Key Takeaways from the Tax Strategy Group Paper 2022 on Capital & Savings Taxes and Stamp Duty

The Tax Strategy Group Papers were recently issued by the Department of Finance in advance of Budget Day 2023 which has been brought forward this year to 27 September 2022.

While a possible third rate of income tax of 30% garnered a lot of attention when the Tax Strategy Group published its paper on income tax the following points from the Capital & Savings Taxes & Stamp Duty Paper which can be found here piqued my interest:

Capital Acquisitions Tax

• The CAT tax take increased by 16% between 2020 and 2021 from €502M to €582M

• €481M of the €582M or 83% was inheritance tax. The balance was split between gift tax of €95M and discretionary trust tax of €6M

• The report points out that Ireland is the only OECD country to tax a “lifetime” accumulation of wealth. The report notes that while this approach may be attractive from an equity perspective it must be balanced against the administrative and compliance complexities which increase as a consequence. This is borne out in the figures above where the inheritance tax take accounts for the vast majority of the tax. This isn’t surprising where the probate and administration of estates process which arises on a death is one that can’t be avoided in the vast majority of cases and shines a light on inheritances received when gifts are generally subject to less third party scrutiny.

• A change to the aggregation rules so that a rolling “look back” period may apply (as opposed to a 31 year look back period which the regime currently involves) is considered as is enhanced filing obligations which would look to lessen the 80% threshold test that currently generally applies.

Capital Gains Tax

• The CGT tax take increased by over 73% between 2020 and 2021 from €950 to €1,635M. These numbers clearly show the shackles of Covid being shaken off. The provisional yield figure for 2022 of €1,935M is further evidence of this trend.

• Revised entrepreneur relief is looked at again. Changes suggested by the Department of Enterprise Trade and Employment to amend the current “lifetime” threshold of €1M to a “per venture” one is mentioned as is the idea of loosening the rules so that the relief could be availed of by angel investors.

• While the report acknowledges that the rate of capital gains taxes may be a reason that businesses could forum shop and locate in other more low cost tax jurisdictions as something which must be borne in mind in virtually the same breath the report refers to a possible increased rate of CGT for high income individuals which is quite the juxtaposition. The report notes that such a change would result in a different CGT rate for an individual and a corporate which is something which could drive tax arbitrage in the future.

Stamp Duty

• The stamp duty yield of €1.5B in 2021 accounted for 2.2% of the State’s total tax take.

• Almost 50% of the stamp duty tax was attributable to property with 2/3rds of this amount relating to commercial property and 1/3^rd to residential property.

• Almost all (93%) of the stamp duty monies refunded under the residential development refund scheme was in relation to the construction of one off houses. This is somewhat surprising given that when the relief was introduced it was intended to act as an incentive to developers to sooth the impact of the increase of the commercial stamp duty rate to 7.5%.

• Finance Act 2020 introduced changes to share cancellation schemes to halt such stamp duty saving measures. It now seems as if the share buyback route is going to go the same way with a firm indication in the Tax Strategy Group paper that this “discrepancy” is currently being examined by the Department of Finance and will be addressed in Budget 2023. Anyone with a share buyback in the pipeline should take note as stamp duty changes tend to come into force and have effect from midnight on Budget Day which is just around the corner.