Dáil Éireann debate -
Wednesday, 7 May 1997

Vol. 478 No. 7

Written Answers - Tax Liability.

Seamus Brennan

Question:

51 Mr. S. Brennan asked the Minister for Finance his views on the tax implications following disposal of property from a parent to a child where such disposal is considered exempt from gift tax but is charged as capital gains tax rates; and if he will make a statement on the matter. [12213/97]

Minister for Finance (Mr. Quinn)

Where a person makes a gift of an asset to another, or transfers, an asset at under market value, the transaction may come within the scope of the following separate taxes:

Capital gains tax (CGT) in respect of any chargeable gain accruing to the person making the gift; and

Capital acquisition tax (CAT) on the taxable value of the gift taken by the person receiving the gift.

It is unclear from the question the type of situation that the Deputy has in mind when he refers to a disposal which is exempt from gift tax but is charged to capital gains tax. In general, where a parent makes a gift of property to a child the parent may be subject to capital gains tax on the disposal of the property and the child may be subject to capital acquisition tax on receipt of the gift. However, the liability to each tax would depends on the precise circumstances and the reliefs available within each of the taxes.

Where a person acquires an asset and subsequently disposes of it, the person is deemed to have realised a capital gain equal to the increase in the asset's value over the period. In general, the gain is chargeable to capital gains tax at a rate of 40 per cent. A disposal takes place whenever the ownership of an asset changes, irrespective of whether payment is received.

Capital acquisitions tax (CAT) is due whenever a person receives a gift or an inheritance, subject to certain exemptions, thresholds and reliefs. A person may receive assets worth up to £185,550 (Class 1 threshold) from his-her parents free of capital acquisitions tax. Therefore, a child would be entitled to reduce the taxable value of a gift from a parent by £185,550 and this means that no capital acquisition tax would be payable on gifts below this threshold received from a parent. Furthermore, if the gift came within the rules of either agricultural or business relief, then the child could receive up to £1,855,500 in either farm or business assets free from capital acquisition tax. These examples assume that the child has not received any previous benefits from all sources since 2 June 1982.

While both capital gains tax and capital acquisitions tax may arise in respect of the same event, i.e., a gift, they constitute two separate and distinct taxes. Capital gains tax is a disposals based tax and is levied on the gain made over the period of time that an individual has held the asset. Capital acquisitions tax is an acquisitions based tax and is levied on the individual who acquires a gift or inheritance and takes into consideration the relationship between the disponer and beneficiary and any previous gifts received by the beneficiary.Therefore, situations can arise where capital gains tax is payable in respect of a gift but no capital acquisitions tax is due. The opposite can also arise whereby capital acquisition tax is payable but a capital gains tax charge does not arise on the gift. Given the different bases and objectives of the two taxes this should not be considered to be inappropriate in principle.

Finally, I draw the Deputy's attention to the fact that where capital acquisition tax is payable on a gift and this gift is also a disposal of an asset for capital gains tax purposes, then in calculating the amount of capital acquisition tax payable, credit is allowed for the amount of capital gains tax paid.