With no enhancements to entrepreneur relief and a very modest increase in the Group A tax-free threshold for Capital Acquisitions Tax, capital taxes were largely untouched in the Budget 2020 announcements.
Capital Acquisitions Tax (‘CAT’) – threshold uplift
As expected, the CAT Group A tax-free threshold (which applies primarily to gifts and inheritances from parents to their children) increased by €15,000 from €320,000 to €335,000 and applies to gifts or inheritances received on or after 9 October. This move is expected to cost the Exchequer €9.6 million in 2020. This is the second consecutive Budget increase in the Group A threshold, which was increased by €10,000 to €320,000 in Budget 2019.
The Group B threshold of €32,500 and the Group C threshold of €16,250 remain unchanged.
Capital Gains Tax (‘CGT’) – entrepreneur relief
Following Indecon’s external review of entrepreneur relief (p. 139 et seq.), the Minister announced that there will be no changes to the relief at this time. However, the Department of Finance has been tasked with considering the findings of the Indecon review to determine “any changes that could be made to the relief to better support entrepreneurs and entrepreneurial activity”.
Key points/recommendations arising from Indecon’s review are:
- the policy objectives of the relief remain valid;
- while the level of CGT is much less favourable in Ireland than in many other countries, the relief did not have a significant impact on the initial investment decision;
- the relief has influenced the timing of asset disposals and has mainly benefited non-internationally traded businesses; and
- a range of options are available for changes to the lifetime limit.
Although the UK has tightened up on its entrepreneurs’ relief in recent Finance Acts, it continues to provide a 10 percent rate of CGT on qualifying business disposals within a lifetime limit of £10 million. Ireland’s regime continues to provide a €1 million lifetime limit with a 10 percent CGT rate on qualifying gains.
In its pre-Budget submission, the Consultative Committee of Accountancy Bodies – Ireland recommended that the lifetime limit be increased to €10 million to “encourage a strong competitive environment to attract and retain scaling SMEs”. However, Indecon’s review argues that simply increasing the lifetime limit to €10 million (one of a number of options it sets out on p. 151) would not only result in a cost to the Irish Exchequer but is unlikely to be cost effective as it would have a minimal impact on reinvestment.
Is this a sign that any future increase in the lifetime limit will come with conditions?
Capital gains tax – extension of farm restructuring relief
Under the banner of “supporting Irish business”, the Minister has announced that farm restructuring relief, introduced in Budget 2013, is being extended to the end of 2022, with no change being made to the conditions for the relief. The decision to extend the relief follows on from a review of the relief earlier this year but is subject to EU State Aid approval.
The cost of extending this relief has not been set out separately. However, this relief, in conjunction with other measures to support enterprise, SMEs and the agri-sector, is expected to cost €30 million in 2020.
Farm restructuring relief is contained in section 604B of the Taxes Consolidation Act 1997 and was due to end on 31 December 2019.
The purpose of farm restructuring is to improve the operation and viability of farms by allowing sales and purchases or exchanges of parcels of land to bring them closer together. A ‘parcel of land’ is an entire agricultural field or group of fields used for farming purposes.
The relief provides:
- full relief from CGT when the purchase price exceeds the sale price;
- partial relief from CGT when the purchase price is lower than the sale price (relief is given in proportion to the amount of the sale proceeds reinvested in purchasing a new parcel of farmland).