Dáil Éireann debate -
Thursday, 8 Nov 2001

Vol. 543 No. 4

Written Answers. - Tax Reliefs.

Enda Kenny

Question:

59 Mr. Kenny asked the Minister for Finance if, under section 598 of the Tax Consolidation Act, 1997, assets deemed to be held as a personal investment and not part of a company, but which are used for the trade involved, are eligible for capital gains tax retirement relief; the type of assets envisaged by this section of the Act; and if he will make a statement on the matter. [27273/01]

Enda Kenny

Question:

60 Mr. Kenny asked the Minister for Finance the type of assets for which section 598 of the Tax Consolidation Act, 1997, provides relief; and if he will make a statement on the matter. [27274/01]

Minister for Finance (Mr. McCreevy)

I propose to take Questions Nos. 59 and 60 together.

Sections 598 and 599 of the Tax Consolidation Act, 1997, deal with what is commonly known as capital gains tax or CGT retirement relief. Section 599 deals with the disposal to a child of the individual owner while section 598 deals with disposals to other individuals. The sections in their original form were introduced in section 26 of the Capital Gains Tax Act, 1975. The aim of the relief is to facilitate the lifetime transfer of a family business or farm where the potential CGT liability might otherwise be substantial. While known as retirement relief, actual retirement of the individual owner from his/her business is not a condition for obtaining the relief in all cases.

This relief is available to persons over 55 years on the disposal of qualifying business-farm assets, including shares in family companies, subject to certain qualifying conditions. The relief is restricted to aggregate disposals of up to £375,000 or 476,250 where the transferee is not a child of the transferor. Where the disposal is to a child of the transferor there is no limit on the proceeds of disposal or gain which may qualify for relief. The child must hold onto the qualifying assets for a period of six years otherwise there will be a clawback of the relief.

The nature of CGT retirement relief is that it is allowed on assets used for a trade by the person carrying on the trade, not for personal investments. The type of assets covered by the legislation would include land, buildings, plant, machinery and goodwill held for the purposes of a trade, farming, a profession, an office or employment. These assets must be owned by the individual and be chargeable business assets throughout the period of ten years which ends with the disposal. Assets not covered are shares, securities or other assets held as investments as distinct from shares in a family business.

Where the business is carried on by way of a company instead of as a sole trader, the assets held outside a business do not qualify for capital gains tax relief. A number of difficulties have been identified in relation to any broadening of the scope of CGT retirement relief to allow such assets held outside the business to avail of relief. The main issue to be considered is the fact that an individual and his/her company are distinct legal entities from a taxation viewpoint. When an individual decides not to put an asset into the company but rather to allow the asset to be used by the company, then that asset is being held as a personal investment which is protected from any claim by the company's creditors, including the Revenue Commissioners.

To extend CGT retirement relief to assets held in a personal capacity by an individual and let to the individual's company would allow grounds for arguing that retirement relief should apply to all personal investments.

The exclusion of such personal investments from CGT retirement relief is not considered anomalous and I have no plans to make any changes to the legislation in this regard.