Probate Tax: Motion.

The Senator has 15 minutes to move the motion and each other Senator has ten minutes; the Minister has 15 minutes.

I move:

"That Seanad Éireann condemns the proposed 2 per cent probate tax believing it to be unfair, unjust and inequitable; and calls upon the Minister for Finance to withdraw this proposal."

I welcome the Minister, Deputy Ahern, to Seanad Eireann. This is my first opportunity to do so since I was elected to the Seanad and he was reappointed to the Department of Finance. I wish him every success in a very difficult task.

To demonstrate the seriousness with which we in Fine Gael view this proposed 2 per cent probate tax, every member of our group in the Seanad has put their names to this motion, to which Senator Wright has tabled an amendment. Any tax imposed by the Oireachtas must be and must be seen to be equitable and fair. It must also take into account a person's ability to pay. The proposed 2 per cent probate tax fails to meet these criteria in every respect. To exacerbate the situation, it hits people when they are most vulnerable, following the death of a family member.

The intent of this motion is to alert the Minister and the Government to the dangers inherent in the direction in which they are headed. The probate tax is a matter of concern in itself but the wording of the amendment tabled on behalf of the Government is alarming. The amendment confirms that the members of Fianna Fáil and Labour approve the introduction of this tax. The amendment broadens the existing narrow base for taxing inheritances. Its implications are far-reaching and appear to go further than originally contemplated by the Minister. Is the amendment to be taken as an indication of the Government's intention to further increase the already substantial tax liabilities arising on death?

Inheritance tax is currently levied on estates at a rate commencing at 20 per cent and rising to 55 per cent. The thresholds vary from £11,450 for a stranger in blood to £171,750 for a son or daughter. This can be a severe tax burden on a family property.

In 1991 the following amounts were paid in capital taxes: capital acquisitions tax, £49.9 million; capital gains tax, £49.1 million and residential property tax, £5.7 million. A total of £103.07 million was received in capital taxes in 1991. Capital taxes as a percentage of total taxes in that year amounted to 1.7 per cent.

The Minister should examine the percentage of estate, inheritance and gift taxes for 1990 in the following countries: Australia, nil; Canada, nil; France, I per cent; Japan, 1.4 per cent; New Zealand, 0.3 per cent; Sweden, 0.2 per cent; Britain 0.7 per cent and the United States 1 per cent. Compared to those countries Ireland has the highest rate of capital taxes and it will rise considerably with the proposed 2 per cent probate tax.

The Government has gone to great lengths to create the impression that the probate tax will affect those with substantial wealth only. Nothing could be further from the truth. This tax will affect people of modest means and on low incomes. An estate, at death, worth more than £10,000 will be liable for this tax.

The tax will affect all sections of the community, from owners of local authority houses to owners of large properties and it may affect people drawing social welfare benefits. In small estates, where until now no liability arose, probate tax will become payable. For example, on the death of a widowed person, a married son with two children residing in the family home. and drawing an invalidity pension of £125.60 per week will become liable for probate tax if the estate is worth over £10,000. Only where there is a surviving spouse is the family resident exempt. However, where there is no surviving spouse, probate tax becomes payable where the income of a son or daughter exceeds £3,877 per annum. An individual who comes within the income tax net will be liable for probate tax in almost all instances. I ask the Minister to examine this matter carefully because I do not believe it was intended that a son or daughter, residing in the family home, would be liable for this probate tax. It is unfair that people on low incomes should be liable for this tax.

Significant progress was made in the 1970s with the abolition of death duties. The Government is now proposing to reintroduce a death tax in addition to existing capital taxes. Under the proposed tax regulations payment of the tax must be made at a time of filing the Revenue Commissioner's affidavit, prior to the issue of the grant of probate or the grant of letters of administration. In effect, this amounts to payment of tax on an asset not yet in the possession of the intended beneficiary. The assets of a deceased person are frozen until the grant of probate or administration has issued from the Probate Office. In most cases, payment of the tax by the due date will require the intended beneficiary to borrow from a financial institution. If a bank grants such a loan then interest must be paid to the bank. The beneficiaries, therefore, pay tax and accumulate interest perhaps on an asset from which they have not yet received benefit.

Discounts are provided for people in a position to make an early payment. However, the penalty for late payment of an interest rate of 15 per cent, is severe. The Minister for Finance, Deputy Ahern offers some consolation by way of postponement in cases of illiquidity.

This probate tax takes no account of the ability of the surviving members of a family to discharge their liabilities. At present, there is no inheritance tax on benefits between husband and wife, but a surviving spouse now becomes liable to probate tax on all property passing, except a family home. This is a regrettable and retrograde move and shows how wrong this tax is.

May I outline two examples of how this tax would affect people. A wife may receive the full benefit on the death of her husband on assets as follows: a house worth £40,000; a farm worth £150,000; a milk quota worth £45,000; stock worth £32,000; farm machinery worth £10,000; and a motor car worth £8,000, totalling £285,000. Liabilities may be as follows: a term loan £15,000; an overdraft of £10,000; funeral expenses of £5,000, totalling £30,000. The net estate, excluding the house, would be worth £215,000. The widow will be liable for probate tax of £4,300 according to the new regulations.

At present, a son or daughter receiving the full benefit of a family farm on the death of a father may inherit assets as follows: a house worth £40,000; farm worth £400,000; milk cows worth £64,000; dry stock worth £40,000, farm machinery worth £20,000; and a motor car worth £10,000, totalling assets of £574,000 and liabilities as follows: a term loan of £40,000; an overdraft £20,000; and funeral expenses of £5,000 totalling £65,000. The net estate including the house would amount to £509,000. The inheritance tax chargeable on that farm would amount to £44,000. That is a lot of money to borrow against a business and a farm is a business. Stock or assets may have to be sold.

This is a blanket tax. It is using a hammer where there is no need to do so. In the interest of fair play, justice and equity, I ask the Minister to reconsider this tax because the Government did not understand its full implications when adopting it.

I second this motion. After listening to the proposer of the motion, who gave some good examples towards the end of his speech of some of the effects this tax would have, I hope the Minister will agree that it is unjust, unfair and inequitable and will remove it from the Finance Bill. It is a particularly mean measure. After much consultation, the capital acquisitions tax applying to gifts and inheritances was reorganised by the current Taoiseach in 1990. The thresholds were index-linked and it was then reckoned to be a fair measure. Now the Government is trying to wipe out this fairness by introducing a 2 per cent probate tax. It is an insensitive tax and we are convinced that it is also unfair and inequitable. This proposal indicates that this Government intends to be a high spending Government and therefore, a high tax Government. This is a good example of reaching into empty pockets.

We are aware that in many cases, the value of family inheritances exists on paper only. There is often no liquidity and the business or farm transferred is only worth what it can produce in terms of a decent wage. In many cases there are heavy debts attached. More pressure is being put on the business sector by this tax because most large paper-valued inheritances emanate from there. In many cases, this will make it impossible for the person who receives the inheritances to continue the business and will force them to sell the inheritance in order to pay the tax because the Revenue Commissioners will not waive liability in these cases.

Why does the Minister take a back door and a sleight of hand approach towards inheritance tax? If he interfered with the percentage and thresholds set in 1990 by the Taoiseach, there would probably be an uproar. There is much discontent out there, but it is not organised. I know, from talking to people that it is regarded as a bad and poorly judged tax. I have not seen any organised body of people protesting outside Leinster House over this tax, but there was discontent over the inheritance tax in 1990, which was reckoned initially to be valid and that is why it was changed. Now the Government are wiping out whatever benefits introduced at that time in order to get extra revenue from this sensitive area.

It is a pity that this tax is being imposed and it seems that the Minister intends to go ahead with it. This gives us an indication of what this Government may do over the next three years. It has increased taxation this year by imposing a 1 per cent income levy on workers and has already sold State assets and intends to put the proceeds into the current account, which is like someone with a business selling off a piece of it to pay the wage bill. It seems that this Government is operating without any logical base and will go to any lengths to get extra revenue — no matter what source it comes from — in order to increase its expenditure.

A few weeks ago — I am not sure of the date — the Taoiseach refused to consider reform of the taxation system. I forget the exact phrase he used, but he decided that reorganising the tax system and examining the relationship between high taxation and unemployment was unworthy of discussion. If that is to be the approach of this Government to the economy, we are going to have a bad three years. I hope the strong indications we have received this year from the Finance Bill and the budget will not be borne out.

I am happy to second this motion and I hope the Minister will carefully examine the examples given by the proposer, look at the inequity of the proposal and see that this tax is a backdoor approach to changing the capital acquisitions tax which was reorganised in 1990.

I move amendment No. 1:

To delete all words after "Seanad Éireann" and substitute the following:

"approves of the introduction of the probate tax, as announced in the Budget and as provided for in the Finance Bill, 1993, on the grounds that it will broaden in a socially responsible way the existing narrow base for taxing inheritances and will contribute towards the maintenance and improvement of the Government's social and other programmes within prudent budgetary parameters."

I took time to read this amendment because its wording is well balanced and it indicates — it is hardly necessary, given the paucity of some of the arguments we have heard — just how much publicity there has been about this proposal and how ill-founded are some of the comments.

Fine Gael is proposing the introduction of an additional tax and in one sense, I agree with them. Like most people, I have a near pathological dislike of paying tax. I understand income tax was introduced as a temporary measure to pay for the Napoleonic wars in another administration. I am not enamoured with VAT, the road excise tax or the other levies placed on my income. When I look at my modest Senator's salary at the end of every month having toiled as a hardworking legislator, I know——

Senator Roche should come over to this side.

——why I feel aggrieved about tax. Tax is the price we pay for living in a civilised society. That phrase almost brings a smile to Irish lips. It is emblazoned across the headquarters of the IRS in Washington DC. The reality is that Ireland still has a tax base which is much too narrow. Privately we accept that position but publicly we posture that we do not accept it. It is particularly narrow on the capital side. Privately we know that is the case.

This proposal will increase, in a modest way, the total yield from capital taxes. A relatively modest 2 per cent charge subject to some fairly wide ranging exemptions, will be introduced and it will yield approximately £10-11 million in a full year. That is a measure of the relatively low level of impact of that tax. For example, in relation to the family home, the tax will deal appropriately with intergenerational wealth transfers which are not currently dealt with in the tax system and there is a very generous threshold of £171,000 per child per parent for inheritance tax.

The tax arrangements being proposed by the Minister cannot be regarded as regressive. They are directly related to wealth transfer. They cannot be portrayed as having a disincentive effect as Senator Cotter and Senator Enright have suggested. There has been a great deal of pleading about this particular measure in contributions in this House and elsewhere. It has been argued that the exemptions from inheritance tax should be applied in probate tax. That bankrupt proposition has not been put forward by either of the speakers to this motion but it has been put forward by some of their colleagues. On the surface that proposition seems to have some superficial merit but if one analysed it one would realise that it would not mean any broadening of the capital tax system. Rather it would increase the level of capital tax and it would be no more than a de facto increase in the level of inheritance tax.

Much has been made of the impact of probate tax and a lurid and inaccurate picture has been put forward here tonight in some of the examples. If I were taking those viewpoints I would not put forward those examples. The argument that it is an extraordinary imposition on somebody who receives an inheritance of £0.25 million and has to pay £4,000 in tax does not stand up. Coming as I do from a very modest background I do not accept that argument on the basis of justice or equity in relation to somebody who inherits £600,000 and has to pay £44,000 in tax.

A great deal of political trumpeting regarding exemptions has been downright dishonest. One can expect politicians to make political capital when the opportunity presents itself. However there remains a fundamental responsibility on politicians dealing with an issue such as this to be honest with themselves and with the wider constituency and to deal with the considerations in a balanced way. This has not happened. Much of the political hype which has attended this relatively modest taxation proposal has not been fair or reasonable. This annoys me because it has caused undue alarm in sections of the community which are weak and should not be misinformed.

It is also important that politicans are conscious of the impact that comment will have on people at a sensitive time. The hysterical claims of the Opposition are shown for what they are when the full range of exemptions is considered. These will ensure a much fairer distribution of the tax burden. There is, for example, full exemption for the family home where the deceased is survived by a spouse, irrespective of whether the home is left to the spouse. Where there is no surviving spouse the share of the home that passes to the dependent child or the relatives is also exempt. That is hardly an unfair imposition.

High taxes are more civilised.

Read the rest of it.

The estates with a net value of £10,000 or less are exempt; I admit that that is a relatively narrow threshold. Hardship provisions will ensure that ability to pay is fully taken into account.

The Senator left out some details.

The Revenue Commissioners are empowered to arrange payment by instalment in cases of lack of liquidity. Senator Cotter made a valid point about the liquidity aspect but there is provision in these arrangements that will allow for cases of illiquidity to be dealt with at the discretion of Revenue Commissioners. This is a good way to do it because this kind of discretion is being introduced. It is appropriate that it should be handled in a non-political way and outside the partisan mêlée of politics. In cases of illiquidity or hardship interest due on late payments can also be waived where it is deemed appropriate by the Revenue Commissioners. It is unfair and untrue to suggest that the imposition will be as it has been portrayed.

Where deferred payments are allowed early payment of the tax will give rise to a discount on the tax liability and this compensates for the small interest cost in bridging finance needed to pay the tax. That is a reasonable point that has not been dealt with. There will be exemptions for pension benefits, charitable bequests, heritage property and the proceeds of section 60 insurance policies, which can be used to pay inheritance or probate tax. That was a concern which was validly raised when the issue first arose in the course of the budget. Probate tax will be allowed as an expense in calculating inheritance tax so there is a write off element. There will be special relief to exempt estates from a double charge of probate tax where both spouses die in quick succession and that is a particularly sensible provision.

The total imposition of this tax will yield £11 million per year. I wish, in common with all politicians, that we could improve services and provide all that public administration should provide without some imposition. The reality, that we all know to be the truth, is that there is an extremely narrow tax base in this country and that is also true of capital and other areas of tax.

This tax is not the thin end of the wedge. Senator Enright expressed concern in that regard and I know it is a concern felt in the community. I will leave this for the Minister to deal with but I do not believe that is correct. Senator Enright exaggerated his concern and the impact of the tax. For example, he mentioned the case of a person inheriting £100,000. After exemptions the total tax burden would be £2,000 and by no standard can that be regarded as excessive.

Senator Cotter made a specific point when he spoke about the impact of the tax on business. Transfers within the business community are generally lifetime transfers and they are not included in the proposal. There has been a series of misinformation and disinformation about this relatively narrow taxation proposal. It is the kind of politics in which we all engage to our discredit. There is no such things as a free lunch or a free service. The reality is that all the services provided by the State have to be financed. Senator Cotter used the old Thatcherite phrase, high tax, high spending. He should be honest and indicate the services that he would cut because until he is prepared to do so he is not entitled to make that claim.

Having listened to Senator Roche's contribution one would almost be convinced of the merit of this proposal. I do not dispute Senator Roche's hypothesis that the State must levy tax to pay for services and that it most provide for its citizens. That is not in dispute but what is in dispute is the method of doing it and if this is the most appropriate way. In my view this is not the most appropriate method. This proposal reintroduces estate duty and some of us remember what was done to families in former days and the measures they had to take in order to minimise their liability under a previous estate duty. People of a particular age will remember people losing their houses as a result of that legislation. Because it was so inequitable it was abolished and a different system, the capital acquisition tax, was put in place in 1973.

Having instituted a system of capital taxation, it is proposed to add another tax to that already there. Estate duty never was an appropriate way of dealing with capital taxes and that is why it was abolished. In these circumstances one most be conscious of the vulnerability of families at times of great distress.

Even if one accepted the principle of the tax and I do not, an exemption of £10,000 is derisory. If a person has a reasonable car, some furniture and a little money in the bank, he will have this tax levied on him. It is contrary to all good practice and the philosophy of encouraging people to generate wealth for the good of their country.

If what my colleague, Deputy Cox, said in the Dáil is correct the level of taxation would go up by a factor of 560 per cent. Today £10,000 is not a great deal of money. Even if one accepts the principle of the tax, which I do not, the threshold at which it becomes operable is far too low.

In the present circumstances, given the rhetoric from the Government, one could intellectually decide one was not going to pay the tax and see what the Revenue Commissioners would say. "Intellectualism" seems to be an in-phrase at the moment. One can intellectually commit oneself to various actions but in practice one will not have to follow through.

The Minister has instituted a system of discount for early payment, and that is welcome but that principle could be more widely applied. County councils have used it to good effect when it came to water rates and refuse charges. Instituting a discount system has helped to collect the money. We must give credit to the Minister for that.

Farmers have particular difficulties under this tax system. The land is part of a farmer's stock-in-trade; without it one cannot farm. It is inequitable to levy tax on part of the assets of the business. The effect of this and the capital acquisitions tax has been, and will be, to divide farms. That is totally contrary to all good practice and the national interest. It is revisiting upon us a system which operated during the famine and penal times. A civilised society should not bring back such a tax.

From where will the cash come for these taxes? A person with a large bank account will not have any difficulty paying this tax but the majority of those subject to this tax will have to raise the money from their banks. At present banks are not prepared to advance money. That has added to the distress of the bereaved families.

When it comes to probate tax on farm land, I urge the Minister, when determining the capital value of the estate, to give the same relief as operates for capital acquisitions tax. I also recommend a transfer to a spouse be exempt under probate tax as it is under capital acquisitions tax. If a tax must be paid it should be deferred until the property has passed to the next generation. Many people have made joint ownership arrangements and in those circumstances I do not imagine that tax will arise. Nevertheless where that has not happened it is a good principle that a transfer from spouse to spouse be exempt.

The question of indexation arises. A thought struck me during Senator Roche's contribution. I can imagine the First Lord of the Treasury when he proposed the introduction of income tax, saying this would be forever and a day at a low rate of 1, 2 or 3 per cent. I am sure he said it in good faith as I am sure the Minister is saying this tax will never be higher than 2 per cent. However, we all know real life does not work like that. A 2 per cent rate progressively becomes 3 per cent or 4 per cent and soon it will be 10 per cent. That is another reason for being prudent and cautious about this tax.

The probate tax should be taken as a full tax credit against inheritance tax and there should be no double taxation. In his budget address the Minister said it remained the position that many inheritances passed from one generation to the next without incurring any tax liability. While full taxation of these inheritances may not be warranted, it is certainly true in current economic circumstances that a small charge can easily be justified but the inference was that there should not be double taxation on estates passing by way of inheritance. In the Finance Bill, probate tax charged on an estate is allowed as an expense in computing inheritance tax. I argue that to prevent double taxation of estates it is essential that the probate tax charged on an estate is allowed as a full tax credit against any inheritance tax liability.

A difficulty of taxes of this nature is they have the effect of running down the assets of the business. Parts of the business will have to be sold and eventually it will not be sustainable. That is the logic of this tax. The State should not be party to anything which leads to assets being dissipated in this way. We should be encouraging people to accumulate wealth because in doing so they will be providing the jobs and the energy to make the economy grow, which will be to the benefit of all.

I cannot accept the wording of the amendment. Even if one were to approve of the introduction of the tax, to say that it would broaden in a socially responsible way the existing narrow base for taxing inheritances flies in the face of logic. It is not socially responsible. Quite the contrary, it will lead to hardship for people who should not be subject to such problems. We should look at other means of levying the taxes required to run the State.

I welcome the Minister. I formally second the amendment proposed by Senator Roche.

This year's budget and Finance Bill work towards the tax reform target set out in the Programme for a Partnership Government by improving the position of the low paid through increases in exemption limits and allowances. The 2 per cent probate tax is in the Finance Bill.

Nobody likes any tax. In history when the dreaded sheriffs came around people tried to hide their money. Increases in health, social welfare and other benefits must be paid for by taxation as neither the Minister nor the Department of Finance receives manna from heaven. Senator Roche spoke about the probate tax and the exemptions that apply to it. I am concerned that the budget be balanced. If sources of revenue are removed from the budget, what items of expenditure will be removed or curtailed to balance this? Will the increase in children's allowance be paid and will extra houses be built? If the probate tax is removed money will have to be found elsewhere.

The probate tax is fair. Many inheritances have passed from one generation to another without incurring any tax liability due to the generous exemption threholds for capital acquisitions tax which amount to £171,750 for a transfer from parent to child. The probate tax takes due account of ability to pay. In the case of estates which may be regarded as non-liquid assets, no interest will accrue on unpaid tax until nine months after the date of death. In cases of real hardship the postponement of payment may include the total waiver of interest. The Bill allows the Revenue Commissioners considerable discretion in adjusting the terms of payment to take account of the circumstances of each estate paying an inheritance.

Property transferred before death will be exempt from probate tax. This encourages lifetime transfers of farms and there are positive measures in the budget and in this Bill which will enhance this objective. Farms and businesses should be transferred by parents during their lifetime. However it is often not practicable for two people to co-manage a holding as they may have conflicting ideas. Lifetime transfers, which will not be liable for probate tax, should be encouraged so that younger people can assume responsibility for the development of the farm or business.

I am glad full exemption in respect of the family home is allowed where the deceased is survived by a spouse irrespective of whether the spouse inherits the house. Where there is no surviving spouse the share of the family home that passes to dependent children or relatives will also be exempt from probate tax. Any debts outstanding on the family home may be deducted from payments of tax due on other assets of the estate. Senator Roche mentioned already that probate tax is not levied on the death of a person whose spouse has died within the previous five years.

This tax, like any other tax, will be resisted by many people but do people like paying PAYE at a rate of 48p in the pound or a 1 per cent levy? People do not like paying tax but taxes are needed to run the country.

The difference there is that it is on their incomes not on their assets.

Having regard to the reliefs and exemptions, the very modest rate of tax and the special arrangements for problems with payments, I am satisfied that the provisions of the probate tax suitably balance the need to protect people from hardship with the need to ensure a fair distribution of the inheritance tax burden. For the great majority of estates probate tax will involve a charge of less than £1,000 and for over half of all estates the amount payable will be less than £500. I second the amendment.

I welcome the Minister to the House and I support the amendment to the motion put forward by Senator Enright and Senator Cotter. Where the deceased was domiciled in the State all assets left in a will or in intestacy are liable to probate tax. Where the deceased was not domiciled in the State only assets situated in the State are liable for tax. Debts owing at the time of death such as funeral expenses are allowed against tax.

I am a farmer and am well aware of the problems that were associated with inheritance tax and capital acquisitions tax. These taxes stifled agriculture in the early 1980s because the inevitable transfer of land was delayed in the hope that the Government would deal with the situation or that the tax problem would go away. It took us far too long to realise the seriousness of the problem. People who owned land or a business were older and less energetic usually than young people who generally had a better standard of education. This problem was alleviated in 1990 with changes in the inheritance and capital acquisition taxes.

The former estate tax has been mentioned. The highest rate at which this tax was charged was 55 per cent whereas probate tax is charged at a rate of 2 per cent. The exemptions are clear and have been mentioned by my two colleagues. I support this amendment because the probate tax broadens the tax base. A broader tax base is important and was recommended in the Culliton report and is an integral part of the Programme for Social and Economic Progress. The changes in the inheritance and capital acquisitions taxes gave some leeway to the Department of Finance. The targeted yield from the probate tax is £10 million or £11 million. The number of house transfers at any one time shows that the amount of tax levied on any one individual will not be large.

Perhaps the Senator would consider chief executives of building societies.

That is not relevant to this issue. We will discuss that another day. An example on the back page of the probate self-assessment form shows that a £97,000 estate passing under will or intestacy is only liable for £314.50 in probate tax. It is not every day that houses are transferred on the death of the owner. The probate tax will encourage lifetime transfers of property. This tax is fair and equitable because it broadens the tax base.

As a farmer, I had to take out an insurance policy in 1990. I was worried that my father might die before I was able to take out the policy as I would then have been left with a heavy financial burden. Since then this problem has been resolved. The alleviation is not wholly due to changes in the thresholds but also to a decline in the value of property. Every tax is unwelcome and it is essential that this tax is reasonably fair and equitable. I support the amendment.

I thank the Senators for their welcome to the House and I appreciate their comments. I want to thank Senator Enright for giving me the opportunity to address some of these important issues.

The introduction of any new tax is bound to give rise to some questions among the tax paying public. Regrettably, since this tax is the only new one in this budget, there have been misinformed statements emanating from certain politicians and, particularly, exaggerated claims about the effects of the probate tax on family businesses and farmers. These only serve to cause unnecessary fears and anxieties in the minds of many taxpayers. I would like to thank Senator Enright for giving me the opportunity to dispel some of the misconceptions that have been generated, and to explain why the probate tax is being introduced and how it will impact on those benefiting from inheritances.

The introduction of the probate tax must be viewed in the context of the current low yield from inheritance tax which represents less than 0.5 per cent of total tax revenue — an extraordinary figure in OECD or international comparisons. It is almost unbelievable that any country in the modern world could have such a low yield from inheritance tax as 0.5 per cent of the total tax revenue of the State. This mainly reflects the relative narrowness of the inheritance tax base. As I mentioned in my budget speech, many inheritances pass from one generation to another without incurring any tax liability at all. This is due to the generous exemption thresholds for capital acquisitions tax, which for a transfer from parent to child is £171,750.

It is fair to say that inheritances generally confer greater independence and better living standards on those receiving them and the majority of inheritances should be able to bear a relatively small charge in recognition of this fact. It is not an unusual proposition to make. I am sure Deputy Enright would even accept that in the cases we mentioned, where people were lucky enough to inherit almost £0.5 million of property or machinery, it would not be unreasonable for them to pay £4,000 or £5,000. Somebody who did not benefit from a transfer of that kind would be happy to pay. I do not know anybody who, if they got £0.5 million worth of property, would not pay £5,000. Frankly, I would pay £50,000, although it is unlikely that anybody will give me £0.5 million worth of property.

I do not doubt it.

The longer I stay in politics the less chance there is. I think the Leas-Cathaoirleach would agree, if somebody were to give him £0.5 million he would pay £5,000.

Not if a family spent generations building it up.

An Leas-Cathaoirleach

The Minister without interruption.

I was told in my constituency today that the gentleman who won the lotto last week, and is a constituent of mine, spent more than that on the night out with his friends. He was not taxed on it and he went out to spend it anyway.

It is only reasonable that at a time when overall economic circumstances required additional revenues, and other tax heads were called upon to contribute, the Government should seek to widen the base for capital taxation. Further base broadening has been a consistent recommendation of many commentators and there is no good reason capital taxes should be excluded. In increasing revenues thereform, the Government is fulfilling a commitment in the Programme for Economic and Social Progress. With regard to the recent debates on the Culliton report everybody in the country, every editorial writer and leading article outlines that what we must have is tax reform and to broaden the tax base. When people say they want tax reform they mean they want to pay less taxes. I agree with that but, unfortunately, it is not always possible.

The provisions of the probate tax are outlined in the explanatory memorandum to the Finance Bill. I can see that Senators were well briefed on the issue so there is no point in my repeating them in detail here. The tax will be a 2 per cent on the net value of estates over £10,000 passing under will or on intestacy. Liabilities of the estate at the time of death, and funeral expenses, will in general be allowed for the purposes of calculating the net value of the estate.

I have been particularly concerned to lessen the impact of the probate tax on families. I have decided to allow a full exemption in respect of the family residence where the deceased is survived by a spouse, irrespective of whether the spouse inherits the residence. Where there is no surviving spouse, the share of the family residence that passes to dependent children or dependent relatives will be exempt from any charge to probate tax. Moreover, any debts outstanding on the family residence may be deducted against other assets of the estate for the purposes of determining the taxable value of the estate.

The situation where both parents have died in quick succession is also provided for. Where both spouses die within five years of one another and are survived by a dependent child, no probate tax in respect of the second death will apply on property which bore probate tax on the death of the first spouse. Where both spouses die within a year of one another, this relief applies irrespective of whether there is a surviving dependent child.

There will also be exemptions, inter alia, for pension benefits and the proceeds of insurance policies used to pay inheritance and/or probate tax. Moreover, exempt property will be deducted in determining the taxable value of the estate so that if, for example, the estate passing to the deceased's spouse consists of the family home plus taxable assets not exceeding £10,000, no probate tax will be payable.

An aspect that will be of particular significance to families is, of course, that property in joint ownership which passes by survivorship will not attract any probate tax charge. That point was made by Senator Kelleher.

In framing the legislative provisions relating to the probate tax, I have been very careful to ensure, contrary to the impression given by some critics, that due account is taken of ability to pay. For example, payment of the tax may be postponed where an estate consists largely or wholly of illiquid assets, such as certain business assets or agricultural property. In such circumstances, no interest will accrue on unpaid tax until nine months after the date of death. Moreover, in cases of real hardship, the postponement of payment may also include the total waiver of interest. The provisions contained in the Finance Bill allow the Revenue Commissioners considerable discretion in adjusting the terms of deferred payment to take account of the circumstances of each estate passing on inheritance. These provision will be of particular benefit to farmers and small business owners.

A discount for early payment will be available to those who pay the tax within nine months of the date of death. The discount will be at the rate of 1.25 per cent per month, so that if payment is made within three months of the date of death the amount of tax payable will be reduced by 7.5 per cent. The discount for early payment should, in most cases, more than compensate for the small interest cost of short term bridging finance borrowed by the executor against the estate to pay the tax.

The probate tax will be allowed as an expense in assessing liability to inheritance tax. This means that it will be deducted from the net taxable value of the inheritance before calculating liability to inheritance tax. There have been suggestions that the probate tax should be allowed as a full tax credit against inheritance tax. However, this would make the new tax regressive in effect. It would mean that wealthier individuals with relatively large inheritance tax liabilities would effectively enjoy full relief from the probate tax, so that the incidence of the tax would fall entirely on those with little or no liability to inheritance tax. Accordingly, apart altogether from the adverse Exchequer implications, allowing the probate tax as a full credit against inheritance tax would be undesirable from the point of view of equity.

Property which is transferred before death will not incur a charge to probate tax as Senator Kelleher indicated. That situation, in itself, constitutes a positive incentive to the lifetime transfer of businesses and farms, a development which is widely felt to be desirable. I have made a number of changes to that this year. Indeed, in line with the commitment given in the Programme for a Partnership Government to encourage more lifetime transfers of farms, there are positive measures in the budget and in the Finance Bill which will further this objective.

Agricultural relief in respect of gifts is being increased from 55 per cent of eligible assets with a ceiling of £200,000 to 75 per cent with a ceiling of £250,000. Moreover, there is a provision in the Bill under which a reduction of up to 10 per cent in stamp duty may be granted in respect of property transferred by gift, where rights of residence or maintenance attached to property are reserved in favour of the transferor and/or the spouse of the transferor.

The Government has given careful consideration to the detailed provisions of the probate tax in the light of the representations and suggestions received since the budget. Having regard to the reliefs and exemptions proposed, the very modest rate of tax and the special arrangements regarding payment which cater for illiquidity and hardship, the Government is satisfied that the provisions contained in the Finance Bill are reasonable, equitable and socially responsible. I am satisfied that the tax will not place an undue or unfair imposition on the taxpayer having regard to the value of assets acquired.

The figures compiled by the Revenue Commissioners from rural and urban samples indicate that the amount of any probate tax payable should be less than £1,000 for three-quarters of estates passing on inheritance and less than £500 for about half of all estates. Moreover, Revenue estimates that about 25 per cent of estates should qualify for full exemption from the tax. In terms of scale, these figures put into perspective the relatively minor impact of the tax on inheritance.

I believe that the probate tax is entirely justified. The yield of about £11 million in a full year will make a useful contribution towards the maintenance and improvement of the Government's economic and social programmes within prudent budgetary parameters. Moreover broadening the existing narrow base for taxing capital acquisitions by applying a relatively small charge over a wide number of estates passing on inheritance is to be preferred to seeking equivalent revenues elsewhere.

The tax yield in this year was spent yesterday in the increased provision for the Department of Health to pay for its child care provisions. The Government is continually seeking ways or raising revenue to pay for improvements in the many essential services. That is what the public wants. We cannot afford to maintain some services at present levels. This is not a high expenditure Government so the problem is to provide resources for essential services.

To allow significant additional exemptions and reliefs over and above those provided for in the Finance Bill would erode the base on which the tax is to be levied and as such would undermine the objectives of the tax. Deputy Enright has researched his contribution well and I will look at the points he made to ensure that we have not overlooked any important matters. At the same time I think it is fair to say that the exemptions and reliefs proposed are generous and that the provisions contained in the Finance Bill strike a reasonable balance between the desirability of avoiding an onerous charge on the transfer of assets by inheritance and bringing about a fairer distribution of the burden of taxation as between inheritance and other sources of additional wealth and income.

Senator Kelleher pointed out that the estate duty rate was far higher. The increase in agricultural relief in the Bill in respect of gifts will greatly reduce the capital acquisitions tax burden, mentioned by Senator Enright. There is no probate tax on a gift. That is important. Senators made the point that more people, quite correctly, are transferring property during their lifetime. Most organisations and the legal profession advise people to do that and a declining proportion of people wait to take out probate.

The present top rate of capital acquisitions tax is 40 per cent and not 55 per cent as was stated by one Senator. 1991 was the year of the capital acquisitions tax amnesty and in that year the capital acquisitions tax yield of £49 million was inflated by £13 million in amnesty receipts. 1991 is the most recent year for OECD comparative statistics; the 1990 figure would be very different. The 1992 yield was £33 million and the projected yield for this year is £35 million.

I thank the Senators for their courtesy and participation in this debate. The probate tax is a small measure towards broadening the tax base to ensure that everybody pays their fair share so that an unfair burden is not heaped on a few.

I support the motion. This tax signals the reintroduction of the old death and estate duties.

The present Minister was first elected to the Dáil in 1977, the year that car tax, estate duties and other taxes were abolished. It is ironic that he is the Minister who reintroduces death duties and other taxes on the family and property. This tax is like the 1 per cent employment levy — it applies to everyone.

There is great emphasis on the fact that the family home and residence will be exempt. I suppose we should be thankful that the Minister will, at least, allow families to remain in their family home and that it will not have to be sold.

This is unfair. I appreciate that the Minister, due to the budgetary situation, must collect as much money as possible. However, a 2 per cent tax burden on estates that applies across the board is unacceptable. If the Minister is serious about his objective of achieving an equitable tax base he should not go for the easy targets. The 1 per cent levy, as we have seen, is a tax on employment that applies to everyone without exception.

I urge the Minister and his Department to reconsider this probate tax. Look at what happened to car tax. The first year it was reintroduced it was £5 but few of us now pay £5 car tax. The probate tax will be 2 per cent this year, maybe 3 or 4 per cent next year and it will probably multiply in its affect on families. As Senator Enright said earlier, one must look at estates and the value of assets. It is one thing to value an estate at a certain amount on paper but, when it comes to putting an actual value on property and business transactions, it is a different matter.

The victims of this new tax will be spouses, in particular, widows, sons and daughters. It will not be a once off tax; and the rate will increase. I ask the Minister to reconsider this issue. The imposition of this tax is an easy option and probably helps the Minister to balance his books.

This tax will be like the telephone charges, it will affect those who can least afford to pay. It will be an arbitrary figure and will cause difficulties for those left behind. I would like the Minister to think again about this matter. If this tax is imposed a more generous threshold should be written into the legislation.

We all know what happened when the 100 per cent exemption on property transferring from one spouse to another was introduced. There should be a generous ceiling for parents who are transferring property to their children. The Minister is well known for solving problems and answering queries. Given the small amount of money which this tax will generate, perhaps the Minister could broaden the tax base to bring in the same amount of money. I accept the Minister is always willing to listen to reason. I support this motion.

I reiterate my thanks to the Minister for coming to the House and for supplying us with a detailed script. I wish to ask one question. The Minister referred to the family residence. He stated:

I have decided to allow a full exemption in respect of the family residence where the deceased is survived by a spouse, irrespective of whether the spouse inherits the residence. Where there is no surviving spouse, the share of the family residence that passes to dependent children or dependent relatives will be exempt from any charge to probate tax.

Senator Roche made the point that the family residence was exempt. In the Bill there is specific reference to a Schedule which refers to the fact that probate tax is payable if an individual's income is greater than £3,877. Does this mean that the figure of £3,877 is being removed and that the only exemption is if a son or daughter resides on the premises? Will there be a complete exemption? Is the Minister removing the figure of £3,877?

Does the Senator mean if the income is below £3,877?

In other words, if a person earns more than £3,877, will he still be liable for probate tax?

Not if they earn less than £3,877.

Therefore, they will still be liable to pay probate tax if they earn more than £3,877.

That is correct. This is the point Senator Enright asked me to consider at the outset.

I thought the Minister would beat me to the punch; he has beaten me twice to the punch. The point I made has not been fully appreciated by members of the Government or by people on the opposite side. A person on an invalidity pension of £107.50 a week, married with two children, would be liable to pay probate tax and the family home would be included in the assets. That is my understanding of the Bill. I would like the Minister to examine this point.

I support Senator Calnan's viewpoint. I understand that people in Government have duties and obligations. I appreciate the Minister's point in relating to balancing the books. I do not think the probate tax was meant to affect people on low incomes. The Finance Bill is currently being discussed and it will be passed and, as a result, people will ask the Minister for Finance to make representations on their behalf to the Revenue Commissioners. This tax will affect many people who will look for exemptions. A son would be liable for tax if the family home was passed to him after both parents died. That fact is not fully appreciated by the Minister.

I will consider that point. It is mentioned in page 29 of the explanatory memorandum.

That is where I read it.

The legal figure is £3,877. The hardship provisions, which I outlined in my speech, would be invoked in the case to which Senator Enright referred. A person on a low income — similar to the case the Senator cited — would not be in a position to pay probate tax and would be entitled to relief under the hardship provisions which are generous. This tax needs to be discussed in conjunction with the hardship provisions. I will consider the Senator's point.

I lived on a small farm. I know there are progressive farmers in agriculture who are trying to improve the yield from their farms. The example I gave was where a son receives the full benefit on the death of his father. In other words the father, a widower, has made a will and leaves the farm to his son. The family farm is worth £400,000, the family home £40,000, the dairy herd £64,000, dry stock £40,000, farm machinery £20,000 and a motor car £10,000. The total assets are worth £574,000. The liabilities for such a person, including a term loan of £40,000, an overdraft of £20,000, and funeral expenses £5,000 would total £65,000. The net estate, including the house, which in this instance would be liable, is a total of £509,000. That person will be liable for probate tax of £10,180. In addition, the inheritance tax is £44,000. It is important to examine a situation where a farmer who already has debts of £60,000 is now required to pay a further £55,000. The only way that can be done is through the sale of part of his milk quota, his stock, some of his dairy herd. The potential danger is that part of a farm has to be sold or part of a person's tools of trade have to be sold. That is why I consider this to be such a serious matter.

Growing up we were taught the value of work, energy and thrift. These ideas are no longer fashionable. Nevertheless it is good to work hard. Energy and enterprise are important, as is a certain level of thrift. Enterprise and hard work should be encouraged but this legislation is going in the opposite direction. However, it is early days yets. There is a long, hard battle ahead of the Minister to get this legislation through. Although he won the first round tonight I would ask him to think seriously about the points I have raised.

Amendment put.
The Seanad divided: Tá, 21; Níl, 14.

  • Bohan, Eddie.
  • Byrne, Seán.
  • Calnan, Michael.
  • Cashin, Bill.
  • Cassidy, Donie.
  • Daly, Brendan.
  • Farrell, Willie.
  • Finneran, Michael.
  • Fitzgerald, Tom.
  • Hillery, Brian.
  • Kelleher, Billy.
  • Kiely, Dan.
  • Lydon, Don.
  • McGowan, Paddy.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • O'Brien, Francis.
  • O'Sullivan, Jan.
  • Ormonde, Ann.
  • Wall, Jack.
  • Wright, G.V.

Níl

  • Belton, Louis J.
  • Burke, Paddy.
  • Cosgrave, Liam.
  • Cotter, Bill.
  • Cregan, Denis (Dino).
  • Dardis, John.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Honan, Cathy.
  • Howard, Michael.
  • Naughten, Liam.
  • Neville, Daniel.
  • Ross, Shane P.N.
  • Taylor-Quinn, Madeleine.
Tellers: Tá, Senators Mullooley and Wall; Níl, Senators Cosgrave and Neville.
Amendment declared carried.
Question put: "That the motion, as amended, be agreed to."
The Seanad divided: Tá, 21; Níl, 15.

  • Bohan, Eddie.
  • Byrne, Seán.
  • Calnan, Michael.
  • Cashin, Bill.
  • Cassidy, Donie.
  • Daly, Brendan.
  • Lydon, Don.
  • McGowan, Paddy.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • O'Brien, Francis.
  • Farrell, Willie.
  • Finneran, Michael.
  • Fitzgerald, Tom.
  • Hillery, Brian.
  • Kelleher, Billy.
  • Kiely, Dan.
  • O'Sullivan, Jan.
  • Ormonde, Ann.
  • Wall, Jack.
  • Wright, G.V.

Níl

  • Belton, Louis J.
  • Burke, Paddy.
  • Cosgrave, Liam.
  • Cotter, Bill.
  • Cregan, Denis (Dino).
  • Dardis, John.
  • Doyle, Joe.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Honan, Cathy.
  • Howard, Michael.
  • Naughten, Liam.
  • Neville, Daniel.
  • Ross, Shane P.N.
  • Taylor-Quinn, Madeleine.
Tellers: Tá, Senators Mullooly and Wall; Níl, Senators Cosgrave and Neville.
Question declared carried.

When is it proposed to sit again?

It is proposed to sit at 10.30 a.m. on Thursday, 20 May 1993.

Sitting suspended at 7.45 p.m. and resumed at 8 p.m.