Income, capital gains and inheritances should be taxed at the same rates

To be fair Brendan, a pretty significant chunk of your hypothetical nurse's lifetime earnings (and pension) will also be exempt from income tax, due to various reliefs and allowances.

Only a tiny proportion of the overall population hold liquid securities outside a pension wrapper so I don't think introducing a periodic deemed disposal for CGT purposes would have a significant impact on the exchequer and would be fairly costly to administer.

I do agree with you that there is no compelling reason to increase the current CAT exemption thresholds and I would have some sympathy for the argument that they should in fact be reduced.
 
Brendan,

This is all very theoretical, but you would have to do at least some number crunching to arrive at your conclusions.

For instance, how many people actually benefit from the dwelling house exemption each year and what is the average value of the properties concerned?

In regard to other transfers of assets to children, just because a CAT relief is available does not mean that everyone is in a position to avail of it.
 
Sarenco said:
I do agree with you that there is no compelling reason to increase the current CAT exemption thresholds and I would have some sympathy for the argument that they should in fact be reduced.
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There is: the CAT tax take is being severely depressed as the current high rates and low thresholds mean that property owners have a strong disincentive to make gifts to loved ones.
 
T McGibney said:
There is: the CAT tax take is being severely depressed as the current high rates and low thresholds mean that property owners have a strong disincentive to make gifts to loved ones.
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What is the policy argument for incentivising property owners to make (very large) gifts to loved ones?

We all have a finite life so I don't see how inheritance tax can be deferred indefinitely.
 
Sarenco said:
What is the policy argument for incentivising property owners to make (very large) gifts to loved ones?
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Maximising the tax take.

We seem to have utterly forgotten the economic formula that brought Ireland into prosperity in the mid- to late-1990s.

(Note that in the UK, all gifts are tax free, although their bizarre inheritance tax system is another story entirely.)
 
T McGibney said:
Maximising the tax take.

We seem to have utterly forgotten the economic formula that brought Ireland into prosperity in the mid- to late-1990s.

(Note that in the UK, all gifts are tax free, although their bizarre inheritance tax system is another story entirely.)
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How would increasing the amount that can be gifted (or inherited) tax free increase the tax take?

I can certainly see the argument for lowering the CGT rate to increase the overall tax take (as it would encourage an increase in transactions) but that's a different issue.
 
T McGibney said:
But that's not what you asked me!
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Sorry, I'm confused.

I thought you were arguing that incentivising property owners to make large gifts by increasing the exemption thresholds was justifiable on policy grounds as it would increase the tax take. No?
 
No, please read back what I posted.

I said that incentivising property owners to make large gifts was justifiable on policy grounds as it would increase the tax take. It was you who subsequently added the misleading "by increasing the exemption thresholds"

I'm also in favour of increasing the exemption thresholds even if that clearly won't increase the tax take, at least directly anyway. Why? I think it's silly that modest estates are caught for a tax that was designed for the rich.
 
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Well, the entire discussion was about whether increasing exemption thresholds was justifiable or not. Are you now suggesting that the CAT rate should be cut to incentivise property owners to make gifts to increase the overall tax take?

I think we might have different ideas as to what constitutes a modest estate and/or "rich".

In any event, I would personally much prefer to see any tax cuts go towards supporting enterprise and savings rather than increasing the value of inherited or gifted wealth.
 
Sarenco said:
In any event, I would personally much prefer to see any tax cuts go towards supporting enterprise and savings rather than increasing the value of inherited or gifted wealth.
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So for example would you favour reduced level of exemption and higher tax rate for farmers children inheriting the family farm or for children of other business owners inheriting their family business? Or would you support retention of current position on this asset class and hit the guy with the 3 BTL properties? Or alternatively hit those leaving family homes above a notional threshold of say c500k?
I'm not trying to be smart but we do tend to hold these opinions that broaden out the tax net without any in-depth analysis of the consequences of the changes.
Perhaps there is a case for change but lets see the analysis and the basis for change before making the sweeping statements!!
 
I would support leaving the current inheritance and gift tax regime broadly unchanged and directing any available resources (in terms of tax cuts) in the following order of priority:
  • Abolishing the PAYE tax credit and increasing personal income tax credits by a corresponding amount (to remove the unfair treatment of the self-employed);
  • Abolishing the USC surcharge on the self-employed (to encourage entrepreneurship);
  • Increasing the ordinary rate income tax band (to reward work);
  • Reducing employer's PRSI by 2% (to encourage employment);
  • Reducing DIRT for ordinary rate taxpayers (by allowing such depositors to reclaim DIRT levied at the higher income tax rate) (to encourage equity in the tax system); and
  • Reverting to a common income tax treatment of rental profits on residential and commercial property (so that relevant interest payments are fully deductible) and making LPT deductible (to incentivise residential building).
I'm sure everybody will have a different wish list!

In general, I don't have any particular problem with the current reliefs and allowances under our CAT regime but I don't see any compelling reason to extend same. There is an obvious societal benefit to encouraging the early transfer of a family business to the next generation but I can't see any similar argument for exempting other property assets from inheritance or gift tax beyond the current allowances. In particular, I don't see why anybody should be entitled to inherit a €500,000 house (to use your example) tax free.
 
Brendan Burgess said:
Hi Steven

I don't mind you disagreeing with me, but what is factually incorrect about it?

The same income tax rules apply to the consultant. And I am very clear in the article that income taxes are too high. The income taxes which the consultant pay, should be reduced as well as those of the nurse.

I pay income taxes at 52% (I think) on my income and Capital Gains Taxes at 33%. This makes no sense at all. They should be at the same rate.

Brendan
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Hi Brendan

I haven't read the article in full, just the bit quoted by fella. The thread looks completely different now than it did this morning (and I didn't mean to call you stupid ;))

The tax breaks are open to the nurse as well as the consultant. She can gift her son €3,000 a year or just pay CGT on shares while the hard pressed consultant is paying a huge amount of income tax on his larger income.
 
Brendan

The use of a nurse and a consultant is overly sensationalist. It isn't necessary. I also disagree with your views on inheritance tax. The principal reliefs that you refer to exist primarily to avoid the forced sale of illiquid assets to pay CAT. A huge tax bill on the inheritance of a business for example could trigger its sale and jeopardise jobs. The concept of a family firm would be under threat. With homes and the dwelling house exemption, families could be put out on the street due to tax bills they don't have the cash to pay.
 
The same tax rules apply to someone earning €40k a year as apply to someone earning €400k a year.

But a €400k a year earner is much more likely to be making capital gains and giving gifts to their children. Of course a nurse on €40k could have big capital gains, but they are less likely to.

I am not sure why some of you regard it as sensationalist. I could have said Mary who is on €40k and Johnny who is on €400k. But I am trying to point out that someone in a career like nursing who is not earning a huge amount who does valuable work pays 51% on any additional income they earn, while the child of Johnny can get multiple times her income as a gift an pay no tax.

Brendan
 
Gordon Gekko said:
With homes and the dwelling house exemption, families could be put out on the street due to tax bills they don't have the cash to pay.
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Gordon Gekko said:
The use of a nurse and a consultant is overly sensationalist.
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You wouldn't consider this being overly sensationalist by any chance?

If someone inherits a family home worth €500k, and they have an exemption for the first €200k, they would pay around €100k in CAT. Is it too much to ask that they get a mortgage for this amount? If they can't get a mortgage, sell the house and they will still have €400k with which to buy a house. They won't exactly be out on the street.

The state could grant them a mortgage with interest rolling up at 4% a year.

They could do the same for businesses.

It's crazy that someone can inherit a €10m business and pay tax of around 3%, while our hard pressed nurse, sorry, while a person on average pay is paying 51% tax on any overtime.

Brendan
 
Why should someone be forced to sell their family home though? If we had a functioning bank system, perhaps it wouldn't necessitate the sale of assets? I just don't think that one can compare income and the transfer of a trading business. It's significant that the business in question must be "trading" and doing "real things". It's equally significant that the dwelling house exemption only applies to a person's home. I don't believe that a relief that helps a family to retain control of their business is particularly flawed.

However, I believe that the dwelling house exemption should be capped at around €750k.
 
It's worth bearing in mind that any trading business and its employees/owners will, hopefully, continue to generate tax revenue into the future.

Interesting idea to cap the dwelling house exemption. Intuitively €750k seems a bit on the high side to me - would €400k not suffice?
 
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