Vol. 488 No. 1
85 Mr. Stagg asked the Minister for Finance the evidence, if any, he has to support his view that people were retaining capital assets for longer periods than they might otherwise have done because of the 40 per cent rate of capital gains tax. [5576/98]
In my budget speech, I stated that for a considerable period of time I have held the view that a reduction in the rate of capital gains tax would release pent up investment funds and create an incentive for the acquisition of further capital assets. I believe that the low standard rate of capital gains tax, which I introduced on budget day, will encourage further investment and growth in the economy in the future. I base this view on what I have seen in my own experience as an accountant.
I am not alone in this view. The Institute of Taxation, in its pre-budget submission, called for a sizeable reduction in the rate of capital gains tax. Forfás, the Irish Stock Exchange and IBEC also called for a reduction in the rate of capital gains tax on some or most investments. The rationale for a cut in the rate of capital gains tax given by all of these bodies was that there would, among other things, be an increase in the level of disposals being made.
Because death is not a disposal for the purposes of incurring a capital gains tax charge, assets can be passed on to the next generation, with their value being re-based to the date of death and no capital gains tax payable on the pre-death gains. Since the low rate of capital gains tax will encourage people to dispose of assets, this will mean that those who would have otherwise avoided the charge to capital gains tax altogether, by holding on to their assets until death, may now be encouraged to pay capital gains tax at the low standard rate of 20 per cent.
