Dáil Éireann Debate, Tuesday - 20 October 2020
213. Deputy Danny Healy-Rae asked the Minister for Finance if he will consider extending the favourite nephew or niece relief to favourite successor to reflect changing demographics and family structures; and if he will make a statement on the matter. [31091/20]
Amharc ar fhreagraA fundamental principle of the Capital Acquisitions Tax regime is that inheritance or gift tax is levied on the beneficiary and that the level of taxation is determined according to their relationship with the disponer. The reason for this approach is that the capital being transferred has not been earned by the beneficiary. In this context, the effective taxation of windfall capital is an important tool for addressing income and wealth inequality, thus enabling our tax code create a fairer society.
There are a number of valuable reliefs from Capital Acquisitions Tax available. Once such relief is the CAT Favourite Nephew or Niece relief. This relief allows a nephew or niece to be treated as a child for CAT purposes, subject to certain conditions. This means that they will be entitled to the Group A tax-free threshold of €335,000, instead of the Group B tax-free threshold of €32,500, which would normally apply to this relationship.
The aim of this relief is to target a nephew or niece who has worked for their aunt or uncle over a 5-year period prior to inheritance for a minimum number of hours per week, putting their labour and expertise at the disposal of the aunt or uncle and making a sustained contribution to the business before inheritance.
When combined with CAT Agricultural Relief or CAT Business Relief, this relief is intended to support the intergenerational transfer of a family farm or a family business and is particularly important in circumstances where there may not be a direct descendant (e.g. child) to whom the family farm or business can be bequeathed.
However, extending the Favourite Nephew or Niece relief to allow the nomination of a ‘Favourite Successor’ would clearly represent a fundamental departure from the principles underpinning our current CAT regime, as well as a significant departure from the policy rationale of the Favourite Nephew or Niece relief. Such a move would also lead to an erosion of the revenue base. For example, this could result in a beneficiary who does not have a family relationship with the disponer becoming entitled to the same tax-free threshold as a child of the disponer, currently €335,000, instead of a tax-free threshold of €16,250.
In addition, this would most likely be followed by pressure to extend this more broadly, such as for disponers to seek to nominate a ‘Favourite Successor’ for their estate.
On this basis, there are currently no plans to extend the CAT Favourite Niece or Nephew Relief or to amend the operation of CAT Agricultural Relief to allow for the nomination of a Favourite Successor.
