I am aware of the points raised by the Deputy in her Parliamentary Question of 26 September, 2019 and in her correspondence which has been received in my Department with regard to the operation of Capital Acquisitions Tax.
For the purposes of Capital Acquisitions Tax, the relationship between the person who provides the gift or inheritance and the person who receives the gift or inheritance determines the lifetime tax-free threshold (the Group Threshold) below which gift or inheritance tax does not arise. As Capital Acquisitions Tax is generally payable by the beneficiary, rather than the disponer, the system promotes horizontal equity in that all individuals with similar circumstances are treated in a similar manner.
It is a long-held principle of inheritance tax that transfers of assets between spouses are exempt. The spousal exemption from inheritance tax was extended to civil partners from 1 January 2011.
As regards the gifting of a shared home, the treatment of gifting was amended substantially in the 2016 Finance Act. In general, it is now only possible to receive a tax-free gift of a dwelling house where it is gifted to a dependent relative. A dependent relative is a direct relative of the donor, or of the donor’s spouse or civil partner, who is permanently and totally incapacitated because of physical or mental infirmity from maintaining himself or herself or who is over the age of 65. This change was made to restore the original policy aim of the relief.
Gifts are generally taxable in the same way as inheritances. There is an annual €3,000 CAT relief available to all recipients of gifts.
As regards the treatment of individuals with no children, gifts or inheritances from them are subject to either category B or C thresholds irrespective of their individual status. There would be a significant potential Exchequer cost with any extension of the Category A threshold to allow individuals with no children to nominate a potential beneficiary of their estate.
There are some CAT reliefs which are available for co-habiting couples. Cohabiting individuals can avail of the ‘dwelling house exemption’ to bequeath their principal private residence, generally the most substantial asset owned by an individual, free from inheritance tax which allows for property to be inherited tax-free irrespective of its value where the beneficiary is already living in the house subject to certain conditions.
Section 88A of the Capital Acquisitions Tax Consolidation Act 2003 exempts transfers of property made between qualified cohabitants within the meaning of Part 15 of the Civil Partnership and Certain Rights and Obligations of Cohabitants (CPCROC) Act 2010. This is a redress scheme which provides protection in law for long-term cohabiting couples and provides safeguards for an economically dependent cohabitant where a relationship has ended, or on death.
The introduction of the exemption from gift tax and inheritance tax in these cases did not give cohabiting couples the same tax treatment as married couples or civil partners but simply legislated for the tax consequences of the redress arrangements for cohabitants under the CPCROC Act 2010.
I would say that any change in the tax treatment of cohabiting couples, including with respect to CAT, can only be addressed in the broader context of future social and legal policy development in relation to such couples. There would also be potentially significant Exchequer costs in changing the current CAT rules to accommodate the changes sought by the Deputy.