(Limerick East): Will the Minister give an indication of the scope of the section?
Private Members' Business. - Finance Bill, 1990: Committee Stage (Resumed).
SECTION 113.
Question proposed: "That section 113 stand part of the Bill."
This is a definition section. It is a common provision in a Finance Bill in relation to all taxes. It ensures the use of the term "the Principal Act" instead of the more cumbersome, full title of an Act. In this instance the term "the Principal Act" is used in Part VI of the Bill for the Capital Acquisition Act, 1976.
Question put and agreed to.
NEW SECTION.
I move amendment No. 117a:
In page 91, before section 114, to insert the following new section:
"114.—(1) The Minister may make regulations under this section providing for the assimilation of the treatment under the Principal Act afforded to parties to a non-marital relationship to that which would be afforded to a husband and wife.
(2) Regulations made under this section may provide for such consequential, supplementary and ancilliary provisions, including provisions modifying any provision of the Principal Act as the Minister considers necessary or expedient.
(3) For the purposes of this section two persons shall be regarded as being parties to a non-marital relationship if they prove, in accordance with the regulations, that they have entered into a voluntary union which is intended to endure for their joint lives to the exclusion of all other persons.
(4) Where the Minister proposes to make regulations under this section a draft of the proposed regulations shall be laid before each House of the Oireachtas and the regulations shall not be made until a resolution approving the draft has been passed by each such House.".
This is a very important amendment as it deals with the situation where a husband and wife have separated either by signing a separation agreement or under the Judicial Separation Act. It is regrettable that cases of marital breakdown are running at a very high level and that judicial proceedings under the new Act are increasing. Indeed, I was speaking to one of the senior officials of the Circuit Family Court. I asked him how things were going under the new Act which is not all that long in force. He said that, unfortunately, marital breakdown and judicial separation proceedings are one of our growth industries. There is a very substantial number of cases of marital breakdown.
The State recognises that it happens and grants judicial separations under the Act. Appreciable numbers are involved and we must face the fact that in many families the husband and wife separate and that a new permanent relationship is entered into by the husband or wife — or both — with another partner. Many of these relationships are permanent and stable while some of them have lasted for five, ten or 20 years. There may be children of those non-marital relationships. For all practical purposes it is a family unit in all respects except in so far as the pure technicality of the situation is concerned. Under the capital acquisitions tax legislation, in the event of the death of the male partner to such a union the other partner — the woman — and her children would be faced with a capital acquisitions tax imposition as if she was a "stranger in blood" and without the benefit of the allowance provided in the case of a husband and wife. In a modern context — and in the practical situation which we have to face today — that is grossly inequitable and unjust.
The effect of the new Judicial Separation Act is that the parties to it are divorced in so far as full divorce legislation in England or any other jurisdiction is concerned in every single respect except one, the right to remarry. Apart from that the parties are divorced, indeed the old description was divorce a mensa etthoro. It is divorce in all respects except for the right to remarry.
If we do not adopt the thrust of this amendment very many family units — I advisedly refer to them as family units because that is what they are — on the death of one of the partners will be left in a disastrous situation which could involve the forcible sale and loss of their home. The allowance given to a "stranger in blood," which would apply here otherwise, is extremely low — I think it is only £10,000 which is to be slightly increased — and even a modest family home could be adversely affected.
We must face up to the fact that family units of the kind to which I referred exist in very high numbers and that we must treat them the same as any other family unit. I am not talking about fleeting relationships; the introduction of the proposed new section is very carefully worded. We are talking about non-marital relationships of a permanent nature. I fully accept and recognise that there are complexities involved in matters of detail and definition and that is why I took the careful step of not attempting to lay down detailed parameters in the amendment. I left that to the Minister to do by regulation.
By moving this amendment I hope the House will accept the principle — no more at this stage — that permanent non-marital relationships of the type I described will receive exactly the same recognition as the legal family unit. I hope the Minister will, in due course, avail of the powers which this section will give him to bring in regulations to put the flesh on the bones of the principle which I hope we can establish here tonight.
The purpose of this amendment is to exempt from capital acquisitions tax gifts and inheritances taken by one party to a non-marital relationship from the other. At present this exemption applies only to inheritances taken by the surviving spouse of a disponer. It is proposed that gifts taken by spouses will also be exempt from the date of the passing of this year's Finance Act.
There are major objections to this amendment. As a matter of policy the Revenue Commissioners should not be seen to be leading the general law in problems of this nature. The provisions regarding the status of parties in non-marital relationships should be contained in the general law relating to marriage which would then be reflected in relevant tax legislation.
As the Deputy will be aware, in framing or effecting any changes in the tax code, there is a necessity to adhere to the precepts of the Constitution. The Constitution binds the State to safeguard the institution of marriage, a requirement which the courts found to be applicable in tax law in the case of Murphy v. the Attorney General. If I were to introduce a provision to allow for the assimiliation of treatment under the capital acquisitions tax legislation to parties outside the legal married contract this could cause similar constitutional difficulties. In these circumstances it would not be desirable to make any special provision in the capital acquisitions tax legislation in respect of voluntary unions such as those identified in the amendment.
From a practical point of view the difficulties which would be encountered by the Revenue Commissioners in administering such an exemption would be almost insurmountable. For example, what evidence of residence, co-habitation and so on would be required? Does the Deputy expect the Revenue Commissioners to ask detailed questions about the parties' private and personal arrangements?
Finally, although it is not possible to estimate the immediate impact of the amendment on tax revenue it is likely that the cost to the Exchequer would be very considerable over a period of time. Accordingly, I must oppose the amendment.
I must express very considerable disappointment at the Minister's response on this very important issue. This amendment was advocated by the Institute of Taxation in Ireland, a very reasonable body to the forefront in seeking tax reform. If I may be permitted to quote, they said at paragraph 2.2 of their recommendation on this issue of capital acquisitions tax thresholds:
With the enactment of the Judicial Separation and Family Law Reform Act, 1989, the State has recognised the reality of the existence of marital breakdown. The Capital Acquisitions Tax Act, 1976, requires to be amended to enable the stepchildren and spouses of a non-marital liaison to avail of the class I threshold.
In my respectful submission justice requires that.
The question of the Constitution does not enter into this. The State has recognised — by passing the Judicial Separation and Family Law Reform Act of 1989, which I think was eventually passed unanimously by this House — the reality that marriages do break down. In other ways the State recognises the fact that non-marital liaisons exist. I will say this much, local authorities, at least some, or at the very least the local authority of which I am a member — and I have no reason to suppose it is unique — recognise the fact of non-marital liaisons. They will and do give local authority dwellings to non-marital unions of two people. They do so frequently in County Dublin; I know they do it in Dublin Corporation and I suppose elsewhere. Are they offending against the Constitution? That idea just does not hold water; that is just not borne out by the facts.
Why can we not face up to the practicalities of what is going on outside this House? Why do we shut ourselves in here, pretending that some world is going on out there which is not at all in accordance with reality? Life goes on out there. What is going on out there — and there are thousands of cases up and down the country — is that marital breakdown is taking place; separations are being granted by people entering into agreements to that effect, or by having judicial separations pronounced in the Circuit Courts which are kept extremely busy in this regard. Non-marital liaisons have been set up, many of which have been in existence for 20 years or more, with complete loyalty of the spouses, one to the other, with children growing up, for all purposes being a permanent liaison/union otherwise than having the pure technicality. Perhaps most of the people involved would marry if the law of the land allowed them do so. Personally I have the deepest regret that it does not, that is no secret, I have advocated that position. Unfortunately the referendum on divorce was defeated. The only thing that stops such people changing their non-marital relationship into a marital one is that, legally speaking, they may not do so.
Therefore when there are thousands of Irish people out there who have been living together for 25 to 30 years in the utmost loyalty to each other, who have children growing up, are we to say to them that our tax laws regard them as being strangers in blood, that the threshold allowances for capital acquisitions tax purposes given to a married couple are to be denied them? It offends reason; it offends logic; it is unfair, inequitable, unjust and I am not a little disappointed at the attitude being adopted here. I would appeal to the Minister to reconsider his decision on this crucial issue.
I must reiterate that we are dealing with tax law. It is a well established principle that tax law does not lead in this area. Rather it is a matter for general law to lead in this area. The Deputy may or may not be aware that the Revenue Commissioners have a statement of practice in circulation about cases in which there is hardship involved with regard to the application of capital acquisitions tax. If the Deputy is not familiar with it, we will get him a copy.
In the case of unions to which the Deputy refers, the capital acquisitions tax threshold applicable to children entitles them to the £150,000 because there is now no such person in law as an illegitimate child. Therefore, there are no problems encountered in that respect.
As the Deputy will be aware also, in the case of intestacy a spouse is entitled to a share of a deceased person's estate. The term "spouse" has been taken to refer to a person to whom the intestate person was validly married, cite the case of Gaffney v. Gaffney 1975 Irish Reports. The term “spouse” does not apply to any other person. Again, only a spouse has a legal right to a share of the deceased person's estate.
Those are just two examples in which, under general law — in the case of the Successsion Act 1965 — a "spouse" means a person who is lawfully married. I do not think I would be justifed in accepting an amendment which would put taxation law in such conflict with the general law. As a legal practitioner himself I am sure Deputy Taylor appreciates exactly what I am saying. It takes me back to where I began — that married couples are entitled to their treatment under the capital acquisitions tax legislation because they are married. That is not the position in the case of cohabiting couples. Therefore, it is a question of general law leading and tax law following, not the other way round.
(Limerick East): I am very sympathetic to the concerns expressed by Deputy Taylor. There is a problem of permanent relationships when people, in all circumstances, perceive themselves as having a permanent relationship being treated differently because they cannot organise themselves on a legal basis. It is not their fault they cannot organise their relationship on a legal basis; the law does not allow them do so.
I can see the problem the Minister has with definitions. I can see the problem of the Revenue Commissioners, whenever a proposition was put to them, in deciding whether it was a relationship of long standing, whether it was a casual relationship, or in ascertaining where they would draw the demarcation line between what was quite valid within the general context and what might constitute some avoidance measure. I can foresee a big problem being encountered in its application.
In circumstances in which there is a permanent relationship, where there are children, I take it that since the status of illegitimacy was abolished by this House, the thresholds which would apply in a direct transfer from parent to child would apply in the case of a transfer from the parent or parents of a non-regularised relationship to their children. I take it that is the position.
That is the position.
(Limerick East): That is the net point in the case of transfers between “spouses”— that is, spouses in quotation marks?
There is a later amendment in my name which asks the Minister, among other things, to treat a lineal ancestor, in certain circumstances, in the same way as a lineal descendant. I am confining it to inheritance tax. If it were extended to cover gift tax it would be possible to cater for the problem Deputy Taylor has in mind in circumstances where there would be children. There could be a double transfer, from parent to child and back to parent. If the Minister cannot see any way of overcoming the technical difficulties he has described for us, he might consider what may be considered a tax avoidance measure but if there is no other way of fulfilling the objective it would be possible to transfer in that way — if the Minister follows what I am trying to say — rather than across the line. It may be possible to get over the difficulty in that way while not putting the Minister in a position where he would be leading general law rather than following it.
I wish to make a few general remarks on the question of capital acquisitions tax but I will refrain from doing so until we reach section 115. As I see it, this section which purports to exempt from tax gifts between spouses — this is already the case in respect of inheritances between spouses — is elaborated upon by what is a very reasoned amendment from Deputy Taylor. I wish to draw the Minister's attention to subsection (3) of the amendment which reads:
For the purposes of this section two persons shall be regarded as being parties to a non-marital relationship if they prove, in accordance with the regulations, that they have entered into a voluntary union which is intended to endure for their joint lives to the exclusion of all other persons.
I respectfully ask the Minister to tell us whether he considers it is possible to come up with a tighter definition of a life-long commitment outside the marriage contract than the one in that clause? This appears to be the nub of the issue. The Minister is essentially saying that he does not accept that marital breakdown is, unfortunately, a fact of life and reunions occur with the intention of there being a life-long relationship and that through no fault of their own the two people concerned must set up house and try to co-ordinate a family unit outside the law in the manner prescribed in this amendment.
The State does acknowledge this reality in other areas. For example, the Department of Social Welfare very speedily take action against one or other spouse in the event of cohabitation. Deputy Taylor has referred to the position which obtains in respect of local authority housing. The local authority I am familiar with in the Dublin area accept that persons who find themselves in this position may make application as a family unit. They frequently do and are accorded housing and charged rent on that basis. We are turning a blind eye to reality.
Many fine words were spoken at the time of the great debate on the referendum. We all accept that the people made their decision but we do not all necessarily accept that the people in all cases made their decisions freely having regard to some of the pressures applied. However, that is water under the bridge. This amendment merely seeks to address the reality. If the Minister considers it necessary to introduce section 114 to extend the exemption to cover gifts between spouses, I cannot see why we would want to inflict any further unnecessary cruelty on two people who have the best of intentions and who, within the definition contained in subsection (3) of this amendment, do their best to pick up the pieces again and make a life for themselves in a country which does not admit legally that marital breakdown occurs. Therefore, I ask the Minister to address the substance of the amendment.
It is probably unnecessary for me to remind Deputies and the House that the Constitution binds the State to guard with very special care the institution of marriage. Consequently, it should be apparent that this amendment would not be acceptable to me in circumstances where general law leads and tax law follows. Having said that, let us look at the problem presented. I am not unaware of the realities of life, that marital breakdown occurs and that there are people cohabiting. However, let us look at the problem presented to see if any pragmatic solution can be found.
First, if there are children involved the threshold of £150,000 passes on to the child or children concerned. Deputies Taylor, Rabbitte and Noonan expressed concern in varying degrees about the position of the spouse involved. I suggest that this difficulty could be resolved by providing the spouse with a life interest in the property concerned and by availing of the statement of practice by the Revenue Commissioners which indicates that hardship can be addressed in certain ways. For example, instead of paying inheritance tax a mortgage could be taken out on the property. Leaving that aside, let us consider the position of the spouse. If a life interest in the property is provided for the spouse, once the spouse has passed away this will pass on to the child or children concerned with no tax payable. Therefore there is a practical solution to the problem which can be availed of.
Everyone accepts that there are difficulties with the definition of spouse and the constitutional requirements which bind the State to give special protection to the institution of marriage. I have suggested a practical solution to the problem raised.
The Minister has given me an answer but it is not a satisfactory one, I am sorry to say. Let me say a few words on the constitutional requirements. The Minister has indicated that we are presented with constitutional difficulties but I cannot accept this or that it is in accordance with the facts. In that context let us consider for a moment the position of the non-marital child. Under our law the non-marital child is put in the same position as a marital child.
That is general law.
Be that as it may, that is the law.
There is no difference.
No distinction is drawn between a non-marital child and a marital child. I have never heard anyone suggest, that because the law equated the position, including the tax position, of a marital child and a non-marital child, this in any way constitutes an attack on the institution of marriage, which is to be protected under the Constitution. If that constituted an attack on the institution of marriage there might be some force to the Minister's argument. We know, however, that it is perfectly in order to equate a marital child with a non-marital child; there is nothing unconstitutional in that. By the same token, if the Minister and the Government were minded to equate, for tax purposes, the position of a non-marital alliance and a marital alliance, it would be no more unconstitutional and no more offensive to the Constitution than equating the position of the marital child and the non-marital child.
It is not entirely inconsistent for the State to take up the position that the non-marital child has the same tax benefit on inheritance as a marital child but that the mother of the child and the father of the child, as between themselves, count as nothing? There is an inconsistency there. It is all very well to say that we are casting around here looking for tax avoidance measures. Deputy Noonan suggested one and the difficulty there is that children under age cannot make dispositions at all by law and that presents an immediate problem with his tax avoidance method. The Minister suggested another tax avoidance method dealing with life interests and so on. The people I am talking about, however, do not have the advice readily available nor can they afford the advice of the tax consultants and advisers as to how they should manage their affairs. They are just ordinary down to earth people. They are just faced with problems as working people for the most part; they do not have the benefit of that advice and they are not able to get advice on tax avoidance. Surely the net point is that if we recognise it as a problem that needs a remedy, instead of spending our time casting about here for tax avoidance methods we should just come up front and be honest with them, and with ourselves for once, and admit that there is a problem that we are going to try to do something about.
I know the present law covers the position of a spouse and I know about the Gaffney case in 1975; that was 15 years ago. We are not in 1975 now, nor in 1985. We are in Ireland of the nineties and we should cop ourselves on and try to bring ourselves up to date and not hark back to 1975. I know that is the present position. The reason I proposed this amendment was to try to bring some equity and justice into the situation.
Sometimes it helps if one gets away from the generalities and describes a specific case of marital breakdown. The new couple have been living together for 30 years and have got themselves a very modest house valued at £30,000, the lowest end of the scale. They have been together for 30 years; he is just a working man and she has looked after the children of the non-marital union, non-marital children who are fully recognised in every way. They have no money put by, they have no assets and they do not consult tax advisers. Tragedy strikes at them and he dies. I have done a very rough calculation of what the unfortunate lady who is left behind has to pay in inheritance tax, somewhere between £4,000 and £6,000. People in that situation have as much chance of putting their hands on £4,000, £5,000 or £6,000 as they have of getting £40,000 or £50,000. This is an outrageous amount of tax for people who have nothing left but a £30,000 house and interest gets added on to that as time goes on and their home is literally put at risk. Does the Minister really want that?
No.
Thank you for saying no. I know the Minister does not want that. I know that he is a humane person and would not want a family in that situation to lose their home and have to resort to local authority accommodation when they have struggled all their lives to get their basic house. But if we say no, we have to try to do something about it and that is the sole purpose of my amendment, to try to address a very real, human situation and, as I have said, unfortunately a very common one. We all regret that marital breakdown takes place. It is a very sad occurrence. At the same time, we have to face up to it. We have to try to cope with the situation and help people as best we can. We all want to do that, so why can we not be realistic about it? Just imagine a situation where the breadwinner has suddenly gone. What a trauma that is, and here are the children, their education, their maintenance, feeding and all the rest, and on top of that is added the burden of about £5,000 for inheritance tax. It was never meant to cover that kind of situation but it does, so why do we not challenge it and say that we will look at it.
I point out, with all the force at my command, that my amendment is not changing the law at all. It goes no further than to try to bring a principle into our tax legislation, because it leaves all the details to the Minister to be worked out at the appropriate time by regulation. If this was adopted and passed this minute there would be no immediate change in the law at all. That was deliberate on my part because it is a new principle and until such time as the Minister brought in his regulations to amplify the detail of this there would be no change at all. The Minister says this should be a matter for the general law rather than tax law. Sometimes one despairs. There are times when one gets the feeling that one cannot win. If there was an appropriate Bill going through the House on the general law and I attempted to bring in an amendment to such an enactment of the general law to provide for assimilation on capital acquisitions tax, I would be told very quickly by the Ceann Comhairle, the Leas-Cheann Comhairle and the Minister that that was a matter appropriate to the Finance Bill, that it was a matter appropriate to tax legislation and that it was totally inappropriate in general legislation.
That is as far as I can put it, a Cheann Comhairle. We have debated it long and hard. This is a very humane point which I would ask the Minister and the House to reconsider.
It is humane. Deputy Taylor is an experienced legal man himself. He knows that he does not have to amend legislation in relation to capital acquisitions tax. The nub of the problem here is the definition of spouse and that can be amended in general legislation and then we have a different problem.
Let us come back to the picture the Deputy painted and the question of compassion in regard to a relationship where there are children. What Deputy Taylor failed to address and has totally ignored is the original spouse. He makes no provision for that. The original spouse has rights. The Deputy talks about the second spouse where there is cohabitation and where there is a family but ignores the rights of the first spouse. When the Deputy does that as glibly as he has done, then it is quite easy to present the picture in a simplistic form.
What I addressed were the practical solutions to the problems that exist in that situation. There are many ways around it. I accept that many ordinary people are at a loss for information, but many Members of this House provide that information. I have listened to some of the problems that come out of the society that those two Deputies represent. I am sure Deputy Taylor reads The Irish Times, and in the issue of 8 January 1990 a Revenue Commissioners official gave an interview in which he went into the detail of this. It is not identical to the situation the Deputy has raised here but it is the case of two sisters living in a house where, if one of them died there would be hardship because of inheritance tax and capital acquisitions tax. In that situation one can leave the house to the other or leave a life interest and let it pass on to somebody afterwards; they can apply to the Revenue Commissioners for postponement of the payment and let a mortgage be raised on it or whatever. In this situation, they could adopt the approach I have already mentioned, but another way of looking at it is that the spouse could leave the house to the children. The spouse could be appointed as the executor of the will and the guardian of the children. The children could look after the spouse and the spouse could look after the children. If we are arguing the legal point as to whether it should be general law or tax law which should address this problem, I can say that in tax law this has been tested in the case Gaffney v. Gaffney in 1975 where the definition of spouse was the critical point.
Deputy Taylor has carefully ignored the existence of another spouse and what will happen to that spouse. One cannot trample on the rights of the existing spouse and just say that their rights do not exist. Their rights exist and have to be addressed.
I will address that point. However, I will deal with the Minister's first point now, the definition question. The Minister is inviting me to say that in some other measure I will propose the alteration of the definitions so that partners in a non-marital union will in some way become spouses. I cannot do that. That does not make sense at all. The partners to a non-marital union are not spouses and cannot be spouses because that is the law of the land, although they may wish to become spouses. All the definitions in the world will not change that; spouses are spouses and people in a non-marital union are not spouses. All I can try to do, which I am doing, is to seek to assimilate the tax laws so far as capital acquisitions tax is concerned as they apply to people in a marital union to people in a non-marital union, provided certain very stringent conditions are met and the Minister makes regulations to deal with it. I can do not more than that, and that is all I seek to do.
The Minister raises the question, and it is a very fair one, that I am ignoring the position of the original spouse. However, what the Minister is forgetting is that under the terms of the Judicial Separation Act, when orders for a judicial separation are made and likewise when these things are dealt with in separation agreements there is a permanent finish as between the property rights of the original spouses. That becomes part and parcel of the judicial separation decree and the Judicial Separation Act which was passed unanimously by this House has specific provision to see that the mutual inheritance rights inter se of the original spouses can be and usually are severed and determined and even their mutual rights under the Family Home Protection Act are also mutually severed. As I have said earlier, the effects of a judicial separation decree are identical in all respects to a divorce save only — and I mean only — the right to remarry. Apart from that there is a permanent cut and a permanent separation between them. In most cases their inheritance rights are gone and even the rights that a spouse would have under the Family Home Protection Act are gone. I have not overlooked, if I may say so, the position of the original spouse. I have borne it very much in mind. What we are talking about now is a new permanent non-marital relationship and I have worded my amendment very carefully to cover those situations.
Is the Deputy pressing his amendment?
I am.
Amendment put.
The Committee divided: Tá, 58; Níl, 68.
Tá
- Ahearn, Therese.
- Barnes, Monica.
- Barrett, Seán.
- Belton, Louis J.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, John.
- Bruton, Richard.
- Byrne, Eric.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Crowley, Frank.
- Currie, Austin.
- D'Arcy, Michael.
- Deasy, Austin.
- De Rossa, Proinsias.
- Doyle, Joe.
- Durkan, Bernard.
- Farrelly, John V.
- Fennell, Nuala.
- Ferris, Michael.
- Finucane, Michael.
- Flanagan, Charles.
- Gilmore, Eamon.
- Harte, Paddy.
- Higgins, Jim.
- Higgins, Michael D.
- Hogan, Philip.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Enda.
- McCartan, Pat.
- McGahon, Brendan.
- McGinley, Dinny.
- Mac Giolla, Tomás.
- McGrath, Paul.
- Mitchell, Jim.
- Moynihan, Michael.
- Noonan, Michael.
- (Limerick East).
- O'Shea, Brian.
- O'Sullivan, Gerry.
- O'Sullivan, Toddy.
- Owen, Nora.
- Pattison, Séamus.
- Rabbitte, Pat.
- Reynolds, Gerry.
- Ryan, Seán.
- Sherlock, Joe.
- Spring, Dick.
- Stagg, Emmet.
- Taylor, Mervyn.
- Taylor-Quinn, Madeleine.
- Timmins, Godfrey.
- Yates, Ivan.
Níl
- Ahern, Dermot.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Briscoe, Ben.
- Browne, John (Wexford).
- Burke, Raphael P.
- Calleary, Seán.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Kelly, Laurence.
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Leonard, Jimmy.
- Lyons, Denis.
- Martin, Micheál.
- McDaid, Jim.
- McEllistrim, Tom.
- Molloy, Robert.
- Morley, P.J.
- Nolan, M.J.
- Noonan, Michael J.
- (Limerick West).
- O'Connell, John.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Jackie.
- Fitzgerald, Liam Joseph.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Gallagher, Pat the Cope.
- Harney, Mary.
- Hillery, Brian.
- Hilliard, Colm.
- Hyland, Liam.
- Jacob, Joe.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Keeffe, Ned.
- O'Leary, John.
- O'Malley, Desmond J.
- O'Toole, Martin Joe.
- Power, Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Stafford, John.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Wilson, John P.
- Woods, Michael.
- Wyse, Pearse.
Tellers: Tá, Deputies J. Higgins and Ferris; Níl, Deputies V. Brady and Clohessy.
Amendment declared lost.
Section 114 agreed to.
NEW SECTION.
(Limerick East): I move amendment No. 118:
In page 91, before section 115, to insert the following new section:
"115.—Notwithstanding the provisions of the Principal Act, in any case where—
(a) the successor is a brother or sister of the disponer, who had lived on a full time basis with the disponer in the disponer's principal private residence for the period of 5 years ending on the date of the inheritance; and
(b) the inheritance consists of the disponer's principal private residence; and
(c) the successor is 55 years of age or more,
then, for the purpose of computing the tax payable on the inheritance, the successor shall be deemed to bear to the disponer the relationship of a child.".
This is the first of a series of amendments in which I am seeking to change certain aspects of capital acquisitions tax. Some of them apply to both gift tax and inheritance tax. There is one amendment a part of which applies only to inheritance tax. Under the provisions of section 115 the Minister is proposing to index the thresholds for capital acquisitions tax purposes. The thresholds have remained unchanged since 1978 and he is proposing that they will be changed yearly on the basis of the consumer price index at mid-November. That gives him a 4 per cent inflation rate this year.
I am glad the Minister has addressed the problem. The section to which he seeks to make the amendment is welcome but I would ask him to look at a number of anomalies that arise in capital acquisitions tax. My first amendment seeks to address one anomaly which was referred to in passing in the Minister's reply to Deputy Taylor's amendment which we have just disposed of. It is the kind of circumstance in which two sisters or a brother and sister are living together and the property is in one name. When he or she dies the house passes to the surviving sister or brother. Because the tax threshold is so low between sisters or brothers he or she could be liable for inheritance tax on most of the value of the property. When we are discussing inheritance tax there is a tendency to believe that we are talking about the farming community because they lobby more about inheritance tax than others or, secondly, that we are talking about extremely valuable property but the basic threshold for transfers is £20,000. If somebody in a town or village is living with her sister and the house worth £65,000 to £70,000 is in the sister's name when the £20,000 exemption is deducted from £70,000, the surviving sister will pay tax on £50,000 which amounts to a substantial amount.
I know the Minister has suggested tax avoidance measures that could be taken. If the sisters were sufficiently advised and were in a position to understand capital acquisitions tax and the legal implications of tax transfers they could, as the Minister said, arrange their affairs so that the surviving sister would have a life interest in the property. Alternatively, if it caused great hardship the Revenue Commissioners — I understand from their statement of practice referred to by the Minister — would be prepared to accept a mortgage on the property and they would collect when the surviving sister died. These are make-do suggestions. Frequently, the people who are hit hardest are those who are not aware of the way they can arrange their affairs to avoid the penalty or the liability to tax.
My amendment proposes that, where the successor is a brother or a sister of the disponer, has lived on a full-time basis with the disponer in the disponer's principal private residence for a period of five years ending on the date of the inheritance, where the inheritance consists of the principal private residence and nothing else, where the successor is 55 years of age or more, then, for the purpose of computing the tax payable on the inheritance, the successor should be deemed to bear to the disponer the relationship of a child.
Where there is a lineal descent from parent to a child the threshold for exemption is £150,000. As the Minister has now arranged, under the provisions of section 115 this will be indexed in the future to £156,000. In the case of a transfer of agricultural land — to which my amendment would not apply — because agricultural land is valued at 50 per cent one can double everything, in which case we would be talking about £312,000 rather than £156,000.
This amendment is confined to the principal private residence in a transfer between brothers and sisters where the survivor is over 55 years of age, where the residence is in the name of the disponer, where they have lived together for at least five years and where all that is at issue is the inheritance of the house in which the brother and sister have lived, in which the two brothers have lived or in which the two sisters have lived. The purpose of this amendment is to try to organise a situation where such transfers would not be liable to inheritance tax because the same threshold would apply to the transfer from sister to sister the same as applies to a transfer from parent to child. We know there is a precedent for this. We are all aware in rural constituencies of the phenomenon of the favourite nephew or the favourite niece. Without going into the intricacies of the favourite nephew clause the Principal Act says that the favourite nephew will be treated and shall deem to bear to the disponer the relationship of a child for tax purposes. The actual formula for doing what I am suggesting is there already in the precedent of the favourite nephew or the favourite niece. There is an unanswerable case.
I know the Minister will quote the interview with an official of the Revenue Commissioners in the financial pages of The Irish Times which was published after Christmas when this became an issue of public debate. It was a very good article. I was delighted that officials were prepared to come forward and give public advice, that they were allowed to come forward and give public advice. It was very helpful for anybody who would be advising in circumstances where that would arise. Clever tax avoidance advice is not as good as the certainty of legal changes. I am seeking a legal change for older people, brothers and sisters, at least 55 years of age who have been living together for a long time, so that a transfer could take place without the penalty of inheritance tax.
It is customary when proposing amendments to ask what cost would be involved but we are talking about buttons here. I think the amendment I am proposing is correctly drafted. I would like the Minister to accept the principle of what I am saying and come back to us on this tomorrow if there is any technical flaw in the amendment.
I know what the Deputy is saying. Apply the principle of the favourite nephew to this and everything in the garden is rosy. It is just not as simple as that. Take the example the Deputy has given of two elderly brothers or sisters living together in a house which, taking the bottom range of the market, is worth, say, £40,000. If one of them already owns half the house all that is passing for tax purposes is half of £40,000 which is £20,000 so there is no tax involved.
(Limerick East): If the house is owned by one.
If it is owned by either, it does not matter.
(Limerick East): If it is joint ownership——
I am not talking about joint ownership.
(Limerick East):——if the House is owned by one and goes on inheritance to the other then you are not talking about half, you are talking about the full amount.
From my knowledge that is rather uncommon. It is more likely that two brothers, two sisters or sister and brother were left the house by their father or grandfather. Take the Deputy's example of £60,000. Half of the £60,000 is £30,000 with an exemption of £20,000. Now for the first time since 1973 I have indexed the thresholds from £150,000. It is not the massive problem everybody tries to convince me it is. Why did it last so long in every Finance Bill that went through this House since 1973 or whatever year it was and everything is a problem now? I suggest that a house owned by two brothers and two sisters and valued at £60,000 would at a maximum attract inheritance tax of about £2,000. If there is hardship in paying that, payment can be deferred until the survivor passes away. There is a statement of practice by the Revenue Commissioners to advise people how they can deal with these problems in not alone such cases but in others as well. I quote from the Revenue Commissioners' document Capital Acquisitions Tax—Statement of Practice (SP-CAT/1/90)—Postponement of Tax and Registration of Charge:
1. In cases where payment of the gift or inheritance tax due would cause excessive hardship for the beneficiary, the Revenue Commissioners will consider proposals for the postponement of payment of tax. Postponement may include instalment or other arrangements for payment (including the waiver of interest) or the registration of a judgment mortgage or other charge over the property taken as a benefit. This Statement of Practice outlines the practice and procedures to be followed where the beneficiary, claiming excessive hardship, is prepared to allow the Commissioners to register a judgment mortgage or other charge over the property taken as a benefit.
2. An example of the type of situation envisaged is one where an elderly person, with limited means, inherits a house or apartment which is, or becomes, his or her sole residence and where in order to pay the tax due he or she would be obliged to sell the residence.
3. The postponement would apply during the lifetime of the successor while the property which is subject to the charge remains in the ownership of the successor. In the event of a sale or transfer, or on the death of the successor the entire tax together with accrued interest would become payable and the arrangements for payment (including consideration of any claims for waiver or reduction of interest) would be considered with reference to the circumstances of the sale or transfer, or the circumstances of the eventual successor or successors as appropriate.
Therefore, there are plenty of ways of dealing with hardship if that is the problem.
The other way of dealing with the problem is giving life interest to people in certain situations such as I referred to earlier in the article in The Irish Times of 8 January 1990. When two brothers, sisters or whatever are together in those circumstances the survivor has a life interest in and full use of the property for his or her lifetime and the tax due would be signficantly reduced in many cases and would be eliminated altogether in many other cases. There is plenty of information available. The problem is not as I see it presented here. My case stands on that.
(Limerick East): The Minister's reply to me is based generally on a false premise. He is taking the example of two brothers or sisters living together who jointly own the house. He is taking the house as worth £60,000, he is saying the survivor owns £30,000 worth of it already and all that is at issue is the inheritance of £30,000 which is the value of half the house, a £20,000 threshold applies and the person pays tax on only £10,000. He is saying 20 per cent of £10,000 throws up a tax liability of £2,000.
Approximately.
(Limerick East): Approximately. That is not so. As is common in all our towns and cities, two old ladies are living together: usually the house has been left to the older one by the father or mother and the younger sister moves in to live with her.
Whose name is it in?
(Limerick East): It would be in the name of the older sister or brother to whom it was transferred by the parent. Quite frequently the other brother or sister is living there with no rights to the property. In those circumstances the sum is different. Then we are talking about £60,000 worth of property being transferred, a £20,000 exemption — I have not got the schedule in front of me — but 20 per cent applied to £40,000 is £8,000 rather than £2,000. I am not standing over the figure, I am using it as an example working back from the figures the Minister threw out. If you take the total value of the house and apply the threshold of £20,000, a significant tax imposition applies. To come to people after the funeral and say, “Is it not a pity you did not arrange your affairs differently?” is not much consolation. To suggest to an old lady that if her sister had given her a life interest in the property rather than leaving it in her will everything would have been all right is small comfort. What I am talking about would be no great loss to the Revenue Commissioners. The tax might not be paid until the next transfer. I am talking about two brothers or sisters living together and usually they are single. On the next inheritance the surviving sister or brother will be passing the property on to a nephew or niece or somebody further out. The tax is collected on the next transfer on the full value of the property with the £20,000 threshold applying.
The Minister should accept this amendment. He is taking the "best case" scenario and applying good tax advice to that. The more average case is where the property is in the name of one brother or sister who makes a will and leaves it to the other and the full value of the house, once the threshold is passed, is liable for inheritance tax. I think there is a case to be met. Why does it always arise that everything was grand for the last ten years, that only when this poor Minister arrives we make these demands on him?
It must be 17 years.
(Limerick East): One reason is that property values over the last couple of years have risen and a very small tax imposition becomes a very serious tax imposition. It is not a question of trying to preserve the value of inherited wealth. In the circumstances I have stated where brothers or sister are involved the State will collect its tranche of inheritance tax anyway when the next transfer takes place.
I must admit to having a good deal of sympathy with the point Deputy Noonan argued. It highlights something I find slightly strange in the setting out of the threshold. I wonder how it ever came about that a brother or sister, which after all is a pretty close relationship, is treated in the same tax threshold as a nephew or niece, who is one degree further away. One would have thought a brother and sister would have warranted being in a different category and would have been treated so much more favourably than a nephew or niece, but they are together in the one threshold category and I find that surprising. In both cases the tax is still double what it would be for a person living with another for 30 years and having three children with them. That again highlights some of the inequities.
The kind of position enunciated by Deputy Noonan does arise but not very frequently. There are a few people in my own area, elderly brothers or sisters who have been living together for a long time who literally do not have the resources available to look into tax questions. We are talking about people in very modest circumstances. Part of the trouble with the capital acquisitions tax code is that it enables the wealthy sections of the community to avail of tax planning and the services of tax consultants and experts to make up schemes which will substantially moderate their liability to taxes in one form or another, if not to avoid them alltogether. On the other side of the coin, people of relatively modest means fail to deal with problems that will arise when one dies and they have not the resources to enable them to do so. It would be appropriate for the Minister to respond favourably when specific certain limited cases are drawn to his attention. I would be inclined to support Deputy Noonan's amendment.
It is important to put in context exactly what I have done in my approach to capital acquisitions tax.
In my review of capital acquisitions tax this year I accepted that some degree of movement was desirable. I am aware that problems can arise in this area. I had, however, to balance this view against the fact that the yield from the tax was some one-third only of 1 per cent of total tax revenue in 1989, a considerably lower figure than that yielded by the old death duties regime. I also had to bear in mind that substantial changes in this area would lead to a narrowing of the tax base and, consequently, to a limiting of the options available to me in the context of overall tax reform.
While bearing in mind all these factors, nevertheless I included important reliefs in this Bill. Gifts taken by one spouse from another will in future be exempt from tax and I have extended the scope of section 60 insurance policies which can cover these eventualities. Also, I have introduced an important change under which the various thresholds will in the future be index-linked. These changes will cost over £1.35 million a year which, relative to the yield from the tax, is a significant amount.
Deputy Noonan's proposals to allow the parent and child threshold to apply in the case of certain transfers between brothers and sisters and to further increase the thresholds would cost over £11 million a year — a reduction in the present yield of some 40 per cent. This is unacceptable and I am sure that Deputies will agree that my own proposals are sensible and realistic responses to the circumstances.
I dealt with the situation of an elderly brother and sister having equal shares in a house and I cannot see any real problem in that area. Where a brother or sister is to inherit an entire house, a simple piece of tax planning will reduce the tax burden or eliminate it in some cases. This has been brought to our notice by many people, including the Incorporated Law Society. The Revenue Commissioners suggested to the Law Society, among others, that wills can be drawn up in such a way as to reduce substantially the amount of tax payable. Instead of giving the house absolutely to a surviving sister the owner of a house may make a will giving the house to that sister for life, the house passing absolutely on her death to, say, a nephew.
How are life interests dealt with? Does it depend on the age of the person who gets it.
(Limerick East): Is it a gift?
The taxable value can be reduced by doing this. The life interest would give the sister full use of the property for her lifetime. If she were aged 65 at the owner's death the effect of her taking a life interest instead of an absolute interest would be to reduce the tax from £3,500 to nil if the house were valued at £35,000, or from £14,000 to £4,865 if the house were valued at £70,000. I have already outlined the avenues open to people where the payment of tax would involve hardship.
The computation of inheritance tax is based on the relationship between a disponer and the successor. Apart from the possible loss of revenue and the further narrowing of the already narrow inheritance tax base, I am reluctant to take on any further proposals which interfere with this base. Accordingly, I must oppose the amendment, bearing in mind what I have said and the way in which many of the problems raised can be addressed.
I want to put it on the record of the House that in the hardship cases outlined by Deputy Noonan the Revenue Commissioners will never press for payment of tax. I am specifically putting this on the record of the House so that everybody will know that they will not press for payment in the type of hardship case Deputy Noonan has raised. They never have done.
(Limerick East): I thank the Minister for that commitment on behalf of the Revenue Commissioners. I take it the commitment would mean the Revenue Commissioners would have an interest in the property to the value of the tax liability and would exercise that on the death of the surviving sister.
Would interest accumulate?
They have power to remit the interest.
(Limerick East): What is the nature of the commitment? Is the Minister saying they would not press but interest would accumulate or that they would not press and interest would be remitted?
They look at the circumstances of every case. If big wealth is to be inherited they would take one view but if there is very little they would take another view. They have full powers of remission and to treat every case separately on its merits.
(Limerick East): Circumstances alter cases. The Minister put a price tag of £11 million on my amendments. I take it he is including amendment No. 120 in that costing.
All three.
(Limerick East): Obviously the increase in the thresholds would be quite expensive. The increase is just under 40 per cent. Has the Minister a cost for amendment No. 118? If there is any cost at all it will be collected at the next transfer. In the nature of the case we are discussing the only place it can go on the next spin of the wheel is to a nephew, niece or some more distant relative.
The cost is somewhere in excess of £1 million.
(Limerick East): It is £1 million deferred, to be collected the next time the wheel goes around. It cannot go any closer but must go further out.
It would be £1 million given up — taken away.
(Limerick East): The younger generation could make a better arrangement and you could lose the next one.
Amendment put and declared lost.
NEW SECTION.
(Limerick East): I move amendment No. 119:
In page 91, before section 115, to insert the following new section:
"115.—Notwithstanding the provisions of the Principal Act, in any case where—
(a) the successor is a brother or sister of the disponer who has worked substantially on a full time basis for the period of 5 years ending on 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 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 purpose of computing the tax payable on the inheritance, the successor shall be deemed to bear to the disponer the relationship of a child.".
Amendment No. 119, which is along the lines of the amendment we have disposed of, relates to a brother or sister of a disponer. It proposes that, where the brother or sister of a disponer has spent five years, ending on the date of the inheritance, 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 the 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 purpose of computing the tax payable on the inheritance, the successor shall be deemed to bear to the disponer the relationship of a child. I am applying the same argument I put forward in amendment No. 118 to cases where a brother or sister are carrying on a business — running a local pub or shop, perhaps — which is in the name of one of them and which will be left to the other when the owner dies. I am talking here of property which is of greater value than house property. I am again making the point that the higher threshold which is applicable to the transfer of property between parents and children should apply to such transactions where brothers and sisters or brothers have jointly run a farm, shop, pub, etc. I think my intentions are clear.
I am sure much could be said in favour of amendments Nos. 118, 119 and subsequent amendments from Deputy Noonan — anomalies exist within the capital acquisitions tax code which ought to be highlighted and corrected — but I have some difficulty in being expected to be sympathetic to an area of taxation where basically we are talking about the transfer of property and minimising the tax liability for the transfer of property, gifts and so on as against — we spent a great deal of the debate on the Finance Bill discussing this — what reliefs might be made available to people who have no property.
Without impugning in any way the merits of the anomalies Deputy Noonan wishes to highlight, I would refer him to the view of the former Leader of Fine Gael, Deputy Garret FitzGerald, who made the point that in his view the capital acquisitions tax system, as it is now was intended by him to be accompanied by a wealth tax and that effectively the old estate duty would yield far more now than does the existing capital acquisitions tax. Perhaps the Minister can contain his risibility. I understand why wealth tax might be a touchy subject in this case but——
Not at all.
——I am afraid that the only way a person who, has wealth in this society could end up paying any significant tax is if one was ignorant or stupid. There are so many tax avoidance mechanisms available to people who have wealth to avoid paying tax that they could not be excused for paying a significant share of tax. The old estate duty would, if it were still in existence, yield more. If the situation is otherwise I ask the Minister to say so.
I know Deputy Noonan was not referring to this point. There are three different categories involved. The Minister has proved responsive to the question of raising the threshold. For many years the Government and the trade unions have been discussing the question of various personal income tax allowances, tax bands and so on. On occasion it has been necessary to argue that we could not contemplate indexation for all kinds of reasons — dimunition of revenue and so on — but it is possible here.
I find it difficult to have any sympathy with category one where I think the new threshold will be £156,000. A millionaire with eight children, can, by managing his affairs prudently, contrive to dispose of the whole lot without being liable for any capital acquisitions tax.
Whether they are marital or non-marital children.
It would not matter in this case whether they were marital or non-marital children. I am not greatly moved by the fact that we have raised the threshold for the first time in so many years. We have demonstrated the same flexibility on questions like, for example, the residential property tax. We have also managed to introduce reliefs in respect of children which we could not possibly introduce for the PAYE earner.
I find it difficult to get very excited about the amendments in this area. Deputy Taylor referred to the only category who seem especially discriminated against within the code, that is, the living-in-sin category, for the want of a better description. I am not denying that there may be anomalies within the code as it exists but I am not greatly moved by them.
I was surprised to hear Deputy Rabbitte talking about the reliefs introduced in the residential property tax area because the thresholds were increased in response to the hard-pressed middle income PAYE sector who make the strongest argument against the system and the inequity of the way it operates. When that tax was introduced it was never intended to take it away; it was taken away because the £100 child allowance was taken away; it just slipped away.
Not too many PAYE earners in my constituency are paying residential property tax.
The pressure was put on by the middle income group. I am surprised to learn that there are not many people in that large constituency Deputy Rabbitte represents who are not benefiting from the residential property tax reliefs.
Not many of them are paying residential property tax or are liable for it.
I thought there would be plenty of them paying it in Clondalkin. I can tell the Deputy that it was introduced more in response to the PAYE earner than anybody else and I think it was very much welcomed by them. I certainly believed in the equity of the argument which was put to me. The old death duty would have yielded more than is yielded under this tax. The yield at present only represents one-third of one per cent. I have introduced many changes and I am not disposed, without having compensatory payments somewhere, to look at other changes in this area. The purpose of this amendment is to apply the threshold of £150,000, which is now indexed, instead of the threshold of £20,000, to an inheritance consisting of business assets taken from a disponer by a brother or sister who has worked on a full-time basis for the disponer in the five years preceding the date of the inheritance.
There is already a similar relief given under paragraph 9 of Part I of the Second Schedule to the Capital Acquisitions Tax Act, 1976, to gifts and inheritances of business assets taken by a nephew or niece, provided that the nephew or niece has worked on a full-time basis for the disponer. Clearly, what is involved here is to substitute the favourite nephew. This relief takes the form of treating the nephew or niece as a child of the disponer, so qualifying for the £150,000 instead of the £20,000 tax threshold.
This concession afforded to certain nephews and nieces was a recognition of what was perceived to be the special position of a childless proprietor who had taken a nephew or niece into his business or farm with a virtual guarantee of succession to that business or farm provided the nephew or niece effectively renounced an alternative career. In a sense, the nephew or niece had been informally adopted and was, therefore, granted the relationship of a child as in the case of a legally adopted person.
No such case exists for the extension of the relief to brothers and sisters. Indeed, it might be argued that by encouraging, through a tax concession, the handing over of a business to a person of the same generation, this proposed section would deny the inheritance of the business to a younger, more energetic and dynamic beneficiary, say a nephew or a niece, who might qualify for the existing concession.
There are many ways of catering for this, such as insurance and so on. There is no lack of information on the topic. In fact the Revenue Commissioners have been very forthcoming on how to deal with this matter. If the relief in respect of business assets is being sought for brothers and sisters, a case might be made for extending it to grandchildren, cousins and even the favourite stranger. However, extending the relief to others would lead to a loss of revenue at a time when I am being urged to broaden the base in connection with capital taxation. In the context of a tax whose rates are based on consanguinity, any extension of the relief would throw doubts on the equity and efficiency of the tax. Accordingly, I must oppose this amendment, bearing in mind the way inheritance tax on business assets passing between brothers and sisters may be met, as I have outlined, by tax planning and by the use of section 60 policies.
There are severe pressures on the tax base arising from the Government's commitment to reduce income tax rates and deal with the pressures arising from the EC proposals for approximation of indirect taxes. We cannot afford to jettison any revenue for reasons which do not appear compelling. In the budget, and the Finance Bill, it was all give and no take. The few takes that are in the Bill will have to remain in place for another year.
(Limerick East): I should like to thank the Minister for his very full reply. On a number of occasions he referred to the figure of one-third of one per cent of the total tax take and I should like to ask how much that represents.
About £28 million would represent one-third of one per cent of the total tax take.
(Limerick East): Deputy Rabbitte said he was not moved by my rhetoric in favour of the people I have referred to, but he added a curious statement, that we had spent much of our time referring to the vast majority of people who do not own any property. I should like to tell him that 85 per cent of the people of the country own their own houses.
The building societies own them.
(Limerick East): We have a very high level of property ownership. In most circumstances where a principal private residence of a person is passed to a son or daughter tax does not apply because the threshold is £156,000, courtesy of the Minister this year, and the value of the normal family home does not go near that figure. However, there are circumstances where the transfer is between a brother and sister and, in those circumstances, tax applies after £20,000. I accept that there are ways that one can make arrangements for such an event but very often the old and the not so aware do not put their affairs in order.
If a farm is passing from a parent to a son or daughter the threshold of £156,000 could be doubled because the market value of the transfer would have to be obtained before the transaction is caught in the tax net. However, if one takes a small shop in a country town, a pub or a business where a couple of people are employed, one does not have to have very much in one's favour at present to run up an asset value of £150,000. To keep a small business together, so that the surviving brother or sister does not have to borrow unduly or dispose of part of the asset base of the business, is a different matter. There is a case to be made for such transfers between brothers and sisters. It may be that, in asking that such a transaction should be treated in the same way as a transfer from a parent to children, I am moving too far, but I am prepared to accept any reasonable bid from the Minister.
I am not in the bidding business.
(Limerick East): There is a problem to be addressed although I accept that I am referring to a minority of cases. It may be that, as the Minister said, there is another way to deal with this matter. If the Revenue Commissioners continue as they are proceeding in giving the maximum possible information to the public, if they are prepared to enter into public controversy, to get involved in giving interviews to financial journalists so that their tax advice can be produced in the financial pages of newspapers like the article referred to by the Minister, they will be going part of the way. If statements of practice are widely dispersed, if representatives of the Incorporated Law Society or local groups of family solicitors are fully briefed by the Revenue Commissioners through letter, brochure or in person, the news will get around and the local family solicitor will be properly briefed. If that takes place there is a good chance that the information will be applied but there are a lot of “ifs” involved in that. Having made my case, I do not intend to press the issue any further.
(Carlow-Kilkenny): During the debate the Minister referred on two occasions to the leniency of the Revenue Commissioners. He told us they bend over backwards to help with queries. In my limited experience of dealing with them I have found them to be the only group who can successfully extract blood from turnips.
There are many bad debts.
(Carlow-Kilkenny): There is a person in heaven since last week who fought a long case with the Revenue Commissioners after he received some extra land. The Revenue Commissioners told him that if he received 40 acres he could sell ten of them. The Minister will accept that assets are only of use if one can use them and all the talk of adding interest and so on is of no use. If a person owes £60,000 and that person fights a case for 15 years before the property is passed to another individual, it will not be worth much to the new owner. If one cannot use one's farm or one's shop one is only wasting one's time.
I have explained the position and it is on the record of the House.
I was slightly amused to hear Deputy Noonan say that local family solicitors should be properly briefed on capital acquisitions tax. There are not too many family solicitors who are in any way familiar with the complexities of the CAT system. Is any consideration being given by the Department to dealing with the outlandish complexities into which the system has wound itself? It has got totally out of hand. I am not talking about yields or amounts — I generally agree with Deputy Rabbitte's comments on that issue — I am referring to the complexity of the system. I wish to compliment the Revenue Commissioners in respect of two things: their officials are always extremely helpful and go out of their way to assist people in dealing with the complexities of the capital acquisitions tax system and they produced an excellent explanatory booklet on the subject. However, "booklet" is not the word to describe it because it is a book. I do not know how many Deputies have seen it but it is a very complex text and not too many Deputies — let alone solicitors — would be able to fathom it without very considerable study.
There are many critical dates in the system such as 1978, 1982 and 1984. There will now be a change in 1990 and it has gone out of control. Any system of taxation — income or capital tax — should produce an adequate yield but it should also be fairly readily understood by ordinary people, especially by the people who have to pay it. Simplicity — or even relative simplicity — is of great merit and the old amounts are still relevant when it comes to matters of aggregation going back to the late seventies and early eighties. If the system is not revamped and brought up to date with new thresholds and critical dates it will become so hard to follow that it will be unworkable. Indeed, it is fast approaching that already.
Deputy Noonan is not pressing this amendment?
(Limerick East): That is right.
I want to make a few comments. Deputy Noonan said that his concerns might be eased if the Revenue Commissioners were more forthcoming with information in relation to capital acquisitions tax. In this regard the Revenue Commissioners have conducted training seminars for approximately 2,000 solicitors, so the local family solicitor is fairly well up to date on this matter.
Deputies have received clearcut information on a very cheap consultancy basis here tonight and I will impart more now. Deputy Noonan asked how the fact of leaving a business to a brother would be affected. Instead of leaving the business to the surviving brother the owner could make a will leaving a life interest in the business to his brother. The value of the business will depend on the brother's age. If he is around 65 years of age its value for tax purposes will be 0.6 per cent and if he is older it will be even less. During his life the profits will accrue to him and, after his death, it would be desirable, to hold the business intact, to pass it on to a favourite nephew who will continue the business. Of course the favourite nephew will be treated in the same way as a son or daughter and he would have the threshold of £156,000. Practically all the tax would be eliminated in a small business.
It was simpler when the farm was left to one son and the seat in the Dáil to the second.
I do not have a farm and the day is long past when you can leave your seat in the Dáil to a son. Indeed, many of the sons today are not as foolish as their fathers and are not interested in taking a Dáil seat.
I have done a lot of work in trying to find and eradicate inequities in the system. I know it is full of them but I can only do so much in one year. I have done a considerable amount this year and the main thrust of the budget was to give, not to take. I put in as many reforms as I could without further endangering the tax base and I hope to continue that line in next year's budget.
Amendment, by leave, withdrawn.
Section 115 agreed to.
NEW SECTION.
(Limerick East): I move amendment No. 120:
In page 91, before section 116, to insert the following new section:
"116. —The Second Schedule to the Principal Act is hereby amended in Part I by the substitution of the following paragraph for paragraph 1:
`1. —In this Schedule—
"class threshold" in relation to a taxable gift or a taxable inheritance taken on a particular day, means—
(a) £207,000 where the donee or successor is on that day the spouse, child, minor child of a deceased child (of the disponer), or, in respect of inheritance tax, a lineal ancestor limited to parents of disponer;
(b) £27,600 where the donee or successor is, on that day a lineal ancestor, a lineal descendant (other than a child, or a minor child of a deceased child), a brother, a sister, or a child of a brother or of a sister, of the disponer;
(c) £13,800, where the donee or successor does not on that day, stand to the disponer in a relationship referred to in subparagraph (a) or (b);
"revised class threshold", in relation to a taxable gift or a taxable inheritance included in any aggregate of taxable values under the provisions of paragraph 3, means—
(a) the class threshold that applies to that taxable gift or a taxable inheritance, or
(b) the total of the taxable values of all the taxable gifts and taxable inheritances to which that class threshold applies and which are included in that aggregate,
whichever is the lesser;
Provided that where the revised class threshold so ascertained is less than the smallest of the class thresholds that apply in relation to all of the taxable gifts and taxable inheritances included in that aggregate, the revised class threshold shall be that smallest class threshold;
"Table" means the Table contained in Part II of this Schedule;
"threshold amount", in relation to the computation of tax on an aggregate of taxable values under the provisions of paragraph 3, means the greatest of the revised class thresholds that apply in relation to all of the taxable gifts and taxable inheritances included in that aggregate.'.".
This is a long amendment but it is really a transcription of a section of the Schedule with a new threshold applying to all the different degrees of consanguinity. People might wonder about the basis of the figures. The base here is 1978 and I have tried to take half the consumer price index from 1978 to the end of 1989 which works out at an inflation rate of slightly less than 40 per cent. I do not think to fully index along the lines of the consumer price index would be appropriate because, when the section was drafted in 1978, there was an expectation that it would have a gradual effect and that the 1978 take was not the intended take of the policymakers at the time.
I do not believe that a property index would have inflated as rapidly as the consumer price index since 1978. There were various rises and falls and for much of the eighties there was no movement in property and I doubt if the movement over the last two years — which has now plateaued — would be anywhere near the CPI level. However, the Minister would have far better information in that regard than I have.
The basis of the figures is half the CPI on the best information in that regard that I can find. It runs slightly under 40 per cent, so that is purely the technical basis of the amendment. A long time ago I found that simply pulling figures out of the air did not lend itself to making a good case and that there must be some basis to the figures.
In the amendment, in paragraph (a) of the Schedule, I have slightly altered the original wording. I have added a little bit at the end of paragraph (a) which says "in respect of inheritance tax, a lineal ancestor limited to parents of disponer". I want to refer to the case where a transfer has taken place from father to son and, a short time later, the son is driving home and is killed in a car accident. There have been circumstances in which this has happened and if it reverts to the parent the threshold of £20,000 — not the £156,000 — will apply. In the lineal descent you get the benefit of the £156,000 but, if it reverts, a very serious problem can arise. I do not think that the circumstances in which that would arise are very frequent but most Members know of cases where it happened.
Is the Deputy referring to a case where the person is single?
(Limerick East): Yes, the son to whom I referred would have been single.
He would have had to be an only child.
(Limerick East): It is very confined in its impact but it happens. He would not have had to be an only child because, in circumstances like this, the business would revert to the parents who have to retransfer to the second son if he is not an only child. It is quite an intricate process. If he is married a problem does not arise, at least not a tax problem. In circumstances where a business is left by a grandfather to a grandson or granddaughter I am not requesting the exemption if anything happens to the inheritor. I recommend it to the Minister. There is very little difficulty in technically including the amendment. It would cost very little. I could name names but we are not in the business of doing so and, because we can name names in this circumstance——
I do not think I would have time to do it.
(Limerick East): I think the Minister's advisers know exactly what I am talking about; it is only a matter of three or four words.
We will talk about it when this is over.
(Limerick East): Fair enough.
May I appeal to the Minister to carefully consider what Deputy Noonan has said. I am delighted to hear the Minister say he is prepared to look at it. I am aware of the case of a neighbour of mine, when a 21-year-old who had received an inheritance from his father subsequently died suddenly which meant it had to revert to the parent again. As Deputy Noonan has said, it is the £20,000 only threshold which is applicable in such a case.
Did I hear the Deputy correctly to say that he had received it from his father who is dead?
The father is still alive.
Just for the benefit of the House, the next amendment I was to take on board by a couple of Deputies — I see it is Deputy Noonan's own amendment — I have taken on board the appeals mechanism provided for in the next amendment. I was asked to do so by Deputy Dempsey and a few others.
(Limerick East): I ran that amendment last year and the Minister said he would take a look at it this year. I thank him.
Deputy Dempsey, along with Deputy Noonan, twisted my arm and told me I would have to be generous this year. Therefore, we will take that one on board.
As it is now 10.30 p.m. I am required to put the following question in accordance with the Resolution of the Dáil of 15 May:
"That the amendments set down by the Minister for Finance and not disposed of are hereby made to the Bill in respect of each of the sections undisposed of, that the section or, as appropriate, the section as amended, is hereby agreed to in respect of each of the Schedules to the Bill and that the Schedule or, as appropriate, the Schedule, as amended, is hereby agreed to, that the Title is hereby agreed to and that the Bill, as amended, is hereby reported to the House."
The Committee divided: Tá, 68; Níl, 58.
Tá
- Ahern, Dermot.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Briscoe, Ben.
- Browne, John (Wexford).
- Burke, Raphael P.
- Calleary, Seán.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Jackie.
- Fitzgerald, Liain Joseph.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Gallagher, Pat the Cope.
- Harney, Mary.
- Hillery, Brian.
- Hilliard, Colm.
- Hyland, Liam.
- Jacob, Joe.
- Kelly, Laurence
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Leonard, Jimmy.
- Lyons, Denis.
- Martin, Micheál.
- McDaid, Jim.
- McEllistrim, Tom.
- Molloy, Robert.
- Morley, P.J.
- Nolan, M.J.
- Noonan, Michael J. (Limerick West).
- O'Connell, John.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Keeffe, Ned.
- O'Leary, John.
- O'Malley, Desmond J.
- O'Toole, Martin Joe.
- Power, Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Stafford, John.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Wilson, John P.
- Woods, Michael.
- Wyse, Pearse.
Níl
- Ahearn, Therese.
- Barnes, Monica.
- Barrett, Seán.
- Belton, Louis J.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, John.
- Bruton, Richard.
- Byrne, Eric.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Crowley, Frank.
- Currie, Austin.
- D'Arcy, Michael.
- Deasy, Austin.
- De Rossa, Proinsias.
- Doyle, Joe.
- Farrelly, John V.
- Fennell, Nuala.
- Ferris, Michael.
- Finucane, Michael.
- Flanagan, Charles.
- Gilmore, Eamon.
- Harte, Paddy.
- Higgins, Jim.
- Higgins, Michael D.
- Hogan, Philip.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Enda.
- McCartan, Pat.
- McGahon, Brendan.
- McGinley, Dinny.
- Mac Giolla, Tomás.
- McGrath, Paul.
- Mitchell, Jim.
- Moynihan, Michael.
- Nealon, Ted.
- Noonan, Michael. (Limerick East).
- O'Shea, Brian.
- O'Sullivan, Gerry.
- O'Sullivan, Toddy.
- Owen, Nora.
- Pattison, Séamus.
- Rabbitte, Pat.
- Reynolds, Gerry.
- Ryan, Seán.
- Sherlock, Joe.
- Spring, Dick.
- Stagg, Emmet.
- Taylor, Mervyn.
- Taylor-Quinn, Madeleine
- Timmins, Godfrey.
- Yates, Ivan.
Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies J. Higgins and Ferris.
Question declared carried.