Dáil Éireann debate -
Thursday, 8 Mar 2001

Vol. 532 No. 3

Written Answers. - Share Dealings.

Noel Ahern

Question:

114 Mr. N. Ahern asked the Minister for Finance if he will clarify his policy in relation to encouraging citizens to invest in shares; the reason shareholders are treated less favourably than their UK or European counterparts; the current annual exemption limit on capital gains on share dealings here and in the UK; if he will bring our exemption into line or closer to the UK level; if he will lower the stamp duty rate of 1% on share dealings to the UK 0.5% rate; and if he will make a statement on the matter and generally introduce a fairer climate for the small to medium shareholder. [7320/01]

Minister for Finance (Mr. McCreevy):

The tax position on share ownership is as follows. There is a 1% stamp duty charge on share purchases and any gain arising on the disposal of shares may be liable to capital gains tax, CGT at a rate of 20%.

For the purposes of CGT, the first £1,000 of a chargeable gain accruing to an individual in a year of assessment is exempt from CGT. In the case of married couples, if the assets are held jointly or equally between both spouses, then they can both avail of the £1,000 individual allowance.

I am informed that in the United Kingdom an individual has an annual exemption of £7,200. The chargeable amount for individuals for a year of assessment, after taking account of losses and the annual exempt amount, is in effect added to income for tax purposes and charged to tax at the same rates as if it was the top slice of income. Unused income tax reliefs and allowances cannot be set against these net gains. In Ireland, the CGT chargeable is separate and distinct from any liability to income tax.

I do not consider that a raising of the current annual exemption limit of £1,000 is warranted, especially given the existing low 20% rate of CGT applying. Any call for an increase in the £1,000 limit should be mindful of the practice of share bed & breakfasting – a process whereby the gain on shares up to the exemption limit is rolled over annually ensuring that no CGT is paid.

In relation to stamp duty, the yield from stamp duty on share transactions was £182 million for 2000. A reduction of this rate to that which applies in the UK, for example, 0.5%, as proposed by the Deputy, would result in a significant cost to the Exchequer. It has not been demonstrated that the economics of trading/holding Irish shares have been materially impacted by the existence of the 1% stamp duty. I have no plans at this stage to reduce the stamp duty rate on share transactions.

Share ownership in Ireland has benefited considerably from the reduction in 1997 of the capital gains tax rate, from 40% to 20% and Irish CGT rates compare very favourably with regimes elsewhere. Overall taxation on capital is currently low relative to taxation on earnings and a reduction in capital taxes through the stamp duty rates on investment in shares might be perceived as being contrary to tax equity.

In addition, Irish companies with substantial operations in this country enjoy the benefit of more favourable rates of corporation tax than is generally the case elsewhere. This should enhance the attraction of shares in Irish companies due to higher net earnings going forward. Owners of shares in this country benefit directly and very significantly from the CGT reductions and they will also benefit indirectly from the move towards a 12.5% corporation tax rate across the board.