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

SECTION 132.

Mr. B. Ahern

I move amendment No. 217:

In page 134, between lines 30 and 31, to insert the following:

"(3) Where the date upon which tax becomes due and payable is postponed by virtue of subsection (1) (b) or subsection (2), then, notwithstanding paragraph (b) of section 117, interest upon that tax shall not be payable in respect of the period commencing on the valuation date and ending 9 months after the date on which that tax actually becomes due and payable.'.".

The date on which probate tax is payable is sometimes postponed to a date later than nine months after the date of death of the deceased. This can happen where a life interest in property is given to a surviving spouse or where the dwelling-house is given to a non dependant even though the deceased is survived by his or her spouse. The aim of the amendment is to ensure that interest is not payable in respect of any period in respect of which tax is postponed under the section.

Amendment agreed to.

Section, as amended, agreed to.

NEW SECTION.

Mr. Yates

I move amendment No. 218:

In page 134, before section 133, to insert the following new section:

"133.—Section 115 of the Finance Act, 1981 is hereby amended by the substitution of ‘£250,000' for £171,500'.".

This is the old chestnut, the threshold which applies where a parent makes a gift to a child. During the last general election campaign Fianna Fáil promised to greatly increase this threshold. While progress has been made on the question of agricultural relief no progress has been made on this matter. The problem is that when the capital acquisitions tax was introduced provision was not made for indexation of the thresholds until the late eighties. For the uninitiated, such as Deputy Rabbitte, milk quotas are linked to the land with the result that many dairy farmers find themselves in the net for the first time. They would like to see the threshold being raised to £250,000. Will the Minister consider this?

Mr. B. Ahern

Before provision was made for indexation the figure stood at £150,000; it now stands at £174,000. This means in practice that an estate valued over £500,000 may be divided in three equal shares without the children incurring any capital acquisitions tax liability.

Mr. Yates

In Wexford one usually takes all.

Mr. B. Ahern

If one looks at the labour force survey one will see that last year non-agricultural employment increased by 14,000 to 15,000. Because of the decline in agriculture overall employment decreased by some 7,000 to 8,000. Perhaps Deputy Yates will encourage people to share out the benefits to reduce the tax liability and to keep more people on the land. This would also prevent his constituency from shrinking.

Mr. Yates

There was a time when one could live off 40 acres — this is happening right throughout Europe — but that figure is rising every year and it now stands at 80 to 90 acres. If farming was such an attractive career what is the reason young sons and daughters are not coming home to farm? I will press this amendment because my friends in the IFA will be anxious to monitor my progress.

Amendment put and declared lost.

NEW SECTION

Mr. Yates

I move amendment No. 219:

In page 134, before section 133, to insert the following new section:

"133.—The exemption limit of £171,500 specified in section 115 of the Finance Act, 1987 shall be applicable to grandchildren in the same way as applies to children.".

This is another tear-jerker. I know of an old man——

Mr. Rabbitte

I am reaching for my handkerchief.

Mr. Yates

——a constituent of mine, who transferred his farm to his son before reaching pension age. Tragically, his son was killed in an accident involving a tractor. He then had to transfer the land to his grandchild when £24,000 had to paid in tax. Where a grandparent makes a gift to a grandchild it should be treated in the same way as a gift from a parent to a child. While I accept hard cases make bad law there are always cases which the law does not take into account. Will the Minister consider making this change?

Mr. B. Ahern

The problem is that there is no relief available under the capital acquisitions tax code in cases involving quick succession. Such relief is available under the probate tax code.

Mr. Yates

If a person decides to transfer a family farm to a grandchild the lower threshold of £23,200 will apply.

Mr. B. Ahern

If the grandchild is a minor this is regarded as a special case and the Class 1 threshold under the capital acquisitions tax code will apply.

Mr. Yates

Therefore they are already provided for?

Mr. B. Ahern

Yes. This applies where the grandchild is a minor and the parents are dead.

Mr. Yates

What happens if the grandchild is over 18 years of age?

Mr. B. Ahern

He will have to pay.

Mr. Yates

It is hard to justify that. Will it be possible to alter the schedule?

Mr. B. Ahern

Not for next week, but we will consider the matter.

Amendment, by leave, withdrawn.

NEW SECTION.

Mr. Yates

I move amendment No. 220:

In page 134, before section 133, to insert the following new section:

"133.—Section 19 of the Capital Acquisitions Tax Act, 1976 is hereby amended so that agricultural relief at the gift tax rate should apply where a gift becomes an inheritance where a disponer dies within two years of the gift transfer. A common flat rate relief of 25 per cent. shall apply to both gifts and inheritances in the case of livestock and machinery.".

The paternity of this amendment belongs to one of my experts. Will the Minister give his views on it?

Mr. B. Ahern

In framing section 133 we were particularly conscious of the impact of capital acquisitions tax on the farming sector. It has been suggested that the existence of gift tax has acted as a considerable deterrent to older farmers in making decisions to pass on land to a new generation. We are acutely aware of this in the interests of developing farming and in ensuring that there are no impediment to vesting land in young farmers. The impact of section 133 in the future will mean that a gift of agricultural land will have its value discounted for the purposes of capital acquisitions tax by a factor of 80 per cent on the first £300,000 and by 30 per cent on the balance. This represents a major improvement on the existing regime applicable to gifts.

The approach of treating gifts more favourably than inheritances is already a feature of the capital acquisitions tax code. As matters stand, a gift is taxed at 75 per cent of the rate applicable to an inheritance. Section 133 goes further in respect of agricultural land and is a forward looking approach on the part of the Government. To adopt the amendment proposed would negate the entire thrust of the section and would put a transmission of land by way of gift on the same basis as an inheritance. To do so would encourage landowners to wait until shortly before death before transmitting land to the next-of-kin. That would do a great injustice to many young farmers whose interests are best served by early gifting of land holdings, which is the policy we are trying to pursue.

Amendment, by leave, withdrawn.

NEW SECTION.

Mr. Yates

I move amendment No. 221:

In page 134, before section 133, to insert the following new section:

"133.—Where the Revenue Commissioners are satisfied that payment of Capital Acquisitions Tax involves hardship, a period for instalment payments shall be allowed for up to five years at a fixed interest rate of 8 per cent. and allowed as a tax deductible expense.".

This amendment represents proposals made to me by my friends in the ICMSA who want more credit in respect of capital acquisitions tax, which the Minister continues to tell us nobody has to pay. Those who have to pay it would like an instalment arrangement of up to five years at a fixed interest rate of 8 per cent and that the interest portion would be a tax deductible expense. As these people will have to pay this tax, perhaps the Minister might consider such a clause. It might regularise what is an informal position.

Mr. B. Ahern

The capital acquisitions tax code already provides for payment by instalment. In some circumstances payment can be made over five years at the option of the beneficiary, subject to the normal interest rate. That is what the Deputy is seeking. The existing legislation allows the Revenue Commissioners to cater for hardship cases and they have issued a statement of practice indicating circumstances in which the hardship provisions can be invoked, which I can pass on to Deputy Yates if he wishes.

Mr. Yates

I will send it to members of the ICMSA.

Mr. B. Ahern

It should be borne in mind that changes in recent years have moved a long way towards reducing the impact of the capital acquisitions tax, particularly in the case of family farms, with a reduction in the top rate from 55 per cent to 40 per cent. There have been improvements in agricultural reliefs and business reliefs have been introduced. The availability of section 60 and section 199 policies have also helped. Those changes have helped to eliminate difficulties.

Amendment put and declared lost.

Chairman

Amendment No. 222 in the name of Deputy Rabbitte is out of order. Amendments Nos. 223, 224 and 226 form a composite proposal, and amendment No. 225 is related and No. 227 is an alternative to No. 226. We will discuss amendments Nos. 223 to 227, inclusive, together.

Mr. Rabbitte

I am curious to know why my opposition to the latter half of the section dealing with capital acquisitions tax, which refers to the reduction of reliefs and so on, could be seen as an imposition of a charge on the people.

Chairman

It appears that it seeks to restrict agricultural relief for capital acquisitions tax proposed in the Bill and therefore involves a potential charge on the people.

Mr. Rabbitte

It restricts it from what is proposed in the Bill, but it does not propose to restrict it under current law.

Chairman

It appears that the relevant authorities could not decide whether the Deputy proposes to reduce or increase it.

Mr. Rabbitte

I would like to know the paternity of some of the advice that has been given.

Mr. M. McDowell

I support Deputy Rabbitte's point. Surely one can propose an amendment to an amendment without imposing a charge on somebody.

Mr. Yates

Amendments tabled yesterday on C45s were ruled out of order.

Mr. M. McDowell

For Deputy Rabbitte to suggest that an alleviating measure should be reduced by half is surely not imposing a charge on the people, if it is only at the proposal stage. It is bad enough to say that we cannot impose a charge on people, but surely we should be in a position to say that one cannot go as far as one wishes in relieving people of a charge.

Chairman

I will take up the matter with the people who have given me the advice.

Mr. M. McDowell

I am merely making the point.

Chairman

I am happy to accept the point and if the matter can be explained in the context of a later provision we can do so. Nevertheless, I will query with the Bills Office the reason it sees this measure as a potential charge on Revenue.

Mr. Rabbitte

I am not proposing to impose a tax on anybody above what is stated in existing law.

Chairman

I will query the matter with the Bills Office and communicate with the Deputy.

Mr. B. Ahern

I will be helpful and refer to the point made by Deputy Rabbitte on amendment No. 222. The effect of the Deputy's amendment would be to maintain agricultural relief for capital acquisitions tax at its existing level for agricultural land and to make livestock eligible for relief. Under current legislation, agricultural relief is not available for livestock, machinery and other farm assets. Section 133 of the Bill grants 25 per cent relief to livestock and increases the relief for agricultural land. Agricultural relief is justified on the basis that the yield on agricultural assets is lower than that on other assets.

The changes proposed in respect of agricultural property are considered necessary in the light of the proposed business relief. These changes will provide a basis for continuing to treat agricultural assets favourably and will retain an appropriate differential relative to the treatment of business assets. I hope that is of assistance to Deputy Rabbitte.

Mr. Rabbitte

It is helpful, but it bears out my view that my amendment should not have been ruled out of order.