Dáil Éireann Debate, Thursday - 5 October 2023
83. Deputy Colm Burke asked the Minister for Finance to confirm that consideration would be given to increasing the small gift exemption for capital acquisitions tax from €3,000 to €5,000 from each person per year, due to the increase in the cost of living; and if he will make a statement on the matter. [43079/23]
View answerWill the Department consider increasing the small gift exemption for capital acquisitions tax, CAT, from €3,000 to €5,000 from each person per year? This was introduced in 2003 and it has not changed since. Will consideration be given to this? It is about the redistribution of wealth. If people find that when they give money to someone, there is going to be a liability for tax, their immediate attitude is not to give that gift. It is something to consider.
As the Deputy will be aware, the small gift exemption is an annual CAT relief available to all recipients of gifts. This means a person can receive a gift to the value of €3,000 free of CAT. For example, a parent may give a gift up to the value of €3,000 to a child or anyone else each calendar year without any CAT arising. Two parents can make gifts of €3,000 each to a child, resulting in a gift to the value of €6,000 in any year free of CAT. It should be noted that there is no limit on the number of small gifts a person can receive in a year from different donors. The Finance Act 2003 increased the small gift exemption threshold from £1,270 to the current threshold of €3,000. This was the most recent increase to the small gift exemption threshold.
A wide variety of further exemptions and reliefs from CAT and capital taxes more generally are also available. In particular, for a gift from a parent to a child, CAT is only paid on the value of cumulative gifts above a lifetime tax-free threshold of €335,000. In other circumstances, including where gifts or inheritances are given by a grandparent to a grandchild, or gifts between siblings, CAT is only paid on the value of the gifts or inheritances above a lifetime threshold of €32,500. A tax-free threshold of €16,250 applies for instances of gifts or inheritances between individuals with relationships not covered by the other thresholds. Details on these thresholds are available on the Revenue website.
“Lifetime” in this context means any gifts or inheritances received after 5 December 1991.
Additionally, numerous other generous capital tax reliefs are available if a person meets the qualifying criteria. These include agricultural and business relief, which, subject to certain conditions, reduce the taxable value of the farm or business assets being passed on to a child on by 90% and dwelling house exemption, which provides an exemption from CAT on the inheritance of certain dwelling houses subject to the beneficiary meeting the qualifying criteria.
I fully accept what the Minister said about the exemptions that are available but it was 2003 when this was last changed. It is 20 years on and it is the time to look at this again, particularly in respect of CAT. Generally, the exemptions that were there prior to 2008 were greater than what they are now. As the Minister will appreciate, the value of property has gone up substantially and the cost of living has gone up in the meantime. Therefore, should the increases in CAT relief not be applied in the same way? I fully accept that there is a responsibility on people to pay tax on gifts but there needs to be some equalisation as well when the cost of living and the cost of housing have increased. Therefore, there should be an increase in the reliefs that are available.
Any changes to the small gift exemption must be considered in the context of competing demands. Increasing the small gift exemption threshold would incur a cost to the Exchequer, which may potentially inhibit the Government’s ability to introduce further cost-of-living supports for households and businesses. The relief, in its current guise, is fair, and providing an increase to the small gift exemption must be balanced against competing demands and as part of the annual budget and finance Bill process.
As the Deputy will be aware, a person may receive a gift up to the value of €3,000 from any person in a calendar year, without having to pay CAT. Significantly, gifts within this limit are not taken into account in computing tax and are not included for aggregation purposes. There is no limit to the number of such gifts a person can get every year, if someone was fortunate enough to be in a position to receive them. There are tax planning opportunities here and I have no doubt that this tax planning is being given effect in many instances. It can be €3,000 each year, indefinitely, and there is no limit to the number of such contributions or amounts to be given by grandparents, other parents and so on. We have to look at it in the round but in general it is a generous exemption.
The Minister will accept, though, that there is a need for some change in CAT in view of the fact that the value of property has increased substantially. The exemptions were higher going back 15 or 18 years ago than what they are now. There have been changes in a whole lot of areas in the meantime. I am asking that consideration would be given to this.
As always when it comes to individual areas of taxation, they are considered in the lead-up to a budget. We are in a scenario where we have limited resources overall. We have a net tax package of €1.15 billion, as set out in the summer economic statement, and there are lots of different things we would like to do with that envelope. Principal in that would be an income tax package to support workers and pensioners, who pay tax as well, through changes to income tax and USC to ensure there is a fair distribution of the benefit of those reductions for low- and middle-income earners as well as for everybody else on the income scale. There are lots of different priorities but all taxes are considered as we lead up to a budget and before we make any final decisions.
