revenue may also accept other evidence, such as a letter of wishes accompanying a will.

Further information on this exemption is available in the Capital Acquisitions Tax Manual Part 22, which can be found on the Revenue website at www.revenue.ie/en/tax-professionals/tdm/capital-acquisitions-tax/cat-part22.pdf

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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232. To ask the Minister for Finance the reason that karate classes for children pay a higher VAT rate than other classes such as yoga, fitness classes and pilates; and if he will make a statement on the matter. [48468/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that the VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate, unless they fall within the categories of goods and services specified in Annex III of the VAT Directive, in respect of which Member States may apply a lower rate of VAT. The EU VAT Directive also allows for historic VAT treatment to be maintained under certain conditions on certain goods and services not provided for in Annex III. Currently Ireland has a standard VAT rate of 23% and two reduced rates of 13.5% and 9%. Ireland is also permitted to retain some historic VAT arrangements, under strict conditions.

Services consisting of the care of the human body supplied in the course of a health studio business or similar business, such as a yoga studio, are liable to VAT at 13.5% on the basis of a historical derogation. In the absence of this derogation, these business would pay the standard 23% rate of VAT. Unfortunately, karate classes do not fall within the aforementioned derogation, thus explaining why they pay a higher rate of VAT.