Budget 2013 - Capital Taxes

As you know, Budget 2013 took place on December 6^th 2012. In light of the upcoming Finance Act we continue our coverage on the main changes that took place. 

In line with previous Budgets, there were further changes in relation to capital taxes, which will have a significant impact on estate and succession planning. The headline changes were:

 

• Increase in the Capital Acquisitions Tax (CAT) and Capital Gains Tax (CGT) rates to 33% from 30%. These changes were effective from 6^th December 2012.  

• A reduction in the CAT tax free thresholds by 10%. This change was also effective from 6^th December 2012. The Group A threshold is now €225,000, the Group B threshold is €30,150 and the Group C threshold is €15,075.  

• An increase in the rate of DIRT and exit tax from life assurance and investment fund products to 33% and 36%. This applied from 1^st January 2013.  

It is worth remembering that around four years ago the Group A threshold was around €520,000 and the CAT rate was 20%. To illustrate the changes, using a simple example, if a child inherited an asset worth €600,000 in 2008, there would have been a CAT liability of around €16,000.  Under the new regime with the same facts, the CAT liability would be around €123,000.

There does not appear to be a change to the tax rate applicable on the transfer from an ARF to a child over 21. The 2012 Budget changed the applicable rate to match the CAT rate.  That may change in the Finance Act later this year.

Another change which may be of interest is contained in the summary of Budget measures which provides for a roll-over relief for agricultural property on disposal of farmland where the proceeds are re-invested in farmland to enable farm restructuring. This measure is subject to EU approval.

It was noticeable that there were no announcements restricting capital tax reliefs. It is to be hoped that the lack of mention means they will be left as is. However, it is possible that restrictions will be introduced in the Finance Act early this year. So, if there is any chance of you or a client undertaking the sale or transfer of a business or business asset in the near future, you should take advice to see if any potential changes in the upcoming Finance Act might affect your ability to rely on these valuable tax reliefs.    

Barry Kennelly
Associate Director
ITC Consulting