PROPERTY taxes are expected to be cut by a sizeable margin when the Minister for Finance, Charlie McCreevy, introduces "substantial reforms" in his December Budget.
Specifically, the thresholds at which capital acquisitions tax is applied to the inheritance of sons, daughters and relatives of large property owners will be widened to take account of surging property prices. Action will also be taken to change the tax code to accommodate second marriages, homosexual couples and other interpersonal arrangements.
In the three years from 1995 to 1998, the price of new houses rose by 60 per cent in this State, according to statistics produced by the Department of the Environment, while second-hand house prices increased by 80 per cent. At the same time, the personal inheritance tax thresholds at which capital gains tax applied rose by only 6 per cent.
Inheritance tax charged on the estates of deceased persons operates at different levels. In 1995, sons and daughters were each entitled to receive £178,200 from the estate before tax was imposed. This threshold dropped to £23,700 for nephews and nieces and to £11,600 for any other beneficiaries. This year, the inheritance threshold stands at £192,900 for sons and daughters; £25,720 for nephews and nieces and to £12,860 for others. Last March, Mr McCreevy promised to deal with the issue in his next Budget. The Minister referred to the "many demands" made on him for reform of the CAT system to deal with "the burden imposed on some residents of the family home by the recent surge in house prices which have outpaced the increase in CAT thresholds".
There was a strong case to deal more equitably with the modern family and interpersonal arrangements under the CAT code, he declared, before observing: "I have some sympathy for these points. I, myself, have a personal interest in some of these changes. I looked at these issues prior to the last Budget. I decided not to act because I wanted to focus tax relief and reform on the lower paid. I will, however, be looking at the area of CAT in some detail for my next Budget." There is growing evidence the Government will concentrate a good deal of its surplus funds on concessions to middle and higher-income earners on this occasion. The Tanaiste and leader of the Progressive Democrats, Ms Harney, is pressing for a reduction of 2 per cent in the top income tax rate in the current negotiations on a programme for government. And Mr McCreevy will address reform of capital acquisition taxes, where inheritances are concerned.
It is not clear whether any further changes will be made in relation to stamp duties, which provide the Government with the bulk of its property income at point of sale. The yield from stamp duties on homes and commercial properties jumped by 90 per cent, from £286m to £541m, between 1995 and 1998, reflecting economic growth and increasing property values.
BY CONTRAST, income from inheritance tax was fairly small beer, rising from £39.9 m in 1995 to £77.5m in 1998. That was still a 90 per cent increase, however, showing that inheritance tax was rising ahead of house prices, which averaged about 70 per cent.
The Government raises substantial other sums under capital acquisitions tax. Probate tax, which is applied at a flat 2 per cent on the value of all estates, brought in almost £20m last year, compared to £12.2m in 1995. Gift tax raised £6m last year, compared to £4.9m in 1995. And Discretionary Trust Tax raised £8.4m in 1998, compared to £4.9m in 1995.
During the course of a debate on the Finance Bill in the Seanad earlier this year, the Minister of State , Willie O'Dea held out the prospect of tax concessions for homosexual and for other cohabiting couples. He said :"I recognise that it is grossly unfair that a couple living in a traditional marital situation in a family home should be accorded totally different treatment by the tax code to people who are living together, whether they are of the same sex or not. It is imperative that we change the tax code to treat people living together in a non-marital situation, be they of the same or different sexes, siblings who are living together and people living with nephews or nieces in the same way, particularly for inheritance tax purposes and in relation to the family home."
Finally, Mr O'Dea gave this undertaking: "Minister McCreevy has stated that I can put it on the record that there will be substantial reforms of the capital acquisitions tax code in next year's Finance Bill."
