Select Committee on Finance and General Affairs díospóireacht -
Friday, 6 May 1994

SECTION 129.

Mr. Yates

I move amendment No. 209.

In page 131, subsection (1), line 45, to delete "30 per cent." and substitute "50 per cent.".

This amendment relates to the probate tax and suggests that the agricultural relief be increased from 30 per cent to 50 per cent. It is illogical that there is 80 per cent agricultural relief for capital acquisitions tax and 30 per cent for probate tax. I suggest that it be 50 per cent in order to bring some rationale to the probate tax. Amendment No. 216 seeks to link agricultural stock with agricultural property.

Mr. B. Ahern

The Government's aim of encouraging the lifetime transfer of farms was given tangible expression in the Finance Act by the increase in the rate of agricultural relief in respect of gifts from 55 per cent, with a ceiling of £200,000, to 75 per cent, with a ceiling of £250,000. This is a welcome and generous relief. The provisions of the Bill increase the relief to 80 per cent for the first £300,000 and 30 per cent on the balance, plus a 25 per cent reduction for livestock etc., and reduces the stamp duty by two thirds on transfers to young trained farmers. It should also be emphasised that the gifting of land will not incur a charge to probate tax. The rates of gift tax are 75 per cent of those applicable in the case of inheritances. To allow a 50 per cent agricultural relief in respect of probate tax would run counter to the whole thrust of tax, which is essentially that of applying a relatively small charge to a broad base of assets. These amendments would cost about £1 million per annum representing some 15 per cent of the take.

In addition to its impact on the base for probate tax the net effect of these amendments would be to reduce the incentive of the lifetime transfer of farms and thus improve the lot of young farmers hoping to work on their own land at an early stage in their lives. All the incentives, the Exchequer back to back money which we gave last year with the community farm retirement scheme, try to assist the campaign by Macra na Feirme for earlier transfers. Hopefully, that campaign, which has a deadline of December 1996, will prove successful.

Amendment put and declared lost.

Section 129 agreed to.

NEW SECTION.

Mr. Yates

I move amendment No. 210:

In page 132, before section 130, to insert the following new section:

"130.—Notwithstanding anything in the Tax Acts in relation to the Probate Tax or as set out in the Finance Act, 1993, the threshold for liability shall be raised from £10,000 to the same thresholds that apply to the Capital Acquisitions Tax Act, 1976.".

This amendment refers to the extraordinarily low threshold of £10,000 for probate tax. This threshold means that many urban dwellers, when household contents, car and any other assets are included will be liable for probate tax. A sum of £10,000 is not a huge sum of money to have as one's residual estate at the time of death. It represents the politics of begrudgery. To apply the same threshold as applies to capital acquisitions tax would be more just. Much thought has gone into those thresholds during the past two decades. The Minister should see the merit of this amendment because it would avoid hardship on the lower valued estates.

Mr. B. Ahern

If this amendment was passed it would wipe out the probate tax. It is estimated that 25 per cent of estates have no liability to probate tax. A further 25 per cent have liabilities of less than £500 while yet a further 25 per cent have liabilities of between £500 and £1,000. In all, therefore, only some 25 per cent of the total number of estates have a probate tax liability in excess of £1,000. I presume some would set that off against their own inheritance.

Mr. Yates

The message is die poor.

Mr. B. Ahern

I am sure that many of the people Deputy Yates has in mind will find a way to do that.

Amendment put and declared lost.

NEW SECTION.

Mr. Yates

I move amendment No. 211:

In page 132, before section 130, to insert the following new section:

"130.—Notwithstanding anything in reference to the Probate Tax as set out in the Finance Act, 1993, the family home or dwelling shall not be included for any liability to this tax.".

The Minister has shot down all my amendments so far but that cannot happen in this case. The significance is that a child dependant with an income of £84 or more per week who in a parent's will is left a house in which he or she has not lived heretofore will not escape the probate tax liability. Surely the family home should not be included in this way. As those already living in the home are not in the net, only a small category of dependent children is involved, for example, on the tragic or unexpected death of a parent a dependant may come home perhaps from university or from a flat. I think there is an undeniable case for this provision.

Mr. B. Ahern

I know Deputy Yates does not believe in this at all. There is no probate tax on the family home except where it passes to a non-dependant, even when the tax has been deferred until the death of the second spouse. If it is a case of hardship it can be deferred indefinitely and a charge put on the estate.

Mr. Yates

I would not like to go to the Revenue Commissioners asking to have a tax deferred indefinitely. I have dealt with the Revenue Commissioners on hard luck cases, for example, when vintners were in arrears but it was difficult.

Mr. B. Ahern

A charge could be put on the property.

Mr. Yates

When the tax system was completely out of kilter I often had to speak to officials in the old Collector General's office about hard luck cases and I remember one particular Revenue official saying to me: "Deputy, do you think any official of the Revenue Commissioners has power to write off principal tax? Discretion arises only on the question of interest". He had a point. The Minister is suggesting that the tax will be suspended indefinitely in hard luck cases but one realises how difficult that is when the official puts his glasses on his forehead.

Mr. B. Ahern

It is almost 12 months since this section was enacted. Very few hard luck cases have arisen because nobody has paid the taxes, neither inheritance nor probate. The odd one who does, has an insurance policy. That is why we are collecting buttons in capital taxes. If the Deputy keeps going in this direction we will have no capital taxes in a few years and we will be back to a 55 per cent marginal rate of income tax.

Amendment put and declared lost.

NEW SECTION.

Mr. Yates

I move amendment No. 212:

In page 132, before section 130, to insert the following new section:

"130.—The Finance Act, 1993 is hereby amended by the insertion in section 112 of the following:

‘(e) property (within the meaning of section 26 of the Capital Gains Tax Act, 1975) which is taken under the will or other testamentary disposition or under the intestacy of the deceased by a child (within the meaning of section 8 of the Capital Gains Tax (Amendment) Act, 1978) of the deceased, provided the property exempted under this subsection is not disposed of by the child within a period of 5 years after the date of the death of the deceased,'.".

An expert advised me on this amendment.

Mr. B. Ahern

He is pro-businessmen.

Mr. Yates

He is a professional. We seek in this amendment to ensure that a child receiving an inheritance would have a five year leeway.

Mr. B. Ahern

The intention of the proposal is to exempt all business assets and shares in family companies owning such assets from probate tax, on condition that the assets pass to a child or a favourite nephew or niece of the deceased and are not sold within five years after the death of the deceased.

The proposal fails to have regard to the basis of the tax which is to apply a small charge to the majority of estates. It would be inconsistent with this approach to exempt whole categories of assets from the charge. It is difficult to sustain the argument that the application of a charge of 2 per cent can have anything but the most minimal impact on the transmission of a business from one generation to the next. If there are insufficient liquid assets in the estate to meet the tax, the Revenue Commissioners can postpone payment for such a period and on such terms. This will arise in a minority of cases.

In recent times the capacity to provide by way of insurance for the eventual payment of a CAT liability has been greatly increased. Deputy Connolly spoke about it earlier. It is now possible to take out a policy to cover not only inheritance tax, which is done all the time, but gift tax and probate tax. One may not get out from the friendly bank manager until one has signed the form. It will be the case that the proceeds of a section 60 policy are utilised to pay either inheritance tax and/or probate tax and such proceeds will be exempt from both taxes. Small and medium sized businesses will benefit considerably from the new business reliefs for capital acquisitions tax. The value of business assets is being reduced by 50 per cent on the first £250,000 and by 25 per cent on the balance. The cost of implementing this proposal would be £2.5 million.

Amendment, by leave, withdrawn.

NEW SECTION.

Mr. Yates

I move amendment No. 213:

In page 132, before section 130, to insert the following new section:

"130.—Tax chargeable as computed in accordance with section 103 of the Finance Act, 1993 will offset any charge to tax calculated on the estate of the disponer in accordance with the Principal Act.".

The Minister says that probate tax payments are deductible. I am seeking to have them offset against inheritance tax. Perhaps the Minister will clarify the difference.

Mr. B. Ahern

They are allowed as an expense.

Mr. Yates

As opposed to a credit?

Mr. B. Ahern

The effect of this amendment would be that only those with little or no liability to capital acquisitions tax would end up paying the probate tax because those with capital acquisitions tax liability would enjoy a full credit for probate tax. This would be a regressive step.

Amendment, by leave, withdrawn.

NEW SECTION.

Mr. Yates

I move amendment No. 214:

In page 132, before section 130, to insert the following new section:

"130.—Notwithstanding the provisions of the Finance Act, 1993 any gilts held by non-residents shall not be liable to Probate Tax.".

Deputy Cox pursued this matter last year and it is worthy of support. The Minister indicated that gilts would not be liable and perhaps he has tabled an amendment to do this. This morning the Minister accepted my point about Post Office saving certificates and RPT in reckonability. The same logic applies to this.

Mr. B. Ahern

This has been dealt with. They are already exempt. I think we covered it last year.

Amendment, by leave, withdrawn.

NEW SECTION.

Mr. Yates

I move amendment No. 215:

In page 132, before section 130, to insert the following new section:

"130.—The provisions of the Finance Act, 1993 relating to the Probate Tax are hereby amended to exclude from any liability to the tax persons who due to physical or mental infirmity are unable to manage their own affairs.".

I do not understand why a person who, due to physical or mental infirmity, is unable to manage his or her own affairs should be liable for probate tax. The administration of their affairs is very costly; the person could be a ward of court. One can imagine where an only child is physically and mentally handicapped and his or her surviving parent is faced with having to pay a 2 per cent probate tax. The Minister has rejected my previous amendments but surely this amendment could be improved on Report Stage. People with a mental and physical handicap should not be saddled with the additional burden of a probate tax.

Mr. B. Ahern

Deputy Rabbitte gave out to me earlier because I made so many concessions to Deputy Yates a few months ago. We included only proposals that did not create hardship. This is not a source of difficulty. If the hardship caused could not be dealt with by the hardship clause, we would certainly look at the matter again. When making a will a person tends to take into account all the potential liabilities, to inheritance tax, to probate tax and makes provision in so far as possible for those most in need, young children and adult dependants. If one spouse fails to do this, the surviving spouse who is exempt from capital acquisitions tax will have another opportunity to make suitable arrangements. Either spouse may decide to avoid the probate tax by making special provisions for a particular individual by means of a lifetime transfer which would have the added attraction of a lower rate of capital acquisition tax and more favourable agricultural relief provisions. I have not received any indication that difficulties have been created. We dealt with any perceived difficulties during the course of the debate last year.

Amendment put and declared lost.