Dáil Éireann Debate, Tuesday - 26 May 2026
147. Deputy Edward Timmins asked the Tánaiste and Minister for Finance if he will reintroduce indexation for capital gains tax to eliminate this annual stealth tax; and if he will make a statement on the matter. [39883/26]
View answerIndexation for capital gains tax relief was abolished in 2003. Will the Minister of State consider reintroducing this indexation, something that, at the moment, is effectively an annual stealth tax because there is no indexation?
I thank Deputy Timmins for raising the matter. Ireland's capital gains tax rate is 33% and is paid on the chargeable capital gain made when a person disposes of an asset. The chargeable gain is usually the difference between the price paid for the asset and the price it is disposed of and is payable by the person making the disposal. Section 556 of the Taxes Consolidation Act 1997 provides a measure of relief for capital gains, which are attributable purely to inflation, commonly known as indexation relief. The Finance Act 2003 amended section 556 such that indexation relief does not apply from the 2003 tax year onwards. Indexation relief, does, however, continue to be available in computing a chargeable gain arising on the disposal of an asset where the deductible expenditure on that asset was incurred prior to the tax year of 2003, with the relevant indexation multiplier being determined by reference to the year in which the expenditure was incurred. Indexation relief was ended as a means of gradually broadening the tax base, and my officials would contend it has been proved to effective in that regard.
It is the case that when indexation was introduced in the 1970s, inflation was extraordinarily high. Since then, inflation, while somewhat high now, has been consistently much lower, even taking into consideration spikes we have had around the Covid pandemic and recent geopolitical events. It is also important to bear in mind that there is no indexation of other taxes. We do not currently have an indexation of income tax, corporation tax or capital acquisitions tax.
The programme for Government does commit to maintaining a broad tax base to guard against the need for counter-cyclical fiscal policy in the event of a downturn and to prepare for future budgetary challenges relating to an ageing population. CGT is an important part of our system to ensure that taxation is not focused solely on income tax and that those who benefit from gains in the values of their assets are included within the tax net on an equitable basis. As with all taxes, CGT is obviously subject to ongoing review, which does involve consideration and assessment of the rate of CGT, the relevant reliefs and exemptions, and wider tax policy considerations.
I will give a simple example to illustrate this better. If you had €10,000 in savings, you bought shares today and they gained by 20% over the next five years, say, 4% per annum, that would mean they would be worth €12,000 in five years' time. If inflation is a similar rate, which may well happen - 20% over the next five years - your €12,000 in five years is worth the same as €10,000 today because the 20% inflation has wiped out that 20% gain. You have no real gain, in effect, but if you go to sell those shares in five years' time, you are deemed to have made a gain of €2,000 because you bought the shares for €10,000 and sold them for €12,000. However, you are actually no better off because the €12,000 in five years' time is worth the same as the €10,000 today. Yet, you have to pay a tax on that €2,000. That is my whole point. It is effectively an annual stealth tax.
I hear the Deputy and I never like to disagree with my constituency colleague, but the point I would make is that we consider all taxation measures as part of the annual budgetary process through the tax strategy group papers and the likes. Being honest with the House, I would be concerned with an indexation for the CGT space when one could make similar arguments or cases for indexation of other taxes that we do not currently do that with either. My biggest priority in terms of a taxation package this year will be around personal income tax because there is a real need for that, and I know the Deputy and I share a view on that. There is a compelling case around CGT, how it operates, how it works and the rate, the relief and the exemptions.
Ireland often gets told we have a high rate compared to other European countries. At a headline level, we probably do, but when the reliefs and exemptions are factored in, does that alter the picture somewhat? It does. All these things are kept under review. As of now, there is no plan to reintroduce indexation, but I will ask my officials to reflect on what the Deputy has said and will come back to him with further views.
I understand this is a tall order because the position has not changed since 2002. That is 24 years. It has been an issue every year since then but various finance Ministers have chosen not to act. I would also argue that capital gains tax is different from income tax, gift tax and inheritance tax. In fact, tax credits and bands have increased considerably over the past 20 years. The exception has been capital gains tax, where there has been no indexation whatsoever, unlike all other taxes. When indexation was abolished, one of the reasons was capital gains tax was 20% at the end of 2002 and for a few years prior to that. That was given as a reason - we did not need taxation because it was being taxed so little. Since then, it has steadily increased, as the Tánaiste said in reply to an earlier question, and is now up at 33%.
There is an argument to be had around CGT - on the rates, the reliefs, the exemptions and how it acts as an incentive or otherwise to entrepreneurial activity. I have given views on that, as has the Taoiseach. As is always the case in a budget, all this will come down to balance and priorities as part of the overall tax package.
We will have the national economic dialogue in Dublin Castle in June. The Minister, Deputy Chambers, and I will publish the summer economic statement in July. That will give an indication of how the Government intends to divide between spending and tax. I have no doubt there will be an opportunity to have intense engagement between then and the budget in October as to the best menu of options to deploy. There are always trade-offs. CGT will, as with all taxes, be reviewed as part of that.
