Could the Minister outline the practical difference between subsection (1) and subsection (3)? Subsection (1) exempts the first £250 of the total taxable value of all taxable gifts. Subsection (3) exempts the first £250 of the total aggregable value of all aggregable gifts.
Capital Acquisitions Tax Bill, 1975: Committee Stage (Resumed).
Question proposed: "That section 53 stand part of the Bill."
(Cavan): On subsection (1), the first £250 of the total taxable value of all gifts taken by one donee from one donor in any “relevant period” is exempt from tax and is not taken into account when computing tax. In subsection (4) “relevant period” means (1) the period from 28th day of February, 1969, to 31st day of December, 1969, and (2) every subsequent period of 12 months ending on 31st day of December in each year. This subsection means that gifts totalling up to £250 will be disregarded and that gifts exceeding £250 will have that sum deducted from the total.
Subsection (3) deals with aggregable gifts and states that the first £250 of such aggregable gifts in any "relevant period", as explained above, will not be taken into account when computing tax. There is no question of exemption as no tax is payable on aggregable gifts. Subsection (3) deals with gifts which were made within the five years that we had been discussing previously and which are not subject to tax——
The first £250 of those is left out of account?
(Cavan): Yes, in each period.
I received some representations in regard to this section, which, I imagine, were also received by the Minister, suggesting that it is not clear under this section that the normal recurring expenditure by the head of a household on children's education is outside the charge of gift tax and particularly where payments are made direct to children to defray educational expenses, as would happen frequently, say, in the case of the children of a family attending university. There is also doubt expressed as to whether normal expenditure on the maintenance of spouses or the support of elderly relatives would come within the charge of gift tax. Could the Minister enlighten us as to what the official view of these kinds of payments is under the terms of this section?
(Cavan): I shall be moving an amendment later to section 58 which will cover the points raised by Deputy Colley.
I accept that.
Question put and agreed to.
SECTION 54.
(Cavan): I move amendment No. 48:
In page 37, subsection (3), line 36, to delete "A gift" and to substitute "Save as provided in section 56 (5), a gift".
The purpose of this amendment is to secure that a benefit from a superannuation fund taken by a beneficiary under a disposition by the employee will not be exempted from tax under section 54 (3) if the fund is administered by the State. Section 54 (3) exempts from tax the benefit which a person takes when public moneys are applied for his benefit. However, one possible type of case of the application of public moneys for a person's benefit is a payment made under a superannuation scheme which is administered by a public body. When such a payment involves a gift or inheritance under section 56 (5) there is no equity to exempt it, and the purpose of this amendment is to exclude it from the exemption given in section 54 (3).
Amendment agreed to.
(Cavan): I move amendment No. 49:
In page 37, subsection (3), line 38, after "property" to delete "held on trust" and to insert "(including moneys provided by the Oireachtas or a local authority) held".
This amendment is proposed in order to make it clear that the subsection is intended to exempt from tax any application of public moneys.
Amendment agreed to.
Question proposed: "That section 54, as amended, stand part of the Bill."
There are two matters I want to raise: first, the reference in subsection (1) to benefit taken by a person for public or charitable purposes. I take it there is a definition in other legislation or else under decided cases as to what are public purposes? Secondly, the reference to Northern Ireland in subsection (2), is this a new provision in measures of this kind?
(Cavan): In regard, first of all, to the question whether “public purposes” has been defined, I understand that this phraseology has been used for estate duty since 1881. It has been operated under that code, and I am sure there are decided cases. I also understand that the reference in subsection (2) to this State or Northern Ireland is not an innovation. It is not something new. It has been used in section 32 of the Finance Act, 1934.
Another point on which I have received representations is the omission in this section to exempt gifts taken by friendly societies, although there is exemption in such cases in limited circumstances, admittedly, under income tax and capital gains tax. Could the Minister indicate whether this omission is deliberate?
(Cavan): It is deliberate. There does not seem to be any good reason for exempting them.
Even though exemption is provided in certain limited circumstances in regard to income tax and capital gains tax?
(Cavan): Yes, but I understand that the circumstances there are very limited.
In those very limited circumstances if the case is justified for that exemption, would it not be justified for exemption in regard to capital acquisitions tax?
(Cavan): It could come in here in some instances too, for example, if it was for charitable or public purposes.
I may take it, anyway, that the case has been examined?
(Cavan): Yes, it has been examined. It is not an accidental omission.
Question put and agreed to.
SECTION 55.
(Cavan): I move amendment No. 50:
In page 38, to delete subsection (2) and to substitute the following subsection:
"(2) (a) Any object to which this section applies and which, at the date of the gift or at the date of inheritance, and at the valuation date, is comprised in a gift or an inheritance taken by a person shall be exempt from tax in relation to that gift or inheritance, and the value thereof shall not be taken into account in computing tax on any gift or inheritance taken by that person from the same disponer unless the exemption ceases to apply under the provisions of subsection (3) or (4).
(b) The provisions of section 19 (6) shall apply, for the purposes of this subsection, as they apply in relation to agricultural property."
Subsection (2) has been redrafted for two purposes: (1) to add the clause at the end of the first paragraph ("unless the exemption ceases to apply"). If the exemption ceased to apply under subsections (3) or (4) there was some doubt as to whether the non-aggregation provision would continue to apply. The new version makes it clear that the value of the exempted object is aggregated with the value of other gifts or inheritances taken by the donee or successor if the exemption ceases. He is put back in the position in which he would have been had the exemption not existed. I think that is reasonable.
Yes.
(Cavan): And (2) to provide that an object will regarded as part of the inheritance at the date of the inheritance if it was part of the estate of the disponer at that date and was appropriated to that particular inheritance.
What is the significance of paragraph (b) in the amendment which reads:
The provisions of section 19 (6) shall apply, for the purposes of this subsection, as they apply in relation to agricultural property.
(Cavan): Paragraph (b) deals with a case requiring special treatment already granted in relation to agricultural relief in section 19 (6).
May I take it that means substantially that there is relief or reduced valuation in relation to agricultural property?
(Cavan): Exactly.
That would be applied to these items. Is that the significance?
(Cavan): Paragraph (b) deals with a case requiring special treatment already granted in relation to agricultural relief in section 19 (6). Under subsection (2) as initiated one of the conditions on which the object is exempted under section 55 is that it be comprised in the gift or inheritance both (1) at the date of the gift or inheritance and (2) at the valuation date—section 21— which, in the case of an inheritance could be later than the date of the inheritance. In the course of the administration of an estate, an object which was not specifically bequeathed by the testator could be appropriated in or towards the satisfaction of a legacy. The purpose of the present amendment is to secure that, in such circumstances, such an object would qualify for exemption, provided it was part of the estate, even if not specifically part of the particular inheritance, at the date of the inheritance.
I am afraid that does not enlighten me. What is the signifinance of the application of the agricultural provision to this kind of property? Or the exclusion of the agricultural provisions?
(Cavan): We spelled this out in section 19 (6) and we are applying the same principle here. If an exempted object is part of the estate and is appropriated as part of a specific legacy, then it remains exempt. Even if it was paid over as part of a pecuniary legacy it would still be exempt, provided it was part of the estate. Of course, it could not be introduced into the estate to gain exemption. It could not be bought by the executor and then appropriated and in that way gain exemption. I think section 19 (6) is troubling the Deputy.
It seems to me that, under the section, an object of this kind is exempt, subject to the conditions in the section.
(Cavan): Yes
If that is so, why is it necessary to provide the exemption provided in section 19 (6)? Is it not automatically exempt anyway?
(Cavan): Where exactly is the reference in the section which is troubling the Deputy?
It is not the reference. I know that has been changed, if that is what the Minister has in mind. As I understand it from what the Minister has said, the significance intended to be attached to paragraph (b) of the amendment is that the exemption provided would continue to relate to particular property even though it had been appropriated and formed part of a particular legacy, even a pecuniary legacy. It seems to me that, under the provisions of the section, it is exempt anyway. Why do we have to have this provision if it is already exempt?
(Cavan): Section 19 (6) has been amended. What we are saying here is that the provisions of section 19 (6) shall apply for the purposes of this subsection as they apply in relation to agricultural property. In other words, we are applying the same treatment here as we are applying in section 19 (6) to agricultural property.
That being the maintenance of the exemption even where the property is appropriated to a particular legacy, even a pecuniary legacy. Is that correct?
(Cavan): I understand exemption would not be granted unless the object was in the legacy at the date of the inheritance and at the date of the valuation. If it was appropriated by the executor towards payment of the legacy it would not have been in that legacy at the date of inheritance. We are applying the treatment afforded in section 19 (6) to deem it to have been in the legacy at the date of the inheritance. I hope I have made it clear now. The exemption would not apply unless the object was in the gift at the date of the inheritance and at the date of the valuation. Here it did not form part of the legacy at the date of the inheritance but subsequent to that the executor has decided to give this object as part of the legacy and the legatee has decided to accept it. If the amendment was not made the exemption would not apply to this particular object because it was not in the legacy at the date of the inheritance. We are deeming it, by this amendment, to have been in the legacy at the date of the inheritance. It sounds rather complicated.
I think I have the point at issue all right. May I take it that the provisions of section 19 relating to agricultural property are not being applied except as provided here in this amendment?
(Cavan): We are applying the principle.
I take it there is not any intention on the part of the Minister to apply the kind of relief that is given in the case of agricultural property and to carry it through in the way it is being done in paragraph (b) to such things as a principal private residence, a small business or that kind of thing?
(Cavan): No. It is just inserted to apply the principle and to avoid repeating all of section 19 (6) again in reference to exemption of objects.
It is regrettable that it is not being done.
(Cavan): What is being done carries out the intention of the section.
Amendment agreed to.
Question proposed: "That section 55, as amended, stand part of the Bill."
I can see the difficulties that can arise under this section for the Revenue Commissioners and, therefore, it is very hard to suggest a complete answer to the point I am about to make. This section gives exemption to pictures, prints, books, manuscripts, works of art, jewellery and scientific collections or other things not held for the purposes of trading:
(a) which, on a claim being made to the Commissioners, appear to them to be of national, scientific, historic or artistic interest;
(b) which are kept permanently in the State except for such temporary absences outside the State as are approved by the Commissioners; and
(c) in respect of which reasonable facilities for viewing are allowed to members of the public or to recognised bodies or to associations of persons.
There is one genuine case which is not covered, that is the case of a scholar or somebody who is bona fide working on cultural matters and is using these cultural objects but who does not fit in with paragraph (c). I fully appreciate that this has to be spelled out because, unfortunately, in the case of art and some similar things there is considerable financial interest and pecuniary value attached to the objects concerned. The Revenue Commissioners have the difficult task of deciding if such a collection is bona fide being used or kept for what I might broadly call cultural purposes or if it is an investment. In the latter case it would afford a means of evading tax because it would be an investment which would evade tax.
The fact that the Revenue Commissioners must approve of the purpose is unquestionable. The fact that it should be kept in the State is reasonable but the fact that it should be available in the way the section says is a little bit restraining on the genuine scholar. I am talking of art collections here where their value is to be seen but there may be other things of scientific or artistic interest. Take, for example, an amateur collector who nevertheless is systematic and can bring himself within a category that would justify the Revenue Commissioners in treating the matters I am going to suggest. You could have a naturalist studying a certain area intensely, who might collect a unique collection which might be very valuable. I admit that the case I am making here really has more impact in relation to the wealth tax.
(Cavan): The Deputy made the same point on the Wealth Tax Bill.
I made it briefly.
(Cavan): The Deputy was also satisfied that the provisions of the wealth tax in relation to these objects were reasonable.
So far as they went, but I was not satisfied that the point I was making had been met. Let us take books or manuscripts. The private scholar may be a retired professor or somebody who is in another profession and has the time but is contributing to knowledge. In the course of this he collects a library that may be of value. The Minister is quite right in saying that this is of more practical interest in connection with the wealth tax. If the restriction in regard to reasonable facilities for viewing could be widened with a further discretion to the Revenue Commissioners as to the bona fide user for the purpose of scholarship, this would be an admirable section. I know we want to get the Committee Stage completed this evening, so I will leave it. I do not expect any further answer from the Minister because he gave me the answer on the wealth tax and just now.
(Cavan): I should like to give a very brief explanation. This section exempts:
any pictures, books, manuscripts, works of art, jewellery, scientific collections or other things not held for the purposes of trading—
(a) which, on a claim being made to the Commissioners, appear to them to be of national, scientific, historic or artistic interest;
(b) which are kept permanently in the State except for such temporary absences outside the State as are approved by the Commissioners; and
and in respect of which reasonable facilities for viewing are allowed to members of the public or to recognised bodies or to associations of persons. If the Deputy thinks about it, I think he will conclude that the public access can be very limited——
I agree.
(Cavan): It says: “to the public or recognised bodies or associations” and so on. I think that if the objects mentioned were available to a particular association interested in that sort of thing and they were allowed to view them at reasonable times, that would cover the point. The policy and thinking behind paragraph (c) is that somebody other and beyond the owner must have access to them. That seems reasonable.
In the case of a private library, if the Revenue Commissioners were satisfied that it was being bona fide used for the purpose of scholarship and there was evidence to show this I fail to see why in the case of, say, a private library it should be any more necessary that it be available to the public than, say, the instruments of a doctor or a dentist——
(Cavan): They are not exempt.
I know that they come in under another category. Since this is intended to be—the purpose is different—for cultural purposes I suggest that it seems strange in the case of private scholarship where there is definite evidence to this effect that there should not be a slight extension of paragraph (c) enabling the Revenue Commissioners to exercise discretion. I am really talking on principles more than practicalities. An instance where there would be a substantial, taxable collection or library of this sort is hard to visualise. That is as far as I can push the point. I recognise the difficulties of another sort and I do not intend to pursue the matter further with the Minister. I accept what he says.
(Cavan): I should like to put it on record that I could not agree that the objects mentioned in section 55 (1) (a), if they are used exclusively for an individual's own use and benefit and if the public or associations interested in them are denied access to them, should be exempt because the owner could be using them for his own financial benefit. The study he might carry out on them could be turned to his own very substantial profit. Here we say that in order to gain exemption there must be some sharing of the objects with the public or other interested persons.
This is typical administrative thinking, a failure absolutely to appreciate the things of the mind, what culture really means. If it was a question of profit, of turning them to his own interest, there would be manifest evidence of that. I can think of one case in the past where, say, a consulting chemist in a private capacity had a library of his own and he was using it for the purpose of trade and business and that came in in another way. The point I wanted to make there was that public inspection was not one of the tests. The test was not public inspection or interference with his professional or intellectual activities but whether he was using them for trade or business. That disposes of the first leg of the suggestion, that a person might make gains.
In regard to the other, it is notorious in history that the great achievements of the human mind have not come from the nine-to-five offices of the administration but from individuals. Neither have they come from the nine-to-five lecture rooms in universities but from the intellectual activities of individuals. Very many contributions have been made even by retired members of various sections. A very considerable contribution to our history, for instance, has been made by retired members of the public service or the private sector. It was with that approach I was suggesting that this should be considered. It seems a typical example of administrative blinkers to talk about public viewing and make a differentiation of this nature.
I understand the practical difficulties and can say very little further on the matter. I could understand an argument based on the fact that there would be a loophole or that it would be impracticable, but not to suggest that the whole object of national, scientific, historic or artistic interest in viewing by the public is equivalent to the attitude of the tourist who goes on time schedule to see objects and sets down that he has seen this, that and the other thing. That is not scholarship, not what I am talking about. I am talking about the intellectual activity of man which is much higher than the globe-trotting tourist mentality that can be too easily accepted.
(Cavan): The Deputy misunderstands me. We are dealing here with pictures, prints, works of art, manuscripts, jewellery, scientific collections or other things not held for the purpose of trading and we say that if a person wants to gain exemption in respect of these he must share them with somebody else. If he wants to gain exemption from the ordinary tax laws, we say he must. We are not saying he must share them with the world and its wife. He may share them with a highly intellectual association of persons and that would meet the test set down in the section. We are only saying that they are not exclusively used for private purposes, they are not exclusively used as the private property of the individual, that he is sharing in the benefit from or pleasure of them with some other people, either the public in general or some association of persons interested in that sort of thing.
But the community and humanity as a whole can benefit much more from the results of the activities of that person in the operation in which these are only the tools than they can by all the globe-trotting viewing I mentioned.
There is one other point I want to raise. The Minister referred to the corresponding provision in the Wealth Tax Act and, I think, indicated his belief that it was reasonable. Therefore, why does he omit from this Bill the reference in the Wealth Tax Act to gardens? He will remember I was trying to get him to agree also to include historic houses but he could not see his way to doing so. It is true to say that, in the Wealth Tax Act, gardens of that kind were included.
(Cavan): There is no comparison between the exemptions given in the Wealth Tax Bill and this Bill.
It was the Minister who made the comparison.
(Cavan): I made the comparison in reference to one specific argument with which I happened to be dealing at the time, a point raised by Deputy de Valera, I think, in regard to a library or something like that. In the Wealth Tax Act there is a variety of exemptions and reductions, such as the private dwellinghouse, the garden, agricultural property, stock and so on. Also wealth tax is an annual tax. This is a tax which crops up much more seldom.
Perhaps the Minister would have a look at the gardens and see whether or not they should be included because they are in under the same conditions.
(Cavan): I would not be prepared to undertake to look at the question of the gardens because the private residence is not included in the wealth tax either.
I am merely asking the Minister to have it looked at. I do not want to delay arguing the case here because it comes into a different category.
(Cavan): I will have it looked at, in the sense that we will be keeping the entire measure under review—no, the words “under review” are too strong—but we shall be thinking about it until it is enacted.
All right.
Section 55, as amended, agreed to.
SECTION 56.
(Cavan): I move amendment No. 51:
In page 38, to delete subsections (1) and (2) and to substitute the following subsections:
"(1) Subject to the provisions of subsection (2), any payment to an employee or former employee by, or out of funds provided by, his employer or any other person bona fide by way of retirement benefit, redundancy payment or pension shall not be a gift or an inheritance.
(2) Subsection (1) shall not have effect in relation to a payment referred to in that subsection, and any such payment shall be deemed to be a gift or an inheritance where—
(a) (i) the employee is a relative of the employer or other disponer; or
(ii) the employer is a private company within the meaning of section 16 (2), and of which private company the employee is deemed to have control within the meaning of that section;
(b) the payment is not made under a scheme (relating to superannuation, retirement or redundancy) approved by the Commissioners under the Income Tax Acts; and
(c) the Commissioners decide that in the circumstances of the case the payment is excessive.".
First, in this amendment the "former employee" is inserted, removing a possible ambiguity. Secondly "or any other person" is inserted to allow for the case where a gift or legacy is given to the trustees of a superannuation fund. Thirdly, "retirement gratuity" in the Bill, as initiated, line 3 of subsection (1) is being changed to "retirement benefit". Fourthly, the amendment of subsection (2) is proposed in order to exclude schemes that have been approved by the commissioners under the Income Tax Acts from the operation of subsection (2). Thus, payments made to the employee under an approved scheme will be exempt without any conditions as to their not being excessive.
Could the Minister repeat the last part about schemes?
(Cavan): The amendment of subsection (2) is proposed in order to exclude schemes that have been approved by the commissioners under the Income Tax Acts on the operation of subsection (2). Thus, payments made to the employee under an approved scheme will be exempt without any condition as to their not being excessive. It is in ease of taxpayers.
As I see it, as the section stood originally any bona fide retirement gratuity, redundancy payment or pension was exempted. That remains in subsection (1)—“bona fide by way of retirement benefit”. But, when one comes to (b) of subsection (2) one is differentiating between schemes that have been approved under the Income Tax Acts and other schemes which, presumably, are approved as bona fide. In one case, one is allowing things to take their course because, with regard to schemes under the Income Tax Acts, in effect the approval exists before the payment. In the other case, it does not. Therefore, clause (c) is there in order to decide, in the circumstances, whether the payment is or is not excessive. Is that a fair summary of the position from another viewpoint?
(Cavan): The Deputy's summary is substantially correct and substantially sums up the position.
Then it does not mean that the Revenue Commissioners are restricting the area. This amendment does not restrict the area of bona fide gratuity, redundancy payment or pension. What it does is to make more precise how the Revenue Commissioners would deal with the cases within that area. Is that a fair interpretation?
(Cavan): As a matter of fact, it widens the area.
I suppose it does in one way.
The redrafting is also a considerable improvement on the original.
Amendment agreed to.
(Cavan): I move amendment No. 52:
In page 38, subsection (4), line 50, after "gift" to insert "or an inheritance".
This amendment is necessary in case the gift is an inheritance, for instance, by reason of its being taken under a disposition made within two years of the disponer's death.
Amendment agreed to.
(Cavan): I move amendment No. 53:
In page 39, subsection (5), lines 3 and 4, to delete "Subject to the provisions of subsections (1) and (2), any benefit taken" and to substitute "Any benefit taken by a person other than the person in respect of whose service the benefit arises,".
This amendment is intended to make it clear that subsection (5) deals with benefits taken under superannuation schemes by persons other than the employee, for instance, his dependants. In such cases the benefits will be gifts or inheritance taken from an employee as disponer.
Amendment agreed to.
Question proposed: "That section 56, as amended, stand part of the Bill."
There are two points I want to raise on the section. What is the position in regard to payments made by continuing partners in a partnership to a retired partner or to the dependants of a deceased partner? Is that caught or is it exempt under this section? Secondly, what is the position in regard to transfer of assets from one company to another where they are within the same group?
(Cavan): I did not get the second point.
It is in regard to the transfer of assets from one company to another, where they are within the one group and where frequently, for commercial reasons, this happens shall we say, at cost, certainly not at an arm's length transaction, not on those terms. What would be the position under this section in regard to such transactions?
(Cavan): In regard to the first point raised by Deputy Colley, that is, a gift by one partner to a continuing partner, the position is that, normally speaking, the person making the gift would be regarded as the disponer. The continuing partner will be regarded as the disponer. The question Deputy Colley put——
The question was whether such payments would be regarded as gifts or whether they would be exempt under this section?
(Cavan): From one partner to another?
We are here exemptting payments which are bona fide made by way of retirement benefit, or redundancy payment or pension. Now under subsection (1) they are deemed to be gifts. The question I am asking is whether, if a partnership makes regular payments by way of pension, or analogous to pension, to a retired partner or to the dependants of a deceased partner those payments would come within the exemption provided in the section?
(Cavan): The payment to a retired person would probably be exempt because it would be deemed to be coming from both and to be more or less a sale. The second one, that is the one to dependants of a deceased partner, if the Deputy looks at subsection (5) would, I understand, be caught.
I thought that was simply for the purpose of determining the appropriate rate and so on, determining who was the disponer and who was the donee or successor. In so far as we are proposing in this section to exempt retirement benefits, redundancy payments, pensions paid bona fide, but without consideration, should not the kind of payments I am talking about also be exempt on the same principle?
(Cavan): To be candid with the Deputy, I shall have this looked at between now and Report Stage. There is a Report Stage amendment to deal with the point the Deputy raised as regards one company to another.
Question put and agreed to.
SECTION 57.
(Cavan): I move amendment No. 54:
In page 39, subsection (2), line 25, after "tax" to insert "(and shall not be taken into account in computing tax on any gift or inheritance taken by the donee or successor from the same disponer)".
This is a technical amendment to the drafting of the provision in subsection (2) in order to conform with a similar provision relating to other property, objects of national interest, and so on, exempted in section 55. Where as in this section and in section 55 specific property is exempt it is necessary to provide that such property should not be aggregated with other property which is not exempted and which is taken by the same person from the same disponer.
Amendment agreed to.
(Cavan): I move amendment No. 55:
In page 39, subsection (2), line 33, after "State" to insert the following: "and the provisions of section 19 (6) shall apply, for the purposes of this subsection, as they apply in relation to agricultural property".
The purpose of this amendment is to secure that a security will be regarded as part of the inheritance at the date of the inheritance if it was part of the estate at the time and was appropriated to the inheritance. This is the point we had earlier on in another section.
Amendment agreed to.
(Cavan): I move amendment No. 56:
In page 39, in the proviso to subsection (2), lines 40 and 41, to delete "otherwise than into another security or other units respectively" and to substitute "(otherwise than into another security or other units respectively, which, during that period of one year, are not sold or exchanged)".
The proviso to section 57 (2) was found to be a tax avoidance gap. A disponer wishing to benefit a foreigner could buy Government stock due for redemption in a month's time and give same to the donee and, if the donee accepted conversion terms into conversion stock, instead of taking cash, the exemption stood and the donee could then sell the conversion stock without loss of the exemption. The amendment seeks to ensure that he holds the conversion stock until the anniversary of the gift.
That, I take it, is the purpose of the reference in the section itself to "one year" only. There was a loophole, as outlined by the Minister.
(Cavan): Exactly. We saw the loophole in the section and introduced this amendment.
Amendment agreed to.
Section 57, as amended, agreed to.
NEW SECTION.
(Cavan): I move amendment No. 57:
In page 40, before section 58 to insert a new section as follows:
58.—(1) The following shall not be gifts or inheritances—
(a) the receipt by a person of any sum bona fide by way of compensation or damages for any wrong or injury suffered by him in his person, property, reputation or means of livelihood;
(b) the receipt by a person of any sum bona fide by way of compensation or damages for any wrong or injury resulting in the death of any other person;
(c) the receipt by a person of any sum bona fide by way of winnings from betting (including pool betting) or from any lottery, sweepstake or game with prizes;
(d) any benefit arising out of—
(i) the payment to the Official Assignee in Bankruptcy of money which has been provided by, or which represents property provided by, friends of a bankrupt; or
(ii) a remission or abatement of debts by the creditors of a bankrupt,
to enable the bankrupt to fulfil an offer of composition after bankruptcy in accordance with the provisions of section 149 of the Irish Bankrupt and Insolvent Act, 1857; and
(e) any benefit arising out of—
(i) the payment to the Official Assignee in Bankruptcy of money which has been provided by, or which represents property provided by, friends of an arranging debtor; or
(ii) a remission or abatement of debts by the creditors of an arranging debtor,
to enable the debtor to carry out the terms of a proposal made by him under section 345 of the Irish Bankrupt and Insolvent Act, 1857, which has been accepted by his creditors and approved and confirmed by the High Court.
(2) Notwithstanding anything contained in this Act, the receipt in the lifetime of the disponer of money or money's worth—
(a) by—
(i) the spouse or child of the disponer; or
(ii) a person in relation to whom the disponer stands in loco parentis,
for support, maintenance or education; or
(b) by a person who is in relation to the disponer a dependent relative under section 142 of the Income Tax Act, 1967, for support or maintenance,
shall not be a gift or an inheritance, where the provision of such support, maintenance or education, or such support or maintenance—
(i) is such as would be part of the normal expenditure of a person in the circumstances of the disponer; and
(ii) is reasonable having regard to the financial circumstances of the disponer."
In addition to exemptions in the section as initiated for compensation and damages, various additional exemptions are dealt with in the proposed new section, namely, winnings from bettings, lotteries, and so on, certain payments in bankruptcy matters and certain normal and reasonable payments within the family.
I do not want to go back over earlier ground but I hope the Minister gives consideration to the position relating to payments by a partnership to the relatives of a deceased partner and will bear in mind the exemptions in this for lottery winnings and sweepstake winnings.
(Cavan): I will.
Amendment agreed to.
Acceptance of this amendment involves the deletion of section 58 of the Bill.
SECTION 59.
Question proposed: "That section 59 stand part of the Bill."
Can the Minister indicate the kind of circumstances under which section 59 might be applicable?
When could one be caught for a gift tax?
(Cavan): Under this section, where a donee or successor takes a gift of inheritance under a disposition made by him no charge to tax will arise. For example, a son settles some property on his father for life with the remainder interest vested in himself. Tax will be paid on the gift taken by the father but, when the father dies, the son will take the inheritance under his own disposition so no charge to tax will arise. The same will apply on the ceasing of a personal covenant to pay an annuity, and so on.
Question put and agreed to.
SECTION 60.
Question proposed: "That section 60 stand part of the Bill."
We are dealing with virtually the same points on this section as were dealt with on section 35.
Question put and agreed to.
SECTION 61.
(Cavan): I move amendment No. 58:
In page 41, subsection (2), lines 26 and 27, to delete "leviable and payable" and to substitute "chargeable".
Amendment agreed to.
Amendments Nos. 59 and 60 are related and I suggest we take them together.
(Cavan): I move amendment No. 59:
In page 41, subsection (3), line 30, after "A banker who", to insert", after the passing of this Act,".
These amendments are necessary to ensure that a banker will not be penalised by acting contrary to the Act before the Act is passed and to terminate the application of section 33 of the Finance Act, 1935, in cases where the present section applies. Section 33 was in similar terms to the present section and applied to death duties. It was the case of the revenue certificate before the banker would release a joint deposit receipt on the death of one of the depositors.
Amendment agreed to.
(Cavan): I move amendment No. 60:
In page 41, after line 40, to insert the following subsection:
"(6) Section 33 of the Finance Act, 1935, shall not have effect in any case where the death of a person, referred to in that section as the deceased, occurs on or after the 1st day of April, 1975.".
Amendment agreed to.
Question proposed: "That section 61, as amended, stand part of the Bill".
The Minister indicated that section 33 of the Finance Act, 1935, is similar to this section. May we take it that it is the same figure that is mentioned in that, £5,000?
(Cavan): It was £500 at one time and it was increased to £1,000.
And it is being made £5,000 in this?
(Cavan): We are putting £5,000 in because £5,000 is the lowest threshold.
I presume there could be a difficulty in the case of a gift which is aggregated: a gift which is made in the five years prior to February, 1974, which, when aggregated with a gift made subsequent to that, produces a figure of £5,000 or more although as far as the bank is concerned it will not be affected?
(Cavan): If we were to put that onus on a bank it would be an impossible onus. It would involve the bank official going into everything behind the face value of every transaction.
Subsection (3) states:
A banker who pays money in contravention of this section shall be liable to a penalty of £1,000.
Why is that not exceeding £1,000?
(Cavan): The Deputy will appreciate this is not a Bill dealing with criminal law. This is a revenue penalty and the precedent has been that instead of saying “not more” than a certain figure the maximum figure is put in and the Revenue Commissioners have power to mitigate.
May we take it that they have power to mitigate in respect of all penalties provided in this Bill?
(Cavan): Section 63 deals with penalties.
It does, but it does not in any case say "not exceeding". It sets out various figures for penalties but it does not state "not exceeding".
(Cavan): I understand that by virtue of section 63 the Revenue Commissioners have power to mitigate.
If the Minister tells us they have power it meets the point.
(Cavan): I will spell it out when we come to section 63 and if it does not meet the point we can have a look at it again.
Question put and agreed to.
SECTION 62.
Question proposed: "That section 62 stand part of the Bill."
I take it that this is a similar provision to the existing one?
(Cavan): I would say that this is inherent in all courts of equity and chancery courts where they always provide that duties or taxes due to the State are provided for before they part with the money. It has applied, I believe, since 1853.
Question put and agreed to.
SECTION 63.
Question proposed: "That section 63 stand part of the Bill."
The penalties provided in this section are all specific penalties. For instance, part of subsection (2) states:
...shall be liable to a penalty of £500.
It does not say that one shall be liable to a penalty not exceeding £500. The Minister was about to draw our attention to a provision which I suspect may be in subsection (9).
(Cavan): The Deputy has hit the nail on the head. I understand that section 512 of the Income Tax Act, 1967, is the section which gives Revenue Commissioners power to mitigate.
And that would apply to all of these?
(Cavan): That is correct.
Question put and agreed to.
NEW SECTION.
(Cavan): I move amendment No. 61:
In page 43, before section 64 to insert a new section as follows:
64.—(1) In this section—
"death duties" has the meaning assigned to it by section 30 of the Finance Act, 1971; and
"purchaser or mortgages" includes a person deriving title from or under a purchaser or mortagee in the case of such a sale or mortgage as is referred to in this section.
(2) Where an interest in expectancy has, prior to the 1st day of April, 1975, been bona fide sold or mortgaged for full consideration in money or money's worth, and that interest comes into possession on a death occurring on or after that date, the following provisions shall have effect, that is to say—
(a) the purchaser or mortgagee shall not be liable in respect of inheritance tax on the inheritance referred to in paragraph (b) for an amount greater than that referred to in paragraph (c);
(b) the inheritance referred to in paragraph (a) is the inheritance of property in which the interest so sold or mortgaged subsists and which arises in respect of the interest of the remainderman referred to in section 23 so coming into possession;
(c) the amount referred to in paragraph (a) shall be the amount that would then have been payable by the purchaser or mortgagee in respect of death duties on the property in which the interest subsists as property passing under the same disposition as that under which the said inheritance is taken, if the property, on so coming into possession, had been chargeable to death duties—
(i) under the law in force; and
(ii) at the rate or rates having effect,
at the date of the sale or mortgage;
(d) where such an interest is so mortgaged, any amount of inheritance tax payable in respect of the inheritance referred to in paragraph (b), and from the payment of which the mortagee is relieved under this section, shall, notwithstanding the priority referred to in section 47 (1), rank, in relation to property charged with such tax under that section, as a charge subsequent to the mortgage;
(e) any person, other than the purchaser or mortgagee, who is accountable for the payment of so much of the inheritance tax as is not the liability of the purchaser or mortagee by virtue of the relief given by this section, shall not be liable for the payment of any amount in respect thereof in excess of the amount which is available to him for such payment by reason of there being, at the time when the interest comes into possession, other property, or an equity of redemption, or both, subject to the same trusts, under the disposition referred to in paragraph (c), as the property in which the interest in expectancy subsists; and
(f) nothing in section 35 (7) or (8) or section 47 (1) shall be construed as derogating from the relief given by this section to a purchaser or mortgagee.
It was found that the original version of this section might be defective, in subsection (2) (a), because only the rates of death duties and not the general law in relation to death duties were mentioned.
Furthermore, since a purchaser might be given relief by the section only to find that some other accountable party might have a right of reimbursement against him or a charge on the property purchased, it has been decided to extend the relief to persons other than the purchaser or mortgagee in certain cases and to prevent the relief given to a purchaser or mortgagee from being taken away under section 35 (7), 35 (8) or 47 (1). The additional persons protected would normally be the trustees of the settlement, who might have no other funds out of which to pay the tax.
There is one aspect of this which is not clear to me and I should like the Minister to clarify it. It arises under paragraphs (d) and (e). Paragraph (d) provides that:
Where such an interest is so mortgaged, any amount of inheritance tax payable in respect of the inheritance referred to in paragraph (b) and from the payment of which the mortgagee is relieved under this section, shall, notwithstanding the priority referred to in section 47 (1) rank, in relation to property charged with such tax under that section, as a charge subsequent to the mortgage.
It seems to me that that implies that, although the mortgagee in this case is relieved, there can be a liability over and above the liability from which the mortgagee is relieved. If that is so I am not clear how that situation can arise. I should like the Minister to give an example of how this would work.
(Cavan): I have an example. A by will leaves lands to B for life with remainder to C absolutely. C expects to receive lands, now worth £40,000, on B's death; B is 65 in 1970 and may live another ten years; on the advice of an actuary, C values his reversion at, say, £20,000 taking into account death duties payable on B's death on the lands. He raises a loan of £12,000 from D, assigning his remainder interest to D by way of security. On B's death, the lands will normally be worth more than the total of (a) the inheritance tax payable by C; (b) the loan plus any unpaid interest thereon.
If, however, this is not so, due to a sharp fall in the value of land or of securities if the land is sold and the proceeds reinvested—and the inheritance tax exceeds what would have been the death duty burden—at 1970 rates—this section protects the mortgagee by giving him priority for his mortgage over the charge for the excess of the inheritance tax over the death duty burden. Accordingly, if (a) the lands realise only £20,000; (b) £15,000 is due on the mortgage—including interest; (c) £8,000 is due for inheritance tax; (d) £6,000 is the amount that would have been payable in death duties, the sum of £6,000 on account of inheritance tax is payable in the first instance, reducing the available funds to £14,000; the mortgagee's charge is given priority to the £2,000 balance of inheritance tax, so that he receives £14,000 of his entitlement of £15,000 and is relieved of the liability to pay the rest of the inheritance tax—he has, in effect, suffered a loss of £1,000. Since the remainderman's equity of redemption—the difference between the value of his interest in the property and the amount due to the mortgagee—is worthless there is no person accountable for the balance of £2,000 tax, unless the remainderman is entitled to other property under the same trusts, for example, where the settlement included personalty or other lands as well as the interest mortgaged and such property also passed to the remainderman.
That illustrates the point I was trying to make.
Amendment agreed to.
The existing section 64 is thereby deleted.
Sections 65 and 66 agreed to.
NEW SECTION.
(Cavan): I move amendment No. 62:
62. In page 44, before section 67, to insert a new section as follows:
67.—(1) (a) In this section—
"foreign tax" means any tax which is chargeable under the laws of any territory outside the State and is of a character similar to estate duty, gift tax or inheritance tax;
"event" means—
(i) a death; or
(ii) any other event, by reference to which the date of the gift or the date of the inheritance is determined.
(b) For the purposes of this section, a reference to property situate in a territory outside the State is a reference to property situate in that territory at the date of the gift or the date of the inheritance, as the case may be, or to property representing such property.
(2) Where the Commissioners are satisfied that a taxable gift or taxable inheritance, taken under a disposition by a donee or successor on the happening of any event, is reduced by the payment of foreign tax which is chargeable in connection with the same event under the same disposition in respect of property which is situate in the territory outside the State in which that foreign tax is chargeable, they shall allow a credit in respect of that foreign tax against the gift tax or inheritance tax payable by that donee or successor on that taxable gift or taxable inheritance; but such credit shall not exceed—
(a) the amount of the gift tax or inheritance tax payable in respect of the same property by reason of such property being comprised in any taxable gift or taxable inheritance taken under the diposition on the happening of that event; or
(b) the amount of that foreign tax,
whichever is the lesser.
(3) The provisions of this section shall be subject to any arrangement to which the force of law is given under section 66, and, if any such arrangement provides for the allowance of the amount of a tax payable in a territory outside the State as a credit against gift tax or inheritance tax, the provisions of the arrangement shall apply in relation to the tax payable in that territory in lieu of the provisions of subsection (2).
(4) If the amount of tax payable in respect of a taxable gift or taxable inheritance would be less by making a deduction (in ascertaining the taxable value of the taxable gift or taxable inheritance) of the amount of the foreign tax to which the taxable gift or taxable inheritance is subject than by making the allowance of a credit—
(a) under subsection (2); or
(b) under any arrangement to which the force of law is given under section 66.
such deduction shall be made notwithstanding the provisions of section 18 (5) (b), and no such credit shall be allowed.
(5) Where the foreign tax in respect of property comprised in a taxable gift or a taxable inheritance taken under a disposition on the happening of an event is, under the terms of the disposition, directed to be paid out of a taxable gift or a taxable inheritance (taken under that disposition on the happening of the same event) other than the taxable gift or taxable inheritance out of which it would be payable in the absence of such a direction, then, for the purposes of subsection (2), the taxable gift or taxable inheritance out of which the foreign tax would be payable in the absence of such a direction, and no other taxable gift or taxable inheritance, shall be treated as reduced by the payment of the foreign tax.
The purpose of this amendment is to give double taxation relief, by way of deduction of foreign tax from Irish tax, where property is taxed in a foreign country and in Ireland.
The original section 67, which is being totally replaced, provided for a deduction of the foreign tax from the capital before assessment of Irish tax, a procedure which in most cases would afford considerably less relief. The alternative of an allowance against capital is kept open where greater relief would be obtained by choosing such an allowance.
The relief afforded is in advance of, and will give way eventually to, bilateral relief negotiated by treaty or convention under section 66. It is seen as a desirable interim unilateral relief and has counterparts in the new British Capital Transfer Tax, the US Federal Estate Tax and in the death duty systems of many other countries.
The amendment is a response to representations in the Dáil and elsewhere pointing to the hardship arising where double taxation occurs in the interim between the passing of the Act and the negotiation of a bilateral convention. Even if the convention were backdated, a successor could be out of pocket for a substantial amount for a long period. A double taxation situation arises where the taxable gift, or inheritance, consists in whole or part of foreign assets, that is, where the disponer is domiciled in the State or where the proper law of the disposition is Irish.
This goes some of the way towards meeting the problem.
Amendment agreed to.
Section 67 is thereby deleted.
SECTION 68.
Question proposed: "That section 68 stand part of the Bill."
(Cavan): This is merely to reconcile two transactions, where necessary. This section provides that
(1) in general, an exception shall not be made for inheritance tax purposes from the provisions of the Succession Act, 1965.
(2) the administration bond must make provision for the payment of tax,
(3) a direction by a testator for the payment of inheritance tax free from which any devise or bequest is made shall be a pecuniary legacy and taxable as such,
(4) in the application of the assets of an insolvent estate the liability of land to pay inheritance tax is not affected,
(5) gift tax and inheritance tax imposed on registered land are to be a charge on that land whether the charge is registered or not.
Question put and agreed to.
Sections 69 to 72, inclusive, agreed to.
FIRST SCHEDULE.
(Cavan): I move amendment No. 63:
In page 47, in the fifth line of Rule 8, after "time" to insert "taken".
This is a correction of a drafting nature.
Amendment agreed to.
First Schedule agreed to.
SECOND SCHEDULE.
(Cavan): I move amendment No. 64:
In page 50, in the first and second lines of paragraph 7, to delete "taken on one day" and to substitute "taken by a donee or successor from one disponer on the same day".
This amendment is intended to meet any possible ambiguity.
Amendment agreed to.
(Cavan): I move amendment No. 65:
In page 50, in the third last line of paragraph 9, to delete "for the purposes of section 19 (6) and".
This amendment is consequential on the amendment of section 19 being introduced.
Perhaps the Minister will elaborate a little.
(Cavan): The provision made in section 19 (6) as initiated, to which the words now being deleted refer, has been omitted from section 19 as amended, that is, a disposal by a donee or successor outside his family within six years of taking a gift or inheritance of agricultural property. The nephew or niece have been regarded as within the family group. As such a disposal no longer leads to a withdrawal of the agricultural relief and the reference in this Schedule to section 19 (6) is not now required.
Amendment agreed to.
Question proposed: "That the Second Schedule, as amended, be the Second Schedule to the Bill."
There are certain aspects of the Schedule with which I am less than happy. I indicated earlier, both on Committee Stage and on an earlier Stage, certain views in this regard. First, it is my contention that the upper limit whereby no tax is payable on a gift or inheritance by a child from a parent on a sum of up to £150,000—and where the same can apply to a number of members of the family, each receiving £150,000—is going too far, even allowing for the difficulties that arose under the death duty code.
On the other hand, it seems that at the lower end of the scale, the limits are too low in some instances and do not take account of some of the realities of life, particularly life in rural Ireland. Various representations have been made in this regard and I should hope that on Report Stage there would be some amendments to the Schedule, particularly to the Tables in Part II. Otherwise we shall have to give consideration to an amendment in regard to the upper limits in the later part of the Tables. However, at this stage I wish only to indicate that the Tables as they stand are not satisfactory and that we wish to be in a position, in the event of the Minister's failure to introduce amendments on Report Stage, to do so ourselves.
(Cavan): I am clear regarding the Deputy's reference to the higher threshold of £150,000 but I am not clear as to the other point he is making.
Let me illustrate by referring to the fact that under Table IV tax is payable on an inheritance of £5,000 or more where a person is a stranger in blood. In circumstances where it is represented that death duties have been abolished, many people will be shocked when they discover that they will have to pay inheritance tax on inheritances of £5,000.
(Cavan): The Deputy cannot have it both ways. What we said, and I was the one who said it originally prior to the 1973 general election, was that in the case of the family—in cases where property was passing from one spouse to another or from parent to child—death duties would be abolished. We have fulfilled that promise in this measure and that is why the thresholds are so high as to shock Deputy Colley. Had we provided for lower thresholds, the Deputy would be telling us that, although we undertook to abolish death duties, we were not doing this. When we said that death duties would be abolished we said also that they would be replaced by a small annual capital tax on the very wealthy.
Deputy Colley seeks to make the point that those whom he regards as the very wealthy are being treated very lightly and that a man may make a gift of £150,000 to his wife and to each of several children without those gifts being liable to tax. That may be so but that type of person is the one who, during his life, will have been paying wealth tax and, in that way, will have made his fair contribution to the Exchequer. Therefore, the threshold of £150,000 is necessary in order to fulfil the promise made in our statement of policy. It means, in effect, that death duties within the family are gone and that there is no substitution for them.
In regard to the stranger there is a threshold of £5,000 and as the Deputy knows, under the old system, if the entire net estate amounted to £10,000, death duties were payable. Now, a person can have a very substantial estate and distribute it by way of gifts of £5,000 each to several people who would be strangers in blood, without the estate being liable to duty. In those circumstances I put it to the House that Part II of the Schedule of the Bill is reasonable and will be accepted generally.
I must confess that on this occasion I am more of the Minister's point of view than of my colleague's. At the same time, the Deputy has a point. Regarding the upper limits, I do not consider these to be excessive and the Minister's approach is acceptable in regard to the limits in Table I of Part II.
We must remember that at the beginning of this year, as measured against the dollar, for instance, the £ was somewhere in the region of 2.3 plus, whereas today it is down to something like 2.017. The depreciation in the value of money and general inflation suggests that these limits not only are not exorbitant but are proving that. The situation that brought about the principle situation in regard to the immediate family would become acute again. I think what will happen in the future will be that pressure will come for a revision upwards of Table I. I accept what the Minister has said with regard to Table IV but I think that, for instance, a brother and sister should be included in Table II rather than in Table III. It is a very specific type of case that occurs in this country, that of a lone brother and sister who may be elderly or middle-aged, and there is a strong case for treating them as the family relationships visualised in Tables I and II are treated. I accept what the Minister has said with regard to Table I and I understand the arguments he has made but I suggest that it might be practical to bring the case of a brother and sister into Table II rather than into Table III.
(Cavan): The Deputy is suggesting that they should be in Table II rather than in Table III?
Perhaps the Minister did not get my point about the specific social case in this country. By asking that question the Minister has prompted me to make a further comment. Perhaps the key to this matter is to differentiate between dependency—but that can get messy—to recognise the close relationship between a brother and sister here, where they are socially more in the category of Table I than of Table IV. I wonder what would be lost to the Revenue Commissioners if Tables II and III were amalgamated? At any event I suggest that the case of a brother and sister be transferred to Table II and that Table III would apply only to a child of a brother or of a sister.
(Cavan): I am glad the Deputy accepts my point of view with regard to Tables I and IV. He considers that Table III is not generous enough——
In relation to the specific case I mentioned. Perhaps I should mention a single brother and a single sister. This is the usual case.
(Cavan): There is no doubt that the exemption granted here is more generous than the death duties provision. The whole thinking behind the removal of death duties was to abolish them utterly and completely as far as the property passing from one spouse to another or from a parent to a child was concerned. It is generally accepted that we have abolished them. That was the assurance given and it was done. In doing that we have also given very practical and substantial relief in regard to other categories, right down to strangers in blood.
Deputy de Valera made the point, one that is often made here, with regard to brother and sister. I can tell the Deputy that before I came into the House today I was discussing brother and sister in relation to another matter within my own Department and it was urged on me that they should be treated in the same way as a husband and wife are treated. Deputy de Valera does not go that far. He suggests that they be switched from Table III to Table II and that the threshold in their case should be £15,000 instead of £10,000. All I can say is that full consideration was given to this matter before the tables were drafted and the figures agreed. The extent of that can be seen in that Deputy Colley thinks we have gone too far in Table I and that the threshold is too high, but he considers that the threshold is too low in Table IV.
It is good to hear different views from the opposite side on a matter like this where human elements are involved and where we are dealing with the relationship of parents and children and brothers and sisters. However, the fact that we get different views from the opposite side perhaps bears out that the line I am taking is a kind of happy medium between the two views. Perhaps I have the right solution, which is to give the immediate family a very generous threshold and, while increasing the other threshold considerably, not to go as far as the Opposition suggests I should go.
(Dublin Central): I agree with Deputy Colley that the thresholds in Table I are generous with regard to transfer from father to son or daughter, or from husband to wife. However, we must consider the current rate of inflation and how property is affected. Today a property of £150,000 is not very excessive.
I am not too concerned about Table I, but I am concerned about Table III. The limits the Minister is proposing are completely out of line in comparison with those set out in Table I. In that table the Minister at least is making provision in another part of the Bill where the nephew stands in the place of a son or daughter. However in Table III where brother and sister are concerned, there is not the same provision as exists for the nephew with regard to the concession. I should like the Minister to consider some of the estates and properties in Ireland today. I am sure the Minister is more aware than I am, especially in his legal profession, as to how some properties are held in this country. In agricultural and other types of property where the parents die and where the children are reasonably young the property or business is signed over to the eldest child for the purpose of taking out probate. It happens that members of a family who have not married do not get anything out of the farm or business although they have contributed substantially to its assets.
Under Table III the Minister is allowing an exemption of only £10,000. I am particularly interested in this Schedule of the Bill. I do not know how the Government or the Minister can justify that big gap where the nephew or niece can take the place of the son or daughter and be entitled to £150,000. The only exemption given here is £10,000. I am sure the Minister understands as well as I do how property is held throughout the country. Now when the member of the family to whom the property has been entrusted dies there is no doubt but that that family will be broken up completely to meet the duties. This will be worse than death duties, because provisions would be made in a situation like that after a certain number of years. What is the situation where agreements are drawn up by the person holding the property that in the event of his death a certain annuity will be payable? An agreement could be in existence for a considerable length of time, that in the event of the person who holds the property dying, it would go to the brother or sister. As far as I can see there is no provision for this.
I would like the Minister to have a look at the thresholds. If that section stands, it will be one of the reasons for the breaking up of many farms and businesses throughout the country. I will go further than Deputy de Valera and say that this particular section should be brought as near as possible to Table I of the Bill. I am not talking about a person that got his education out of a farm whether he is a doctor, dentist or lawyer or the brother or sister who got their portion when they left the farm. I am talking about the brother and sister who should qualify because they have a genuine claim to that property. The Minister, who is a professional man, should realise that a threshold of £10,000 is insufficient.
(Cavan): Thinking about this, I can see an excellent social reason for having Table III as it is. Deputy Fitzpatrick visualises a brother and sister living on a farm, not getting married, reaching old age, and then one of them dying, and the farm going to the other one who lives on there on his or her own having nobody to look after him or her and seeing the place run down.
Most of these people—I do not say all-have nephews and nieces, and Rule 9 in Part I of the Second Schedule —this is the favoured nephew or niece section—will quite possibly encourage the old brothers and sisters who are there to bring in a nephew or a niece to live with them for the last few years of their lives or to bring them to live with them at the start of their getting on in years. If they do that it will be a highly desirable situation for a number of reasons. First of all, it is mostly land we are dealing with because we do not often find brothers and sisters living on in a business; it does arise but not so often as in the case of a farm. If the generosity of Table I and the fact that Table III is not so generous encourages the brother and sister who have not married and who have nephews and nieces to bring a nephew and niece to live with them, it will mean the farm will be better run, that it will be kept in production, that there will be a youthful person there to do the work. It will be better for the old person or persons who have not got married, because they will have somebody to look after them in their declining years. They will have their own flesh and blood around the house and will not end up their days in an institution. If it does that, I think it is a highly desirable social object.
Deputy Fitzpatrick fears that Table III of this Schedule as it stands will mean that the farm will have to be divided up, that it will have to be sold for the purpose of paying this tax. That did not happen when death duties were applicable.
(Dublin Central): You could do something about it under death duties.
(Cavan): No, you could not do anything about it because death duties applied without any regard to relationship. Admittedly, legacy duty and succession duty had regard to relationship, but estate duty had no regard whatever to whether the person was a rank stranger or an only son.
They had regard to the widow and dependent children.
(Cavan): Yes, in recent years, to a limited extent. Again, if there are a number of people living together, Deputy Fitzpatrick should bear in mind the value of the land is reduced by 50 per cent. He should bear in mind that if A owns a farm worth £60,000 and he has three brothers and sisters living on the place—and, indeed, even if they are not living on the place— if he dies and leaves one third to each of them, each of them takes £20,000, but that is reduced to £10,000 and there is no tax payable. If the person with £20,000 dies later on and leaves the other two, there is no tax payable either. I am convinced it is undesirable that brother and sisters should be encouraged to live on farms together, holding on to them until their dying day. It is not good, first of all, for themselves because they will end up in loneliness, not in destitution because they may be well off, but they will end up in helpless loneliness or in an institution. If this provision encourages them to bring some with and in to live with them, it will be doing excellent work. I do not want to say this, but if Deputy Fitzpatrick was making a case for the extension of rule 9 to anybody in loco parentis, or to any child or any relative who was living there and to whom the disponer could be regarded as being in loco parentis, he would have a far better case. The case that is always put up is the nephew or niece and that is why we dealt with it in paragraph (9). I repeat that I think Part II of the Second Schedule, Tables I, II, III and IV are generous, are desirable, and I certainly would not agree to change them.
(Dublin Central): Would the Minister not consider making some differential between a brother or a sister who is not living on the farm and a sister who has lived on the farm all her life? Surely there must be some difference?
(Cavan): In many of the cases that Deputy Fitzpatrick is speaking of, you will find that the farm is not vested in one of them, that, perhaps, there was no will made, and that the brother and sister lived on there and acquired an absolute ownership in the land by long possession and each of them owned the land equally. That is the position you will find in a great many of these cases. Unfortunately, very often you will find that is why neither of them got married. The old man died without making a will, the farm went to a brother and sister who were living there; the sister would not release the place to the brother to get married; he could not get married; and you have this unhappy state of affairs.
Whatever the Minister himself may have said prior to the 1973 general election, I do not think he would seriously deny that the electorate understood, and were given to understand, that he and his colleagues proposed to get rid of death duties. Given that understanding, a provision which obliges somebody who inherits property worth more than £5,000 to pay duty or tax is not what people understood the Minister said was going to be done. On the other hand, if the Minister says that what he really undertook to do was to abolish death duties in the case of inheritance in the family, that is, by a son from a father, or a daughter from a father or mother, he is not doing that either, because he has a limit of £150,000. It seems to me that, whatever the Minister said, he is not doing it. What the public were led to believe is not contained in the Schedule. Whatever view may be taken by the Minister or anybody else, including Deputy de Valera, I still say that if the children of a wealthy man may each receive an inheritance or a gift from their father of £150,000 without paying any duty or tax, that is not a situation which I would favour or be prepared to defend.
In the context of what is being done in this Schedule, and the liability being imposed on other categories, and the Minister's statement that death duties were being abolished at least within the family, one has to remember what is also being done, which is, the imposition of wealth tax and the imposition of capital gains tax and, under this Bill, the imposition of a gift tax as distinct from an inheritance tax which is the equivalent of death duty, in circumstances quite different from those in which duty was payable under the death duty code. To get it into context one has to bear these things in mind.
Whether the persons benefiting under this upper limit of £150,000 in Table I are liable to wealth tax makes no difference in my view as to the extent of the exemptions being given. It seems to me to be quite inconsistent with the approach adopted in relation to the other tables and, in particular, the kind of cases described by Deputy Fitzpatrick of this party, the nephew or niece living his or her life on the farm. It seems to me that the treatment of such a person under Part II of the Schedule is very harsh to say the least. The case he made is worthy of consideration.
There is some truth in what the Minister said—I freely admit that— about the social desirability of people being encouraged not to hold on to the farm and not to live out their lives to the end alone. Other considerations come into it. I do not want to go over all of them now. In his other capacity, that is, other than substituting for the Minister for Finance as he is at the moment, in his capacity as Minister for Lands, the Minister is probably more familiar with this problem than most of us and recognises that, in order to achieve the kind of desirable social objective he was outlining, it cannot and, indeed, should not be done by way of severe penalty, and that is what is being done in this part of the Schedule. Quite a severe financial penalty is being imposed.
I would strongly urge the Minister to think again at least about that part of the Schedule between now and Report Stage and to see if it is possible to devise an improvement in relation to the kind of case outlined by Deputy Fitzpatrick. It is not, as he said, a case for all nephews and nieces but refers to particular circumstances.
(Cavan): Nephews and nieces are covered.
As he said, the case is very similar to the nephews and nieces case which was not, as far as I recollect, covered in the original proposals but these were changed later to include nephews and nieces in the particular kind of circumstances described. I believe that further consideration will show that a similar kind of change ought to be made in the case of brothers and sisters.
Not only has the factor of inflation or depreciation in money values to be taken into account but we must also have regard to the fact that the reliefs given here are the inclusive reliefs. Here again I differ from Deputy Colley's interpretation. The way Deputy Colley talks about exemptions of £150,000 to each child suggests that it is a pecuniary £150,000 but it is not. In relation to wealth tax the house is exempted and an acre is exempted. There are also other exemptions, such as the agricultural exemptions. In this Bill these tables are inclusive and there is no exemption for the family dwelling.
(Cavan): There is half valuation for agricultural land.
Yes, but there is no exemption for the dwelling. Therefore, having regard to property values and a lot of things we need not go into, this is a strong case for not diminishing any of the levels in any of the tables and a particularly strong case for increasing the level for brother and sister in the category that both Deputy Fitzpatrick and I have advocated. Although, as Deputy Colley says, there is something to be said for the Minister's point, I would like to change the emphasis slightly. Deputy Fitzpatrick rightly put it on the agricultural sector and what was happening in the country. This is very close but he, who represents a Dublin constituency the same as I do, will realise that there are many cases in this city where a brother and a sister are living together in a house. They may have been, until inflation hit them, reasonably comfortable but completely dependent on their investment income. Under the wealth tax they are within the threshold for the house and so forth but when death hits that protection is gone. These are analogous cases to the agricultural case the Minister was talking about.
The Minister could extend his argument into that sphere. Although it seems that the subsequent Tables II and III are a little out of proportion, if the Minister were to reconsider even amalgamating those tables there would be a great improvement. I do not know, in relation to the Revenue Commissioners, how much is to be captured. For the sake of a tidy scheme, if there was not a lot involved for the Revenue Commissioners, it might be worth the Minister's while considering how far he could merge Table II into Table III. This would effect a substantial improvement because not only would the threshold be raised but the percentages chargeable are more favourable in Table II than in Table III. That is why I approach the matter in that way.
(Cavan): I should like to say a few words in regard to Deputy Colley's line of argument. I suppose it would have been too much to hope that we would see the end of the Committee Stage of this Bill without the political line of thought creeping into it. Deputy Colley introduced it and that is understandable. I fail to see the logic in his argument. He says here that the threshold of £150,000 for the child of a wealthy man is too high, that it should be reduced and that capital acquisitions tax should be payable at some unspecified lower threshold. I presume, if he is going to interfere with it at all, he would reduce it substantially. I fail to understand that argument from Deputy Colley because I heard his argument on the wealth tax.
At that time the Deputy objected to a man with property of practically £250,000 in the agricultural field, which is the one we are discussing mostly here, being called on to pay a small wealth tax notwithstanding that the law, as it then stood, enabled that man to arrange his affairs so that on his death he would not be liable for any capital tax either, if he was lucky enough to transfer his property to his family. He would escape death duties, if he transferred his property five years before he died. There you had a man who had property valued at nearly £250,000 being asked to pay a small annual payment. Deputy Colley argued that he should not have been called on to pay that although the same man could escape death duties.
When we come in here and in Table I seek to give an exemption up to £150,000 per child to a man who has been paying wealth tax—it is likely such a man would be paying it, certainly if he is spreading it around a few children he would have been paying wealth tax, which Deputy Colley says he should not have been paying and it is harsh to ask him to pay it—he says we are too generous with him, that we should ask him to pay 10 per cent or 15 per cent at a much lower rung of the ladder. I do not see the logic in that. I suppose it is true, when you are in Opposition, you do not always have to be logical. You can make such argument as suits you at the particular time. That is all I want to say about Deputy Colley's argument.
On behalf of the Fine Gael Party, before the last general election, I spoke on television about the abolition of death duties. There is no doubt in my mind, and I know the record will prove it, that I specifically spoke about property passing from a husband to a wife and property passing from a parent to children. That was the type of death duty situation I was talking about and that was the undertaking I gave. By and large, we are substantially carrying out that promise. Deputy Colley does not want to let me do it because he wants to reduce the threshold and then he could say I did not carry out that promise.
I am saying if the Minister made that promise he would have no threshold.
(Cavan): We are doing it and nobody is complaining except Deputy Colley. I made this argument before. Before the last general election there were people with moderate means, such as farmers, who were living in terror of the infliction that death duties would be on their families when they died. They were living in terror of that. In regard to Table II, III and IV of the Schedule, no undertaking was given about death duties. There was no promise, election or otherwise, made about death duties. The position has been greatly improved here. If these thresholds are not generous enough, and if the situation at the time demands that it should be changed, there is a Finance Act introduced annually which provides the machinery for changing these thresholds to deal with the prevailing conditions.
If a person is making gifts to complete strangers those strangers have no call on the bounty of the disponer and it is not unreasonable that they should be called upon to pay tax at the rate mentioned. The further one gets away from the family the less claim the collateral relatives have on the bounty of the person. Very often the best way to get Irish country people to do things is to make it worth their while to do so for one reason or another. Those who live in the country know that the reason why farms were transferred to sons, daughters, nephews or nieces was to qualify for the old age pension. That has been done down the years, even if the old age pension was not worth looking for. It encouraged people to do that.
People do not like parting to the State; they do not like paying taxes, death duties or seeing their property going to the State. They do not like the idea of a substantial portion of their property, when they die, going to the State. In my opinion this will encourage them to make provision for themselves in their old age by bringing a nephew or a niece in to live with them. The person concerned does not have to live with them. If the farm is big enough he or she can build a bungalow on the farm. Under the terms of the condition they do not even have to transfer the property to the nephew or the niece during his or her lifetime in order to take advantage of the benefit in paragraph 9. It is sufficient if the nephew or niece have been living with them for five years prior to the death.
Paragraph 9 states that in any case where—
(a) the donee or successor is a nephew or niece of the disponer who has worked substantially on a fulltime basis for the period of 5 years ending on the date of the gift or the date of the inheritance in carrying on, or assisting in the carrying on of, the trade, business or profession or the work of or connected with the office or employment of the disponer; and
(b) the gift or inheritance consists of property which was used in connection with such trade, business, profession, office or employment or of shares in a company owning such property,
then for the purposes of section 19 (6) and for the purpose of computing the tax payable on the gift or inheritance, the donee or successor shall be deemed to bear to the disponer the relationship of a child.
That is an excellent provision. It does not even make it obligatory; they can have a trial period. The nephew or niece can stay there for six months or one year and if they do not agree they can take themselves away again. They are not tied to each other.
The position is likely to work satisfactorily when they are not tied to each other. Often when a person transfers his or her property to a child, nephew or niece, the child, nephew or niece finds himself or herself in authority and differences arise but here it can be done on a voluntary basis. If they are not getting on together the nephew or niece can leave and there is no harm done. If the nephew or niece live on for five years he or she is deemed, for the purposes of this Bill, to be a child and the threshold of £150,000 applies. After the trial period, if they are getting on well, an outright transfer can be made. The idea behind all this is highly desirable.
Question put and agreed to.
Title agreed to.
Bill reported with amendments.
Report Stage ordered for first sitting day after the Christmas recess.
The Dáil adjourned at 10.05 p.m. until 10.30 a.m. on Wednesday, 17th December, 1975.