There is, unfortunately, speculation that the
forthcoming Budget will introduce yet another round of increases in the rates
of capital taxes. Not content with a 65%
increase in rates from 20% to 33% since 2008, there is a fear that there will
be both a further increase in the rates of Capital Acquisitions Tax (CAT) and Capital
Gains Tax (CGT), a further reduction in the thresholds and the restriction of
the remaining reliefs.
The CAT Rate
For a number of years up to 2008, CAT was charged at
20%. In the last Budget it was increased
to 33% from 30%. Will it rise
again? Some commentators fear it will,
particularly as the rate is still lower than UK inheritance tax at 40% and the
rates in other EU jurisdictions.
The
CAT Thresholds
To many, a more important factor than the actual rates
is the threshold at which CAT starts to bite.
In 2008 the parent-child Group A threshold was around €520,000 and the
CAT rate was 20%. Now the Group A threshold
is €225,000.
So, not only is the rate higher, but it kicks in much
earlier and so many more people are caught within its net. Take the example of a child inheriting
€600,000 in 2008 – the tax charge would have been around €16,000. Now, the tax take would be about €123,000!
It could unfortunately get worse.
The
CGT Rate
As with CAT, up to 2008, for a number of years, the
principal CGT rate was 20% and now it is up to 33%. Will it rise again?
Although it is currently not a huge concern for the
majority of people, there is recognition that excessively high CGT rates could prove
a disincentive to people to sell assets. There is, therefore, a possibility
that the rates of CAT and CGT may differ in the future.
There is also a possibility that there could be tiered
rates of CGT (and indeed CAT), e.g. CGT rates could be linked to different
periods of ownership or level of gains. There
could, for example, also be a new lower CGT rate on the sale of business assets,
which would be something to be welcomed. The National Recovery Plan of 2010
suggested some of these changes.
The Reliefs
A
further possible change is the restriction of the current CAT and CGT
reliefs. The Commission on Taxation in 2010
suggested restrictions on the reliefs available on transfers of family
businesses. These have only been partially introduced, so perhaps they will be
implemented more fully, which would further penalise the transfer of businesses
to family members. The National Recovery
Plan also suggested a restriction of capital tax reliefs. There is, therefore,
a distinct possibility that further changes could be on the way.
If there is any chance that you or any of your clients
are in the process of transferring a business or business asset in the near
future, it would be worth doing so before the Budget. For more information contact Barry Kennelly on barry.kennelly@independent-trustee.com.
Director, ITC Consulting
