"Childless couples are being discriminated against when it comes to CAT"

[Purple]

Another issue is if you have an idiot child but clued in and hard working grandchildren,does one leave an inheritance to the child,who is going to blow it,or the grandchildren who will make productive use of it.

And as our life expectancy increases do we leave our assets to our grandchildren who are in their 30's or 40's and actually need the money to raise children and pay a mortgage etc or our children who are already in their 60's or 70's and who don't need the money any more?

 

[T McGibney]

If you consider an increasingly wealthy and proportionately small property owning class

The current regime incentivises exactly that.

Leave your thriving business or farm trade to a sole beneficiary and they can claim business relief to practically eliminate CAT on the transfer.

Divide it among a number of beneficiaries and they'll lose up to a third of it in tax.

 

[TomEdison]

If you consider an increasingly wealthy and proportionately small property owning class accumulating more and more wealth over generations then yes, it's a good idea.

I see your point. But, actually, no, not necessarily.

The idea of the structure would be to encourage parents to pass assets to the next generation earlier rather than later. But of course you can't easily do that to the extent if your assets are largely represented by the house in which you live.

So one possible result of such a policy could be to encourage parents whose kids have flown to downsize. Right now the tax system discourages that; you are encouraged to leave wealth locked up in your PPR, where capital appreciation is untaxed, and you see the larger-than-you-need house as a safe, tax-favoured and still accumulating asset which will shelter your wealth until you die. The downside is a CAT hit for your kids, when you die.

This system give you an option. You can reduce the CAT exposure by passing some of your wealth to your kids now and benefit by moving to a house which is better suited to your present and likely future lifestyle.

Of course your kids may promptly reinvest the wealth in other housing stock. But even if they all do that, that's not a greater concentration of housing wealth in this class; at worst, it's an unchanged concentration of housing wealth in this class (albeit a housing stock that is better allocated to the needs of the people who live in it).

And, of course, they won't all do that with all of the money. Some will use it for other purposes — capitalising a business, reducing their own borrowings, paying school fees, whatever. So the net effect may be reduction of the concentration of wealth in residential property, rather than an increase.

You could object that this does nothing to encourage the redistribution of wealth to people who are never going to inherit it. And that's true. But, then, the existing system doesn't do much to encourage the redistribution of wealth, does it?

 

[TomEdison]

And as our life expectancy increases do we leave our assets to our grandchildren who are in their 30's or 40's and actually need the money to raise children and pay a mortgage etc or our children who are already in their 60's or 70's and who don't need the money any more?

Well, there's nothing to stop me leaving it to my kids, who can then make their own independent decision about whether to pass some or all of it on to their kids. As long as that's an independent decision on my kids' part, SFAIK their kids will then access the 400k parent/child threshhold, won't they? Or is there some look-through provision which would treat them as inheriting from me, and allow them only the 40k threshhold?

 

[Sophrosyne]

This system give you an option. You can reduce the CAT exposure by passing some of your wealth to your kids now and benefit by moving to a house which is better suited to your present and likely future lifestyle.

So you are really talking about reform of Gift Tax as the transfer would not pass on death.

 

[TomEdison]

So you are really talking about reform of Gift Tax as the transfer would not pass on death.

In Ireland we have a single Capital Acquisitions Tax (CAT) that applies to the totality of capital transferred from one person to another. If the occasion for paying CAT is a transfer is between two living persons the CAT due is called gift tax; if the occasion is the death of a person then it's called inheritance tax. But that's just different terminology used for the same tax arising on different occasions.

 

[Sophrosyne]

What about Capital Gains Tax?

 

[TomEdison]

A competely different tax — oversimplifying a bit, it's a tax on gains that you accrue when you sell an asset for more than you paid for it. There need be no gift or inheritance involved.

 

[Sophrosyne]

I am looking at the disponer's point of view; not the beneficiary's.
Capital Gains Tax does not arise on assets passing on death.
That does not apply, except in very limited circumstances, to lifetime gifts.

 

[torblednam]

I am looking at the disponer's point of view; not the beneficiary's.
Capital Gains Tax does not arise on assets passing on death.
That does not apply, except in very limited circumstances, to lifetime gifts.

There's a credit against CAT liability, for the CGT paid by the disponer arising on the same transaction.

 

[Sophrosyne]

That benefits the recipient but not the disponer.

 

[TomEdison]

But we're talking about the older generation trading down their residence — disposal of PPR, so no CGT — and then gifting some of the proceeds to the next generation.

Or am I missing your point?

 

[Sophrosyne]

Or am I missing your point?

Though they are often used interchangeably, gifts and inheritances retain their legal meanings in the CATCA – ss 5(1) and 10(1).

Since assets are not passing on death, you are referring to lifetime gifts.

Converting potential inheritances into lifetime gifts would have consequences for transfers of real property Irish and/or foreign that are not PPRs - hence my question about CGT were those properties to be transferred during the disponer’s lifetime.

However, it appears that your main focus is pecuniary gifts from parents to children and a proposed sliding scale exemption reducing to nil at 65 years.

It is not clear whether your proposal refers to all beneficiary categories.

Your idea might fly only if the government were satisfied that there would be no loss to the exchequer, i.e., that disponers and beneficiaries could be readily identified and the exact value of transfers readily established, as in the case of assets passing on death.

In addition, there would be concerns about compliance and possible increases in the administrative burden on the Revenue service.