Pre-Budget submission: restrict or abolish Business and Agricultural Relief from CAT

Brendan Burgess

Brendan Burgess

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This is the submission I made earlier this year to the Commission on Tax and Social Welfare

Suggestion 6 Business Relief and Agricultural Relief from CAT should be restricted or abolished

The current system allows a person inheriting a business worth €3m to pay no CAT in most circumstances. While safeguards are needed to make sure that CAT liabilities do not result in the sale of the family farm or break-up of a business, exempting the beneficiary from CAT is not the fairest way to do this.
 
The ESRI did more analysis of the impact of this:


5.5 CAPITAL ACQUISITIONS TAX (CAT) BUSINESS AND AGRICULTURAL RELIEF

In addition to annual and lifetime CAT-free allowances, individuals who inherit or receive a gift of certain business or agricultural assets can avail of Business or Agricultural CAT Relief.32 This reduces the taxable value of eligible assets by 90 per cent, which – combined with the lifetime allowance of €335,000 – means that a business or farm worth up to €3.35 million can be gifted or bequeathed by a parent to a child without giving rise to any CAT liability. Similarly, a business or farm worth up to €10.05 million can be gifted or bequeathed entirely CAT-free by a parent of three children to those children if given in equal shares.

The stated rationale for these reliefs is – as with CGT retirement relief – to support the growth of and succession within small family farms and businesses (Department of Finance, 2018, 2014). However, Revenue statistics show that in 2019 there were 648 claims for Business Relief at a cost of €200.4 million and 1,413 claims for Agricultural Relief at a cost of €158.6 million: an average cost per claim of €309,259 and €112,243 respectively. This suggests that the primary beneficiaries – of Business Relief in particular – are not those inheriting or being gifted small family farms or businesses, but far more substantial ones. Furthermore, given that there is strong evidence that inherited family-owned and -run firms are, on average, very poorly managed (Bloom and van Reenan, 2010), the goal of supporting the growth of and succession within family businesses should be weighed against the wider economic costs of discouraging the disposal of business assets to third parties.

Citing excess generosity to those inheriting larger farms and businesses, the Commission on Taxation (2009) recommended reducing the rate of both reliefs to no more than 75 per cent, with a cap of €3 million on eligible assets. While no costing is available for what capping the relief would raise, Revenue (2020) estimate that almost €60 million would be raised by reducing both reliefs to 70 per cent and €135 million by reducing both to 50 per cent.
 
From the Tax Strategy Paper



R E D U C E A G R I C U L T U R A L A N D B U S I N E S S P R O P E R T Y R E L I E F

Reducing the scale of Agricultural or Business relief would increase the yield from CAT. Reducing Agricultural relief from 90% to 80%, for example, would result in an estimated additional yield of €9 million for the full year. The estimated impact of reducing Business relief from 90% to 80% is an additional yield of €11 million for the full year.

However, such changes could have a negative impact on the development and growth of family businesses. In relation to Agriculture Relief, the 2014 Agri-Taxation Review recommended retaining this relief as a vital measure to ensure the ongoing viability of farming businesses that pass from one generation to another. Table 11 below provides further detail on the estimated yield which would result from reducing the scale of relief available.

Another perspective provided by the ESRI2 suggests that the primary beneficiaries – of Business Relief in particular – are not those inheriting or being gifted small family farms or businesses, but far more substantial ones. They argue furthermore that given that there is strong evidence that inherited family-owned and family-run firms are, on average, very poorly managed (Bloom and van Reenan, 2010), the goal of supporting the growth of and succession within family businesses should be weighed against the wider economic costs of discouraging the disposal of business assets to third parties.

The Commission on Taxation (2009) concluded that there is a case on social grounds to support the transfer of smaller businesses and farms to a new generation. However, the same argument does not apply in the case of larger businesses and farms. To address this, the Commission recommended reducing the rate of both reliefs to no more than 75%, with the reduction being subject to an overall monetary limit of €3 million.
 
Brendan,

Does Eoin O’Broin have you tied up in your house and is he using your laptop?

You’ve become very left wing in your thinking.

“People who get up early in the morning” fund this little island.

We need more policies to support them, not Sinn Fein/IRA populism.
 
Gordon Gekko said:
Does Eoin O’Broin have you tied up in your house and is he using your laptop?
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Hi Gordon

:)

Oddly enough a lot of people who disagree with my ideas call me names like "Shinner" or "Thatcherite".

I try to look at issues and see what the fair and practical solution is - and don't care if I am branded as a left wing or right wing.

There is absolutely no reason why someone inheriting a business worth €3m should not pay any CAT while someone getting a gift of €50k would pay €10k CAT. That is true whether Eoin O'Broin agrees with it or not.

Brendan
 
Brendan Burgess said:
Hi Gordon

:)

Oddly enough a lot of people who disagree with my ideas call me names like "Shinner" or "Thatcherite".

I try to look at issues and see what the fair and practical solution is - and don't care if I am branded as a left wing or right wing.

There is absolutely no reason why someone inheriting a business worth €3m should not pay any CAT while someone getting a gift of €50k would pay €10k CAT. That is true whether Eoin O'Broin agrees with it or not.

Brendan
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The logic is straightforward enough. Businesses are the backbone of the country and the State is trying to support those businesses remaining within families and to avoid shares in the businesses being forceably sold to pay a tax bill.

This country stands on the cusp of being wrecked by Sinn Fein/IRA. These people are a ragtag bunch of opportunists, criminals, and murderers. They will set-out to destroy our economy. They’re our version of Trump or the Tories, and they’re already starting with wanting to abolish the Special Assignee Relief Programme. An incentive for highly skilled highly paid people who could go anywhere to relocate to Ireland. “It costs us €45m a year.” No it doesn’t.

The job of sensible commentators is to lampoon these eejits and to mobilise sensible people against them.
 
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Brendan Burgess said:
No need at all to sell them.
Charge the CAT and if they can't pay it, defer it.

Brendan
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Until when?

The policy is there to support Burgess & Co to continue to create employment and to be inherited by BB Jr and BB III after that…for it to remain a family business rather than having the family forced to sell a portion of it to some randomer like me or a private equity outfit.

The legitimate thinking is that “wealth” is one thing, e.g. cars, properties, investment accounts, cash, whereas an actual trading business or farm is an enormously valuable part of the economy and indeed society. People work there, people transact with it on all sides. It should be treated differently to a lump of gold.

Plus, the preferential tax treatment incentivises people to put money into trading businesses.
 
Very few people say "I will set up a business so that I can pass it on tax-free to my children".

Having set one up, that is what they want to do.

Most people inheriting business and farming assets inherit other assets as well with which they could pay.

But give them 3 years to pay and charge 3% interest after that.

What are the restrictions at the moment?

If I inherit a €3m business , I pay no CAT. Can I sell it immediately or do I have to keep it for 6 years to avoid clawback?

Brendan
 
Brendan Burgess said:
Very few people say "I will set up a business so that I can pass it on tax-free to my children".

Having set one up, that is what they want to do.

Most people inheriting business and farming assets inherit other assets as well with which they could pay.

But give them 3 years to pay and charge 3% interest after that.

What are the restrictions at the moment?

If I inherit a €3m business , I pay no CAT. Can I sell it immediately or do I have to keep it for 6 years to avoid clawback?

Brendan
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No, but they can invest in the child’s business (for example).

You have to keep it or sell and reinvest it in another business (from memory).

This is all very left wing idealogy.

It’s as if every relief or exemption is under threat.
 
Just checked it out here.

Circumstances in which relief can be withdrawn

This page explains the circumstances in which relief from CAT can be withdrawn
www.revenue.ie www.revenue.ie

Relief on your relevant business property can be fully or partially withdrawn if:
  • the business ceases to trade within six years of the date of the gift or inheritance
  • the relevant business property is sold, redeemed or compulsorily acquired within six years of the date of the gift or inheritance. If this property is replaced within one year, the relief will not be withdrawn.
So Daddy can leave me a business valued at €3m. I can sell it after 6 years for €3m and pay no CAT whatsoever.

It's completely inequitable.

Even if you amended it so that an additional CAT threshold of €200k would apply.
So I get a €3m gift.
Group A: €335k
Business Relief: €200k
Subject to CAT: €2.5m

Brendan
 
Inequitable relative to what?

A business is a positive for society.

A piece of gold, for example, isn’t.
 
That I should pay no CAT on an inheritance of €3m and you should pay CAT on an inheritance of €50k.

The business is not wound up. That really has nothing to do with it.

Your shares in CRH are a positive for society. So maybe they should be passed on without any CAT?

Brendan
 
Gordon Gekko said:
This is all very left wing idealogy.

It’s as if every relief or exemption is under threat.
Click to expand...
Agreed.

Contrast that, for instance, with the recommendations from Deloitte & Touch, which, in the current economic climate, is more realistic.

“Budget 2023 needs to reform, enhance and simplify the Irish tax landscape to alleviate the cost of living burden, while encouraging future investment and growth in Irish businesses.”

Other pre-budget submissions follow similar lines and recognise that there is a delicate balancing act between, inter alia, cost-of-living, housing, economic growth and climate change commitments.
 
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Gordon Gekko said:
The policy is there to support Burgess & Co to continue to create employment and to be inherited by BB Jr and BB III after that…for it to remain a family business rather than having the family forced to sell a portion of it to some randomer like me or a private equity outfit.
Click to expand...
"Some 50 per cent of the respondents are second-generation members of their family business, 22 per cent are third generation, 16 per cent fourth generation and the rest are fifth generation or more." Source
Germany has amongst the highest rate of success in intergenerational businesses. The UK has amongst the lowest. German businesses are most likely to be run by non family members by the third generation, UK businesses are most likely to be run by the eldest son of the eldest son.
Having outside investors means it is more likely that there will be a proper business structure and at least some outside management. That's a good thing.

Why is there the distinction between the business property values and overall business values? If you inherit an asset then you inherit an asset.
 
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