There wasn’t much announced on Budget Day concerning changes to capital taxes. The Minister announced that there would be a new capital gains tax relief for Irish entrepreneurs, and confirmed the anticipated increase in the capital acquisition tax threshold for gifts and inheritances from parents to their children. Finance Bill 2015 (“the Bill”), published just over a week later confirmed the capital taxes measures announced by the Minister, the Bill also contains many more provisions not previously announced.

In this article I will focus on the main capital taxes measures in the Bill.

Capital Gains Tax

Entrepreneur Relief

The Bill introduces a new capital gains tax measure to incentivise individuals to engage in entrepreneurial activity. A new section, section 597AA, will be inserted into the TCA 1997 and provides for a new capital gains tax relief. On the face of it the measures are a positive step in encouraging Irish entrepreneurs, however, practically the relief will be of limited benefit; this is because the conditions as proposed in the Bill are too restrictive for many entrepreneurs.

The relief provides for a reduced rate of capital gains tax of 20% on the disposal of chargeable business assets made by an individual on or after 1 January 2016, up to a lifetime limit of €1 million. Where the disposal proceeds exceed €1 million the normal rate of capital gains tax will apply to the excess above €1m million. Some of the main conditions of the relief are:

• The chargeable business assets must have been owned by the individual for a minimum period of three years immediately prior to the disposal.
• Where the business is carried on by a private company a least 15 per cent of the ordinary share capital of the company being disposed of must be held by the individual.
• Where the disposal is of shares in a company, the individual must be a full-time working director of the company in a managerial or technical capacity for a minimum period of three years.
• Where the disposal is of shares in a holding company, the business of the holding company must wholly be the holding of 100% of the shares in a subsidiary trading company.

The relief does not apply to share options and other share interests, or to the letting of land or buildings or to a business consisting of holding investments. It is hoped that a number of the conditions relating to the relief will be relaxed in the upcoming stages of the Bill.

The existing Entrepreneurs Relief in section 597A TCA 1997 which was originally introduced in Finance (No 2) Act 2013 will cease to apply to disposals made on or after 1 January 2016.

Clearance certificates

Section 980 TCA 1997 places an obligation on a purchaser of certain specified assets to withhold 15 per cent of the consideration from the vendor and pay same to Revenue. The requirement to withhold tax does not apply where:

• The consideration for the purchase is €500,000 or less;
• The asset is not a specified asset as defined in the section; or
• The vendor produced a tax clearance certificate from Revenue – Form CG50A

The most common assets on which a need to withhold tax arises in practice are land and buildings situated in the State.

The Bill proposes to increase the threshold from €500,000 to €1 million in the case of houses or apartments. Subject to enactment, this increase will apply to disposals of such property made on or after 1 January 2016. The existing threshold of €500,000 will continue to apply to disposals of houses or apartments made on or before 31 December 2015. The €500,000 threshold also continues to apply to disposals of all other specified assets subject to withholding tax. It is understood that the increase in the limit is as a result of the volume of certificates relating to housing being requested in the Dublin region.

Non-residents

In general, non-Irish tax resident individuals are subject to Irish capital gains tax on the disposal of specified assets as defined in section 29 TCA 1997. Specified assets includes unquoted shares deriving their value or the greater part of their value directly or indirectly from land or buildings, or mineral rights, in Ireland.

An amendment to section 29 is proposed to deal with possible abuse of the law whereby cash is transferred to a company prior to a disposal of shares in that company so that at the time when the shares are disposed of, the value of those shares is derived mainly from cash rather than land or buildings situated in Ireland. By altering the asset mix of the company from being a company that derived the main part of its value from Irish specified assets to a company deriving the main part of its value from cash the non-resident vendors avoided Irish capital gains tax on the disposal.

Transfer of assets abroad

The transfer of assets abroad provisions in section 590 TCA 1997 prevents persons avoiding capital gains tax by transferring assets to controlled companies abroad. Revenue can look through the non-resident company to assess Irish resident participators to capital gains tax on their proportionate share of the gains made by the company.

The proposed amendment addresses concerns about the compatibility of the provisions with EU law. Where it is shown to the satisfaction of Revenue that the disposal was made for bona fide commercial reasons and did not form part of an arrangement of which the main purpose or one of the main purposes was the avoidance of liability to capital gains tax or corporation tax the provisions will not apply and the capital gain will escape Irish capital gains tax.

Reconstruction relief

Relief from CGT is available under section 615 TCA 1997 for any scheme of reconstruction or amalgamation involving the transfer of the whole or part of a company’s business to another company.

The amendment in the Bill counters arrangements where the relief is used as part of a scheme to avoid capital gains tax on the ultimate disposal of assets in respect of which relief had been granted. The amendment applies to disposals made on or after 22 October – being the date of the publication of the Bill.

The proposed amendment follows Revenue’s existing guidance notes on section 615 reconstructions (which have been revised in e-Brief No. 82/15). Revenue eBrief No. 82/15 states:

• It has come to the attention of Revenue that section 615, Taxes Consolidation Act (TCA) 1997, which provides relief from Capital Gains Tax (CGT) on a transfer of assets under a scheme of reconstruction or amalgamation of companies, is being used, in conjunction with the use of section 617 TCA 1997, which provides relief from CGT on a transfer of assets within a group, as part of a scheme to avoid CGT liabilities on the ultimate disposal of those assets.
• Cases, in which section 615 is used as part of a scheme to avoid CGT, may be challenged under section 811 or section 811C TCA 1997, as appropriate, where CGT cannot be imposed under normal CGT rules on the “true” consideration paid on the ultimate disposal of the assets.
• Revenue’s views on this avoidance scheme are set out in Section 2.8 of Part 20.01.02 of the Income Tax, Capital Gains Tax, Corporation Tax Manual on the Revenue website.

Capital Acquisitions Tax

Tax-free threshold

For the purpose of capital acquisitions tax, the relationship between the person who provided the gift or inheritance and the person who received the gift or inheritance, determines the maximum tax-free threshold – known as the “group threshold”. The only amendment to the capital acquisitions tax legislation is to give effect to the proposal announced in the Budget statement to increase the Group A threshold from €225,000 to €280,000. The Group A threshold applies to gifts or inheritances between a parent and a child and also between a child of a predeceased child and their grandparent. The amendment applies to gifts and inheritances taken on or after 14 October 2015 – the date of Budget 2016.

Although this is an increase of nearly a 25 per cent, the Group A threshold was €542,544 in 2009 and with property prices recovering, particularly in Dublin, the capital acquisitions tax on inheritances of the family home will still be burdensome for many families.

Stamp Duty

There are few amendments to the stamp duty legislation; the main proposed changes concern stamp duty relief for young trained farmers, and the stamp duty charge on debit and credit cards.

Young trained farmer

The relief from stamp duty on the sale or gift of agricultural land (including farm houses and buildings) to young trained farmers is extended for a further three years until 31 December 2018. The list of qualifications for the purpose of qualifying as a young trained farmer for the relief is extended to include the new qualification – the Bachelor of Science (Honours) in Agriculture, awarded by the Dundalk Institute of Technology.

Next stages

Finance Bill 2015 is expected to move to Committee Stage in the Dáil on 17 November and then to Report Stage the following week. We can expect the Bill to be enacted into law before the end of the year.

Mark Doyle is director of Doyle Tax Consultants and is chairman of the TALC Capital subcommittee for 2015. He is the author of Capital Gains Tax: A Practitioners Guide.

Email: mark@doyletaxconsultants.ie

Tele: +353 (0)1 4428715

Website: www.doyletaxconsultants.ie