“Relief “ here today but gone …………

CAT 

Relief from gift/inheritance tax was generous in the tiger years, the tax-free thresholds available had increased significantly in acknowledgement of the increasing asset values. The intentions were clear at the time, so we shouldn’t be surprised that some (or many) of these measures will be reversed.

The sting in the tail of course will be that if, or when, we do see recovery in asset values in this country, we are unlikely to be in a position to access reliefs to the same degree again. While the 4-year plan doesn’t go into  detail, we can probably assume that the report of the Commission on Taxation, relegated to the bin shortly after publication, has been dusted off and will provide the inspiration for reforms. Taking that in account means that family businesses, including farming families, will pay a higher price when those assets are transferred. To put this in context, a family business worth €6m, which is gifted to three children could move from a minimum tax cost today of €60,000 to €810,000. The plan itself seems to suggest that reforms will take place in 2012, but we can certainly assume that the tax-free thresholds will suffer a further decrease in January when adjusted for inflation (or rather, deflation.)

CGT

Charlie McCreevy reduced the capital gains tax rate to 20%, but did remove many of the reliefs available, really leaving the business related relief intact. This too will suffer, most likely with the imposition of a value cap on the benefit that can be derived from it. Many asset disposals in the coming years will be the subject of capital losses, rather than gains, and so it may be some time before changes in this area start to bite, although changes may be harsh depending on the levels at which differing rates of tax will apply.

Stamp Duty

Finally, to stamp duty, really the most regressive of them all, penalizing families trading-up or trading down in many circumstances. The reality is that the government rode the boom on this one, with stamp duties contributing €3bn to the economy in 2006 and 2007. Calls for reductions or abolition widely ignored, the government really did pander to (and continues to) the construction industry by ensuring that newly-constructed homes benefited from exemptions or reliefs to a far greater degree than second-hand, assisting the release of VAT into the system at the same time. Now everything is frozen, no stamp duty, no windfalls of VAT. There is no commitment to abolish this duty, rather a commitment to abolish the reliefs and exemptions that are currently available.

Is this government really, seriously, going to try to increase effective rates of stamp duty on significantly reduced levels of transactions? Stamp duty receipts in 2010 are 5% of what they were in 2007. Is there any understanding of the impact of this? Although maybe, just maybe, there is a shining light somewhere and the government is waiting to publish some good news in the upcoming budget.

It would appear that there may still be some time left to plan around some of these provisions. The only thing that’s certain is that we won’t know the full impact of changes for 2011 until December 7^th.

For further commentary on the National Recovery Plan, see our website