In the first of our eight articles leading up to Budget 2020, we discuss the tax rate on chargeable gains.
A reduction in the Capital Gains Tax (“CGT”) rate is probably one of the most keenly anticipated changes in this year’s budget.
CGT is charged on gains arising on the disposal of chargeable assets, such as property or shares. The current rate of CGT is 33%. This rate has increased four times since 2008 when it was only 20%.
Every year prior to Budget time, our clients ask us whether they should delay or accelerate a transaction for a possible change in the CGT regime.
Will there be a decrease in the CGT rate this year?
In this article, we discuss the relevant matters that the Minister of Finance should consider in relation to reducing the CGT rate.
The Exchequer figures (below) show that receipts from CGT have been increasing year on year since 2013.
*Source – Tax Strategy Group – 19/11
However, according to recent evidence collated by the Competition and Consumer Protection Commission, we understand that there has been a 70% decrease in merger and acquisition transactions since January 2019 (CCPC records).
The uncertainty around Brexit seems to have had a big impact on such deals.
We want to see a reduction in the CGT rate to support business and capital transactions in the current uncertain climate. We believe that a decrease in the CGT rate could positively affect the economy in the following ways:
- See greater activity in transactions; therefore offsetting any potential loss to the Exchequer.
- Drive investment as it encourages entrepreneurs and angel investors to invest in capital assets.
- Lead to economic growth, as entrepreneurs may be willing to bring key staff in at shareholder level or pass the business on to the next generation, which will in turn incentivise growth.
- Make Ireland more appealing and competitive for foreign investors. This is a key factor with Brexit looming.
- May invigorate the property market and encourage land owners with large banks of unused land to sell.
- Lead to greater receipts in other tax heads, such as Stamp Duty and Capital Acquisition Tax.
Previous studies indicate that a decrease in tax rates can in fact result in increased revenue collections.
Due to the dramatic decline in transactions, uncertainty around Brexit and the opportunity to attract overseas capital investment, we hope that the Minister of Finance Paschal Donohoe will introduce a reduction in the CGT rate in Budget 2020.
Next week, we will be reviewing Entrepreneur Relief and what potential changes could arise.
You can learn more about the Tax Department by clicking here.
Also Read: Countdown To Budget 2020 – What To Expect