The Tax Strategy Group has outlined potential new rates of agricultural and business relief under the Capital Acquisitions Tax (CAT).
The TSG has meet annually since the early 1990s in advance of the national budget each year, to outline options for potential changes to the country’s tax regime.
This year’s meeting took place earlier this month in advance of Budget 2024 later in the year.
The TSG, which comprises civil servants and policy advisors from across the government departments, does not make decisions on the budget. Instead, it presents a range of papers which the Minister for Finance may take into account when preparing the national budget.
Before last year’s budget – Budget 2023 – a separate body, the Commission on Taxation and Welfare (COTW), which was established in 2021 to review how best the taxation and welfare system can support economic activity, recommended reducing agricultural relief for CAT.
The COTW also recommended that the threshold of property value below which CAT is not applied for parent-to-child transfers be “substantially reduced”.
Although these changes were not incorporated into Budget 2023, their inclusion in a future budget remains possible.
In one of its papers published this week, the TSG outlined the potential tax yield of reducing the agricultural relief for CAT.
At present, the agricultural relief operates by reducing (for CAT purposes only) the market value of qualifying agricultural property by 90% and applying CAT to the remainder, subject to certain conditions.
The TSG paper outlines the potential annual tax yield by decreasing the property value reduction in increments of 10%, down to 50%, as follows:
- 80% reduction – €9 million tax yield;
- 70% reduction – €24 million tax yield;
- 60% reduction – €42 million tax yield;
- 50% reduction – €64 million tax yield;
The paper also outlines potential new thresholds for applying the CAT.
At present, the tax has three thresholds of property value, below which the tax is not applied, as follows:
- Group A (Where the beneficiary is a child of the disponer, or the minor child of a deceased child of the disponer) – CAT applied on property valued above €335,000;
- Group B (Where the beneficiary is a brother, sister, niece, nephew, lineal descendant, or lineal ancestor of the disponer) – CAT applied on property valued above €32,500;
- Group C (Any cases not covered by groups A or B) – CAT applied on property valued above €16,250.
Most farm transfers take place under Group A. The threshold for that group is also significantly greater than the other two groups, meaning these types of property transfers see the state forgo significant taxation, and hence why the COTW last year recommended substantially reducing this threshold.
In the TSG paper published this week, a number of potential new thresholds for Group A – lower than the current figure of €335,000 – and the expected annual tax yield, were outlined as follows:
- €330,000 threshold – €5 million;
- €310,000 threshold – €27 million;
- €280,000 threshold – €59 million;
- €250,000 threshold – €91 million.
CAT and solar
The TSG paper went on to outline that the Department of Finance has received representations from stakeholders calling for the removal of a key condition on transferring land leased for solar.
The Finance Act 2017 extended CAT agricultural relief to include agricultural land which was leased for solar panels, provided that the total area of land under lease and on which solar panels are installed does not exceed 50% of the total area of the agricultural land holding to be transferred.
The TSG said that this condition exists due to the “fundamental principle” underpinning Ireland’s policy on agricultural relief, namely the intergenerational transfer of family farms.
Stakeholders had called on the Department of Finance to remove that 50% condition.
The TSG paper said that, while it was recognised that allowing land leased for solar panels to be classed as qualifying agricultural property is a factor which may encourage solar energy projects, it must be considered in the wider policy context.
Last year, the COTW made recommendations on this condition for land leased for solar.
The TSG this week said that relaxing the 50% requirement would not be consistent with those recommendations as it would diminish the overarching policy objective of the relief which aims to encourage the intergenerational transfer of agricultural land which is being actively farmed.