Alan Shatter's campaign to abolish Inheritance Tax

Status
Not open for further replies.
If the business is not generating this level of profits, then it's not worth €2.335m and the valuation and level of CAT would reflect that.

I agree that farming is very different. A farm worth €2.335m is not generating enough profit to pay the CAT. But if the farmer subsequently sells the farm, then they pay the deferred CAT.
 
Brendan Burgess said:
If the business is valued at €2.335m as in my example, it should be generating profits of around €200k a year before tax. And profits are what is made after paying the directors salaries for feeding their children. If it's not generating that level of profit, it will not be valued at €2.335m
Click to expand...

Those are not realistic figures for a farm, 2.3 million generating 200k profit after you have already deducted salaries etc.

Land is now going say 15k per Acre+ for good land.
You don't just need land to farm, you need expensive machinery, stock, buildings, etc.
Say you have 400k of the 2.3 tied up in this.
That leaves 1.9 million.
1.9 million / 15k acre = 126 acers.

Before tax profit of 200k + 60k for wages (including stamp etc) = 260k for 126 to generate.

260k/126 acers = each acre generating approx 2k profit before tax/salary.

The following link gives a breakdown of what land is actually making farmers farming it per acre in 2022 which as outlined in the link was a bumper year for farm incomes
Teagsc farm incone

Agricultural land value in Ireland is probably better understood by looking at The Field than a ledger.
 
T McGibney said:
And they generate almost nothing material to government coffers.
Click to expand...

But that is because of the huge exemptions. If we reduce the value of business and farming assets by 90%, then of course there will be very little tax generated.

If we abolish capital gains on death, then there will be very little Capital Gains Tax.

But if we get rid of these nonsense exemptions, then we would generate some material capital taxes.

Brendan
 
Dr Strangelove said:
You’re just proving the point that these businesses are less profitable therefore less productive.
Click to expand...

The question is less profitable and productive than whom?
Family businesses generally have less invested capital per employee than multinationals and public companies in general.
Maybe they are less profitable and productive per employee because of that.
Or maybe the money they generate is more equably distributed amongst their workforce than capital intensive multinationals.

Either way if there is a large inheritance tax liability the value of the business will be reduced and so the ability of the business to raise capital will be reduced accordingly, making it even harder to stay open and profitable.
 
Dr Strangelove said:
You’re just proving the point that these businesses are less profitable therefore less productive. The favourable CAT treatment keeps them hanging on a decade or so more than they would otherwise.

This is not a long-run good! Look up “creative destruction”.
Click to expand...

In this scenario of mass farm failure wouldn't all the land end up owned and controlled by a small group of large (potentially foreign) companies with a rural landless class working land they don't own?

That seems like something from the 19th century and not something to aspire to.
 
bill_cash said:
In this scenario of mass farm failure wouldn't all the land end up owned and controlled by a small group of large (potentially foreign) companies with a rural landless class working land they don't own?

That seems like something from the 19th century and not something to aspire to.
Click to expand...
Exactly.
 
Brendan Burgess said:
But that is because of the huge exemptions. If we reduce the value of business and farming assets by 90%, then of course there will be very little tax generated.

If we abolish capital gains on death, then there will be very little Capital Gains Tax.

But if we get rid of these nonsense exemptions, then we would generate some material capital taxes.

Brendan
Click to expand...
Even if capital tax receipts doubled, they'd amount to little more than a rounding error in exchequer receipts.

Is it really worth destroying family farm and business livelihoods for that?
 
Last edited:
bill_cash said:
In this scenario of mass farm failure
Click to expand...

Just to be clear. I am not proposing anything which would result in farm failure.

I appreciate the difference between an ordinary business and farming.

The CAT would not be paid unless and until the farm is sold.

But the fact that someone can inherit a farm worth over €2m , pay no CAT on it, and then sell it after 6 years is just plain wrong when nurses are paying 52% on their overtime earnings.
 
There are a couple of things at play here. As a society, I think we do want to help indigenous family farms and businesses to be maintained under family ownership. We also want to support farming more generally.

That’s the purpose/aim of the relief(s) in question. I think you’re looking at this the wrong way around, Brendan. Instead of looking at whether to bring the inheritance of a business or farm closer to an ‘ordinary’ inheritance in terms of tax treatment, we should be looking at making the existing regime more generous. We should also look at what other jurisdictions do.

I’m happy enough with the 90% reductions in value given to businesses and farms. I think the Group A threshold for inheritances should be somewhere in the €500k to €1m range, that gifts should be exempted entirely, or be subject to a much higher annual limit than €3,000, and that the tax rates for CAT and CGT should be 20%.
 
Yes, you are wrong.

The CAT would not be due on the family farm until it was sold so that will not impact the cash flow or profitability.

If the business is worth €2.35m then it should be generating profits enough to pay the the CAT over, maybe 10 years.
If it's not generating €200k a year in profit, it's not worth €2.35m
Or if it's not generating €200k profit but is worth €2.35m that is because it is heavily asset based and not generating a return on assets in which case it's inefficient keeping it alive. Let someone else use those assets.

Brendan
 
Gordon Gekko said:
we should be looking at making the existing regime more generous.
Click to expand...

That is really a question of public policy where we would differ.

I think passing on wealth free of taxes is simply not fair when marginal income is taxed at 52%.

People inheriting businesses worth millions of euro should be paying CAT.
People inheriting farms worth millions of euro should be paying CAT if they sell those farms.

Brendan
 
I'm slightly too young to have ever seen it in practice, but is what Brendan's proposing akin to rollover relief, or could be fixed through the CGT system i.e. rather than imposing CAT at point of receipt, you would adjust the CGT base cost for assets that had been the subject of the valuable CAT reliefs... that way, if / when the farm / business is sold a tax charge crystallizes.

Before anyone jumps on me, I'm not endorsing it, just trying to figure out how it could actually be implemented!
 
Brendan Burgess said:
That is really a question of public policy where we would differ.

I think passing on wealth free of taxes is simply not fair when marginal income is taxed at 52%.

People inheriting businesses worth millions of euro should be paying CAT.
People inheriting farms worth millions of euro should be paying CAT if they sell those farms.

Brendan
Click to expand...
A family business could be worth a lot because of the land value of the premises. The business may not make that big a profit. If a big CAT liability is levied the chance of the next generation just closing the business will be increased. Many family businesses require significant restructuring and modernisation by the next generation. Taking a big lump of capital out of the business just when it's needed the most is not a good idea.
 
torblednam said:
I'm slightly too young to have ever seen it in practice, but is what Brendan's proposing akin to rollover relief, or could be fixed through the CGT system i.e. rather than imposing CAT at point of receipt, you would adjust the CGT base cost for assets that had been the subject of the valuable CAT reliefs... that way, if / when the farm / business is sold a tax charge crystallizes.
Click to expand...

Doesn't the median Irish field get sold every 300-400 years or so?

Most Irish family businesses are never sold either. They either are taken on by a family member or just close down.

Your suggestion would cripple future sales of farmland and going-concern businesses. Boomtime for liquidators.
 
T McGibney said:
Doesn't the median Irish field get sold every 300-400 years or so?

Most Irish family businesses are never sold either. They either are taken on by a family member or just close down.

Your suggestion would cripple future sales of farmland and going-concern businesses. Boomtime for liquidators.
Click to expand...

It's not my suggestion, it's Brendan's ;)
 
There's been a significant change in the last 10-20 years or so with people now buying up farmland with little worry about the underlying profitability of those farms. They see as a bit of status, secure, tax advantaged - the annual income isn't important as they already have high incomes. The tax advantages of farm inheritance isn't stopping those farms being sold - it's making them more attractive to buy.

Most high profile farm purchaser (but far from the only example) https://www.irishtimes.com/podcasts...are-angry-about-a-billionaire-buying-up-land/.
 
Status
Not open for further replies.
Back
Top