Dáil Éireann debate -
Thursday, 14 Apr 1994

Vol. 441 No. 3

Written Answers - Capital Gains Tax Code.

Thomas P. Broughan

Question:

120 Mr. Broughan asked the Minister for Finance if his Department has carried out any research in relation to the likely yield from capital gains tax which would transfer the full capital gains from development of rezoned land in local authority development plans to the Exchequer.

Minister for Finance (Mr. B. Ahern)

I should begin by pointing out that the capital gains tax (CGT) code already contains special measures to ensure that those who realise gains on development land pay a significant proportion of the gain to the Exchequer. As the Deputy is no doubt aware, gains are generally chargeable to CGT at a rate of 40 per cent after indexation relief, and, following the alignment of the CGT rate with the standard rate of corporation tax, a similar tax treatment applies to gains made by a company in the course of its trade. However, in the case of gains made on development land, the application of indexation relief is restricted. It applies only to the portion of the value of the land at the time of acquisition that reflected the land's "current use value", i.e. the value of the land calculated on the assumption that it was at that time, and would remain, unlawful to carry out development on the land, other than development of a minor nature. As a general rule, these special provisions apply where the land is sold for over £15,000. Accordingly, the effective rate of tax for development land gains can be appreciably greater than for other assets.

I am not aware of any studies that would indicate the likely yield from a tax regime which would transfer the full capital gains from development of rezoned land in local authority development plans to the Exchequer. However, the Deputy will appreciate that the yield from taxation in this area is a function of the level of disposals, and that this would itself be strongly influenced by the level of tax. A regime that transferred the full gain from the disposal of any asset to the Exchequer would, the Deputy will appreciate, remove the commercial rationale for such disposals. In those circumstances, and bearing in mind that tax arises on ongoing disposals, it is unlikely that an additional tax yield would accrue from such a measure.