Dáil Éireann Debate, Tuesday - 26 May 2026
142. Deputy Cathal Crowe asked the Tánaiste and Minister for Finance if he is considering a reduction in the capital gains tax rate from 33% to 25% for active business assets; and if he will make a statement on the matter. [39656/26]
View answerWe will revert to Question No. 142 in the name of Deputy Cathal Crowe. It will be taken now by Deputy Tony McCormack. I apologise to the Deputy for having skipped it.
I thank the Deputy very much for the question. The rate at which capital gains tax, CGT, is charged has varied both upwards and downwards since its introduction in 1975. The current standard rate of 33%, which applies to most gains, has been in place since 2012. However, a number of reliefs are already provided for business assets, including retirement relief on the transfer of business or farming assets, revised entrepreneur relief and participation exemption relief. For example, the revised entrepreneur relief provides a reduced rate of CGT for qualifying business assets. The lifetime limit of €1 million of gains on which the relief can be claimed was increased to €1.5 million with effect from 1 January this year. The increased lifetime limit should significantly assist entrepreneurs to grow and scale their businesses or to begin new ventures building on their previous entrepreneurial experience.
As with all taxes, there are options for amending the scope of the tax, including changing the rate of the tax, amending or abolishing existing reliefs or exemptions or considering the introduction of new reliefs and exemptions. However, a narrower base of a tax regime with significant exemptions often requires a higher rate to generate an appropriate yield. A wider base may facilitate a lower headline rate of tax as it applies to a wider set of economic and commercial activities, reduces reliance on any one activity and potentially maintains a more sustainable yield.
On the cost of changing the standard rate of CGT, and this is a legitimate issue people highlight, each 1% reduction or increase is estimated to amount to around €87 million in a full year, assuming no behavioural change. We always have to assume that, although it is harder to factor in. Therefore, a 5% reduction in the standard CGT rate in a single budget would have an Exchequer impact, at least in that budget, of €436 million, assuming no behavioural change. There are also costs to the Exchequer associated with extending the level of relief, as suggested in the question. I put that out to be helpful as people consider budget options.
The programme for Government commits to maintaining a broad tax base to guard against the need for countercyclical fiscal policy in the event of a downturn and to prepare for future budgetary challenges. CGT is an important part of the system to ensure taxation is not focused solely on income tax and that those who benefit from gains in the value of assets are included. As with all taxation measures, it will be kept under review as part of the budget.
I thank the Tánaiste for his response. I welcome the Government's continuing focus on competitiveness and supporting indigenous enterprise. As we all know, investment is vital in enabling companies to grow and expand and for start-up companies to get off the ground. However, Ireland's 33% CGT rate remains among the highest in Europe and there are growing concerns that it can discourage reinvestment, entrepreneurship and business scaling.
The Taoiseach himself recently acknowledged concerns that Ireland may be losing some investment and capital when people sell businesses and relocate elsewhere.
He also made the important point that what matters is ensuring that capital is recycled back into smaller companies, innovation and new technologies. In that context, would the Tánaiste agree that there is merit in examining a more competitive and targeted capital gains tax approach for active business assets, particularly where proceeds are reinvested into Irish enterprise, regional employment and productive economic activity?
I heard the Taoiseach's comments. I hear regularly from stakeholders and business groups about the importance of making sure that our taxation system is pro-enterprise. What I would say in response is that while that is important, everything is a balance. There will be a finite amount of things we can do in the budget on tax. I am eager that there will be a personal tax package. There was not one last year. I am very eager there will be one in the next budget and I know that is a view shared across the Government. It is probably shared by people beyond the Government. That is one of the options I want seriously considered and acted upon as part of the budget. We will obviously consider and review through our tax strategy group papers. We will have a national economic dialogue in June, the summer economic statement in July and the budget in October. We will keep all these matters under review.
As all Ministers for Finance are meant to say, all taxation matters are for budget day. We will give consideration to all matters. This evening, I wanted to usefully put the cost on the record of the House so that we can all be informed as we consider those suggestions. That cost would be approximately €87 million in a full year for each 1% reduction.
Another issue that has been raised consistently is the failure to index capital gains tax, CGT, thresholds and exemptions over time. When CGT was introduced in 1974, the annual exemption was £500 and if indexed properly would be a lot more than £500 today. That would have been 10% of the average value of a house at the time. Instead, the exemption currently stands at €1,270 and has not been adjusted since 1992, when it was set at £1,000. There is a legitimate concern that taxpayers can end up paying increased tax simply due to inflationary growth in their asset value over time rather than any real gain. Would the Tánaiste consider asking the Department to examine both indexation measures and a targeted reinvestment relief model ahead of the next budget, particularly where proceeds are reinvested into SMEs, innovation and job creation here in Ireland?
I thank the Deputy and will reflect on what he has said. I would point out that there are already a number of exemptions. If I am being bluntly honest with the House, I do not believe that existing levels of CGT are acting as a disincentive to investment because when they are looked at beyond the headline rate, we already have a range of exemptions and reliefs on CGT, which are designed to try to foster certain activities and avoid taxing people in situations that would be seen as unreasonable, such as retirements or the sale of a principal private residence. These reliefs reduce the level of CGT actually paid by many individuals, and include an annual exemption for the first €1,270 of gains arising from the disposal of assets. In addition, there are targeted reliefs for entrepreneurs and angel investors.
CGT, as with all taxes, is subject to ongoing review, which involves consideration and assessment of the rate of CGT and relevant reliefs and exemptions from CGT, and the policy and legislation around it will be reviewed as part of the annual budget and finance process. I will certainly reflect on what the Deputy has raised.
