Abolish or drastically reduce all the reliefs on Capital Gains Tax and Capital Acquisitions Tax

Another excerpt from my pre-Budget submission

Abolish or drastically reduce all the reliefs on Capital Gains Tax and Capital Acquisitions Tax

We don’t have a wealth tax. Taxes on capital gains, gifts and inheritances are taxed at only 33% compared to a top rate of 55% tax on incomes.

And to make matters even more disjointed, there are huge exemptions from CGT and CAT.

· When a person dies, their liability to Capital Gains Tax dies with them

· When a person sells their family home, it is completely exempt from CGT even if it’s a mansion.

· When a person inherits or receives a gift of a business or a farm, they pay 3% CAT.

Remove the exemption from CGT on death.

Exempt the first €100,000 of gains on the family home, but not the full amount. Allow people to defer the CGT bill if they are buying another home, so that there is no disincentive to trade up or down.

Change the Agricultural Relief and Business Relief. A person inheriting a farm or other business should be charged the full 33% CAT, but they should be allowed to defer the payment until they sell the asset. If it stays in the family forever, then no CAT would be paid. But if they sell it, the CAT would be paid from the proceeds.

I would agree in general with this sentiment.

On the basis that the marginal rate of tax is 50% PPR relief should exempt 200% of the cost of the house.

So a house which cost €200k would be sold for €400k with no tax.

Hi Joe

I am not hung up on the actual figure. But it's the principle that is important. We should seriously curtail the exemptions.

It seems about right that if I sell a house for €400k which cost me €200k, then €100k is exempt and I pay (or defer) CGT on the balance.

Brendan

We need to do away with the concept of retrospective taxation.

If changes like this are introduced, they should apply to future purchases only.

It is grossly unfair on someone to pull the rug from under them after they've undertaken a transaction.

I accept that point but surely someone buys a house for somewhere to live not because it's tax free growth.

The Government has form for pulling the rug from under taxpayers the abolition of tax reliefs for small investors comes to mind.

Gordon Gekko said:

We need to do away with the concept of retrospective taxation.

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I would agree with this for transactions which were entered into with government tax incentives to enter into them. For example, if I contribute to a pension scheme today, the government should not change the rules for the existing scheme. If I bought a property subject to the 5 year CGT exemption, they should not scrap that.

But the following changes would not be retrospective taxation in my view and would be ok.


I bought shares when the CGT rate was 20%. Now that I am selling them, I am paying 33%. Are you suggesting that I should pay only 20%?

I bought shares when the law said Capital Gains disappear on death. Are you saying that you agree with this in principle, but only for assets bought after today?

When I first started working the top income tax rate was 70% -Are you saying that I should be always subject to that tax rate?

Say I had bought an investment property for €5m with the view of giving it to the tenant, my son, tax-free after three years. Then they changed the law so I can't now do that. Are you saying that this law should not have been changed? Or only for houses bought after the law changed?

Brendan Burgess said:

Hi Joe

I am not hung up on the actual figure. But it's the principle that is important. We should seriously curtail the exemptions.

It seems about right that if I sell a house for €400k which cost me €200k, then €100k is exempt and I pay (or defer) CGT on the balance.

Brendan

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Something seems wrong here.

If I buy a house for €200K and keep it for 20 years and it's now worth €400K but I want to move to another similar house in another town which is €400K or upgrade to something bigger I will have to take out a new mortgage to fill in the €100K I'll be taxed by moving.

Or I can downgrade to a smaller house for €300K. So I've downgraded my house and gained nothing.

So more realistically, once I buy a house I'll be stuck in it forever.
When my kids move out if I want to downgrade I'll lose a chunk of money just to do that. Why bother?

Hi qwerty

As I said in my submission:

Brendan Burgess said:

Allow people to defer the CGT bill if they are buying another home, so that there is no disincentive to trade up or down.

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So you would have a CGT bill of €33k but it would not be payable if you bought another property.

You raise another interesting issue about inflation.

In the past the cost was indexed for increases in the Consumer Prices Index. So CGT was paid only in the real increase in value over normal inflation. When the 20% rate was brought in, the indexation was scrapped. When the CGT rate was increased to 33%, indexation was not brought back. So some people are paying Capital Gains Tax on nominal gains,but real losses.



Brendan

Brendan Burgess said:

Hi qwerty

As I said in my submission:



So you would have a CGT bill of €33k but it would not be payable if you bought another property.

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My bad. Sorry about that. You already had that thought of