An independent TD has asked the Minister for Finance to consider reducing the current capital gains tax rate (CGT) of 33%.
Deputy Carol Nolan, Laois-Offaly, raised the parliamentary question in response to issues the ICMSA highlighted in its pre-Budget submission.
She said the current rate “continues to act as a significant deterrent to farm investment”.
In response, the minister said:
“As the deputy may be aware, there are existing reliefs from CGT in relation to the disposal of farming assets and farm restructuring relief. “
He stated that farming assets are relieved from CGT where the person disposing of the asset(s) is aged 55 or over and both owned and used the asset(s) for the ten years prior to the disposal.
“While this relief is commonly referred to as retirement relief, it is not necessary to retire from the business or farming to qualify.”
“The operation of the relief, as well as the various thresholds available, differ between the disposal of a farm to a child and disposals to anyone other than to a child.”
Qualify for the relief
The minister added that relief from CGT is also available where an individual disposes of or exchanges farmland to consolidate an existing holding.
To qualify for the relief, the first sale or purchase must occur between January 1st, 2013, and December 31st, 2022.
The next sale or purchase must occur within 24 months of the first sale or purchase.
“In relation to your query regarding a reduced rate of CGT, there are doubts as to the potential level of additional yield this could raise and its sustainability over time.”
“The current economic environment may increase the uncertainty around any potential Exchequer impact.”
Furthermore, he added, there is a “significant” risk of deadweight arising from a reduction in the CGT rate.
He said many assets would be sold regardless of the rate at a particular time.
5% reduction would cost €164m
In terms of the cost of changing the headline rate of CGT, each 1% reduction/increase in the headline rate of CGT is estimated to be €33 million, assuming no behavioural change.
“A 5% reduction in the CGT rate in a single Budget would have an Exchequer impact of €164 million, assuming no behavioural change.”
“As with all taxes, CGT is subject to ongoing review, which involves the consideration and assessment of the rate of CGT and the relevant reliefs and exemptions from CGT.”
“I currently have no plans to make a significant reduction in CGT rates at this time,” Donohoe concluded.
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