Seanad Eireann
Finance Bill 2001, Second Stage, 27 March 2001

Speech by Minister for Finance Mr. Charlie McCreevy TD

I am pleased to present my latest Finance Bill to Seanad Eireann. The Bill is fully in line with the reforming approach to the taxation system that the Government has pursued since taking up office. The Bill implements measures announced in the Budget delivering Government commitments on personal taxation, reductions in indirect taxation as part of the Government’s anti-inflation programme and a range of other important tax measures.

The Bill builds on earlier measures to continue to reform and develop various aspects of taxation to help achieve a range of objectives over the long term. One such objective is in the area of providing for future needs. In earlier Finance Bills I have overhauled substantially the taxation provisions dealing with pensions for the self-employed. I have also reformed the taxation of life assurance and collective funds. In addition, the Government has established the National Pension Reserve Fund. Continuing in this direction, the Bill provides for important new measures to encourage greater levels of individual savings. It also provides for tax relief for contributions to insurance policies for long term care needs. Taken as a whole, these measures show that this administration is firmly focussed on the longer term needs of our community.

While thrift may help to safeguard our future prosperity, we must also have an economic environment in the present that encourages and rewards work and investment. The taxation system can play a highly significant part in terms of rewards and incentives and all of my Finance Bills to date have been very positive in that respect. Quite apart from an individual’s personal needs and sense of security, we are also aware that there is an altruistic spirit that runs deep in many Irish people. To support this the Bill reforms and extends in a major way the tax relief for charitable donations.

The annual Finance Bills usually contain provisions necessary for the Revenue Commissioners to administer the taxation system. The Bill before you is somewhat larger than its predecessors because of the need to cater this year for the change to a calendar tax year and the conversion to the euro. Both will take place with effect from 1 January 2002.

The reason why we had the 6 April start to the tax year has old origins and harks back to an adjustment made in the 18th century. There is no logical justification for it in our modern society. The revised arrangements will mean that, starting from 2002, Budget day changes to income tax and social welfare payment rates will apply with effect from 1 January each year - three months earlier than at present.

I realise that moving to the calendar year basis imposes an extra burden in the year that it happens and in the planning that leads up to it, not least for the legislators who have to examine the legislation. It has taken considerable effort to produce the large volume of legislation to effect the change to the calendar year. I am sure the house will join with me in thanking the staff of the Revenue Commissioners and the Parliamentary Counsel for their work on this matter.

I will now set out the more noteworthy features of the Bill for Senators.

Personal Tax Changes

The main personal tax changes which I announced in the Budget are contained in Sections 2 to 4. The House will be aware that the Budget had the effect of removing an additional 133,000 taxpayers from the tax net. The chief delivery mechanism for this is the system of personal allowances which are now converted to tax credits.

In addition to tax credits, the two other major components of the personal income tax system are tax rates and the standard rate band. In the Budget I announced a reduction in the standard rate of tax to 20% and the top rate to 42% and an increase in the standard rate band. These aspects are dealt with in Section 3.

I would like now to put a few key statistics before Seanad Eireann that highlight the success of this Government’s income tax policies and indeed our overall economic success. When the Government came into office the Revenue Commissioners had 1,440,000 income earners on file. Approximately 22% of these, or 319,000 persons, had been exempted from paying tax. Revenue now have 1,769,000 earners on the tax file of whom 668,000 will be outside the tax net as result of this Finance Bill. In absolute terms the number exempted by this Government has more than doubled while in percentage terms it has gone from 22% to 38%.

In regard to tax rates, when the Government took office some 442,000 of the 1,440,000 income earners were paying tax at the top rate. That was around 31% of all income earners. The measures in this Bill reduce the proportion of income earners who pay at the top rate to 23% or just over 400,000 taxpayers. Of course, both the lower and top rates of tax have each been reduced by six percentage points.

For single persons the Bill means the point at which the top rate becomes applicable is £20,000 which is in excess of the average industrial wage. This Bill continues with the Government’s belief that ordinary people on ordinary incomes should be allowed to keep more of their income for their own use.

In Section 4, I am providing for an increase in the income tax exemption limits for persons aged 65 years or over.

Section 2 together with Schedule 1 completes the switch over to a tax credit system. An earlier significant phase in this process was the conversion of standard-rated allowances to tax credits. I am sure that Senators concur that tax credits are fairer than tax allowances because they provide the same relief to all taxpayers regardless of income. Most Senators should by now have received their Notice of Determination of Tax Credits and Standard Rate Cut-Off Point which replaces the old Tax Free Allowance Certificate. It will take a little time for people to get used to the new format but I am confident that once they become accustomed to it they will see the essential simplicity and fairness of a tax credit system. A tax credit is simply a fixed amount which is subtracted from the amount of tax calculated on income for the relevant period at the standard rate and the top rate, where appropriate.

In the context of the switch to tax credits and to help simplify the system, provision is also being made for tax relief for health contributions to be granted on a "net pay" basis similar to superannuation contributions.

Also in this context Sections 19 to 24 make arrangements for the introduction of tax relief at source for long term care and medical insurance relief, mortgage interest relief as well as certain administrative aspects of the new savings relief which will also be granted at source. Tax relief at source brings with it a number of significant advantages: it eases the pressure on the tax offices and it means that taxpayers get relief automatically. It also allows in these cases everyone to get the maximum entitlement to relief even if they have insufficient income to absorb the relief. Relief for medical insurance moves to the at source basis from April 2001 while mortgage interest relief will also be dealt with in the same way from January 2002.

Medical Expenses/Employment of a Carer

Section 7 increases the allowance for family members who employ a carer to look after an incapacitated relative from £8,500 per annum to £10,000 per annum.

Section 8 alters the arrangements for claiming medical expenses for a dependent relative. Under the current system, a person can claim medical expenses relief only if he or she also qualifies for a dependent relative allowance. An alternative but complex approach involves the use of covenants. This Section allows a taxpayer to claim medical expenses relief directly for designated relatives. It also removes the restriction on relief for routine maternity care.

To support parents of children with special needs, medical expenses relief is being extended to cover expenditure on educational psychology and speech therapy services for children.

Section 11 acknowledges the role of trade unions by providing a flat rate allowance of £100 at the standard rate of tax in respect of subscriptions to unions. £100 is roughly the amount that the average union member pays per annum.

Employee share and share option schemes

Section 13 changes the ESOT (Employee Share Option Trust) legislation so that an ESOT will be allowed to give either shares, or cash, tax free to the estate of the deceased beneficiaries in circumstances where the shares are encumbered or the holding period has not expired.

There has been much discussion in recent years on how we should proceed in this country with the tax treatment of share options. I have reflected on the points made by all parties to the issue. I firmly believe that that I have found an appropriate balance that suits our needs. The arrangements that are to apply here are set out in Section 15 . They allow employees as shareholders to identify more closely with the fortunes of the company. They also put companies based here on a competitive footing in attracting and retaining talented staff who have skills to trade in a very competitive labour market.

The effect of the changes contained in the section is that gains from share options granted under an approved scheme will be taxed at the CGT rate of tax rather than at the taxpayer’s marginal rate of income tax. As is the case for other employee share schemes, a share options scheme will have to be approved by the Revenue Commissioners in order to qualify for favourable tax treatment. Schemes must be open to all employees on similar terms. However, schemes may contain a key employee element which does not meet the similar terms condition, provided at least 70 per cent of the total amount of share options is made available to all employees.

Sections 16 and 17 amend the employee share scheme provisions. The former is an anti-avoidance measure; the latter facilitates the schemes being established in the TSB and ICC banks.

Medical Insurance Relief and Long-Term care

Section 19 extends the relief for medical insurance to cover premia for primary health care.

As I said at the outset, this Government is concerned for sound policy reasons to encourage greater provision by individuals for their future needs. In this spirit, Section 20 provides for a new tax relief, at the standard rate, for insurance premiums for long term care.

In the 1999 Finance Act we provided an exemption from benefit-in-kind tax to employees for employer-provided childcare in order to boost the supply of childcare. Section 25 extends this provision to cover schemes where employers finance capital costs but do not manage the facility.

Third-Level Fees

Section 29 amalgamates the existing tax reliefs for third level education fees and standardises the conditions attaching to the relief. The section removes a number of restrictions which currently apply to the reliefs. It also extends the relief to cover postgraduate fees paid in the US and other countries which are outside the scope of the existing scheme.

Seafarers are currently entitled to avail of a special tax allowance of £5,000 per annum. To qualify the seafarers must spend 169 days on voyages to or from a foreign port in an EU flagged ship. Section 30 reduces the number of days to 161.

Housing

Section 32 introduces the ‘rent a room scheme’. The section provides an exemption from income tax where a person lets a room (or rooms) in his or her principal private residence as residential accommodation. In order to qualify, the gross annual rental income must be less than £6,000. A person who avails of the new scheme will retain full entitlement to CGT relief on his or her principal private residence. Similarly, the entitlement to mortgage interest relief will be unaffected. In addition, Section 208 later in the Bill ensures that availing of the scheme will not trigger a stamp duty clawback.

Senators will have noted that this Government has not hesitated from using fiscal instruments to target aspects of the housing market. I will now outline the various housing provisions in different parts of the Bill rather than dealing with them in different parts of my speech. The priority must be to boost the supply of housing. At the same time there is need for a supply of good standard accommodation in the private rented sector. Recognising these factors, the Bill provides for various tax incentives announced by Government arising out of the recommendations of the Report of the Commission on the Private Rented Residential Sector.

Section 34 restores the relief for interest on borrowings used to finance the purchase, improvement or repair of certain rented residential properties subject to conditions, including that the property concerned must have been converted into multiple residential units before 1 October 1964. The tax relief will apply to the tax liability on rental income only.

Section 63 provides for a general 100 per cent capital allowance over 7 years against rental income in respect of capital expenditure on the refurbishment of rented residential properties.

Section 92 provides that landlords can avail of CGT rollover relief where they reinvest the proceeds of a sale of rented residential property in new accommodation.

The overall effect of these provisions should be to improve the standard of rented accommodation by encouraging landlords to refurbish their properties and by providing an incentive for investment in the sector.

In Sections 93 and 206 I have provided Capital Gains Tax and Stamp Duty relief when a parent transfers a site to a child to enable the child to build a principal private residence.

Section 94 removes the capital gains tax rate of 60 per cent, which was introduced in 1998 for disposals of certain residential development land on or after April 2002. If the 60 per cent rate were to apply from 6 April 2002, it would mean that the rate of CGT on zoned residential land would be three times that on zoned commercial land which could result in land being diverted from residential to commercial developments.

In the Finance No 2 Act of 2000, a number of changes were made to the taxation regime for non-owner occupied residential properties. At that time the Government promised to keep the matter under review. The imposition of the 9% investor stamp duty rate on non-owner occupied residential properties has resulted in some negative impact on developers and potential investors. There is evidence that this could have had adverse consequences on the prospects for overall housing supply and particularly for apartment developments, because reduced investor demand makes apartment developments unviable. There is also evidence that applications are being made to local authorities for a change in planning permission from residential to commercial. These are problems insofar as they affect supply. Section 209 reduces the 9% stamp duty rate for investors in respect of new residential property. The new rate will be 3% for properties up to £100,000 and the same rate as for non first-time owner occupiers for properties above that. This change to the stamp duty regime will leave the investor rate unchanged in the second-hand market while reducing it somewhat for new property, thus providing a supply incentive in this area. Limiting the concession to new housing maintains the relative advantage of first-time purchasers in the second-hand market which accounts for two-thirds of first-time purchase transactions.

There is also some evidence that the stamp duty rate is a disincentive in selling Section 50 student accommodation units to investors. The reduction in the 9% stamp duty rate will help improve the attractiveness of investments in the provision of such student accommodation.

In view of developments in the housing sector since last Summer, Section 230 provides that the anti-speculative property tax due to come into effect next April will not now go ahead.

Sections 202 and 213 provide for an increase in the stamp duty exemption threshold for mortgages from £20,000 to £200,000.

Section 210 provides a stamp duty exemption for approved voluntary and co-operative housing bodies for land acquisition coming within the ambit of the Housing Acts. Similarly Section 211 provides for a stamp duty exemption for the National Building Agency for land acquired for social and affordable housing.

The Finance (No. 2) Act 2000 provided certain reliefs from stamp duty on first-time house purchase subject to conditions, where the second home is acquired following a marriage break-up under a decree of divorce or a judicial separation. Section 208 extends these provisions to circumstances where there is a deed of separation or a decree of nullity of a marriage.

Under the Finance (No. 2) Act, 2000, investors in residential property who have a contract evidenced in writing before 15 June 2000 can avail of the duty rates in existence prior to 15 June where the conveyance or lease is executed before 31 January 2001. This deadline is being extended to 31 July 2001 in Section 214.

Special Savings scheme.
The new special savings scheme is set out in Section 33

Our recent welcome economic success allied with taxation policies has seen a rise in disposable incomes for most people. This affluence may have led some people, particularly younger people, to believe that they can provide for all their needs from their current income without reserving some of that income for future years, including events in life that we all encounter and which require recourse to sums of money in excess of regular outlays. The objective of this scheme is to encourage regular savings by individuals.

The scheme will commence on 1 May 2001 and accounts must be opened before 30 April 2002 to benefit. Every individual, who is resident in the State and is 18 years of age or over will be allowed to open one account.

It will be open to financial institutions generally to participate. The Exchequer contribution will apply for a five year period only. Where a saver puts an amount of money into one of the new special accounts for the purposes of the scheme the Exchequer will contribute an additional 25% of that amount. This is effectively a tax relief on savings at the standard rate of income tax. Any income or gains from the savings investment will be taxed at 23% and this will be deducted by the participating financial institutions at the end of the five years.

The Exchequer’s contributions to each account will be paid directly to the account manager and added to the savings in the account. It is worth stressing at this point that the Government will not be operating or guaranteeing the accounts or the return under them. This will be a matter between an individual and an account manager. Of course, individuals who plan to open one of these accounts should assess any level of risk they wish to undertake.

There will be an overall maximum limit of £200 on the amount that an individual can lodge to an account in any one month. If that amount is, in fact, lodged then the Exchequer’s contribution to the account would be £50. The minimum monthly amount that must be saved in the first year is a modest £10. However, the scheme provides for flexible arrangements so that an individual may save more, subject to the £200 limit.

For the saver to gain maximum benefit from the savings in the scheme, the savings must be left for the full term which is five years. However, if there is an earlier withdrawal from an account (other than on death), the full amount withdrawn (both the savings and investment return) will suffer tax at 23%. Savings must be funded from a person’s own resources and there is a prohibition on funding an account from borrowings. The Bill also includes provisions for declarations by the saver and the institution and various Revenue powers to assist in ensuring compliance with the terms of the scheme.

Donations

Irish people have long been noted for their contributions to good causes at home and abroad. The Government is anxious to support those who give to charities and good causes and to encourage others to do likewise. Section 45 of the Bill introduces a new uniform tax relief scheme for donations. Almost all of the existing reliefs will be merged by the section. The new relief will be available at a taxpayer’s marginal rate of tax for both personal and corporate donations. The minimum donation which can attract relief will be £200 in a year. There will be no upper limit on the total amount of relief available to individuals or companies.

Beneficiaries of existing schemes, including those for third world charities, will be covered by the new scheme. It will apply to donations to all charities which have tax exempt status for three years and to first and second level schools and third level institutions. The new provisions considerably expand the scope of relief in this area, for example, for personal donations to domestic charities and educational establishments. We can see from the example of the United States that tax relief can lead to significant increases in charitable contributions. For reasons of administrative convenience it is envisaged that for most taxpayers the Revenue will pay the relief to the body receiving the donation rather than to the donor. Individuals on self-assessment will be able to claim the relief directly. In the case of companies the donation will be treated as a trading expense.

Sections 46 to 48 provide for an extension of the existing general 25 per cent general stock relief for farmers. There is little need to elaborate here on the difficulties facing the farming community at the present time. While there are generous 100% stock relief provisions in existence for circumstances of compulsory disposal they are restricted to cattle at present. Section 49 extends these provisions to other categories of livestock subject to certain conditions.

Taxi-Licences

Senators will be aware that as part of the Government’s policy in reforming the regime for taxi licences, it was announced that the existing taxi licence owners would be able to write off the actual cost to them of their licences as a capital allowance against trading income. Section 51 makes the necessary provisions in this regard.

Section 52 continues the special capital allowances arrangements for the whitefish fleet. These arrangements will require clearance by the European Commission before they can commence.

Section 53 shortens the write-off period for the annual wear and tear capital allowances for plant and machinery from 7 years to 5 years. This measure takes effect for expenditure incurred on or after 1 January 2001. It will operate on a straightline basis. However, taxi and short-term hire vehicles will retain their 40 per cent reducing balance arrangement.

In Section 57, I have provided for the measures that I announced in the Budget in relation to the tax treatment of Credit Union dividends and interest including, in particular, tax exemptions for certain medium and long-term accounts held in Credit Unions. The Section also provides that the latter exemptions apply also to similar accounts held in other relevant deposit taking institutions.

Living over the Shop Scheme and other Urban and Town Renewal Reliefs

Sections 58 and 59 make changes to the reliefs for park and ride facilities, multi-storey car parks, and the rural renewal scheme. Relief for qualifying commercial premises located at park and ride facilities is being restricted to facilities that provide local services only. This is to conform with requirements arising under EU State aid rules. Various parameters of the schemes are also being amended.

Section 60 introduces tax relief for the provision of residential accommodation in the vacant space over commercial premises in certain streets in the five cities of Dublin, Cork, Waterford, Limerick and Galway. The incentives under the scheme are broadly similar to those currently available under the Urban Renewal Scheme. There is also relief for expenditure incurred on refurbishment and construction of the associated commercial property. To comply with EU State Aid rules, the qualifying commercial services must be involved only in local services.

Section 64 provides for capital allowances over a seven year period for the construction of private hospitals. A qualifying hospital must be operated by a body with charitable status for tax purposes. A number of other criteria must be fulfilled such as the necessity to provide a minimum of 100 in-patient beds. It will be a condition of the relief that 20 per cent of the bed capacity be available for publicly funded patients at a discount of 10 per cent. The extra beds capacity created under this measure will be matched by the Minister for Health and Children designating a corresponding reduction in private beds in public hospitals thus adding to capacity for public health patients in public hospitals.

Section 80 provides for the introduction of the commercial and industrial incentives for the business element of the Town Renewal Scheme. That scheme involves the provision of residential and commercial incentives for new build and refurbishment at selected sites in 100 small towns throughout the country. While the residential element of the scheme was allowed to commence at the time the scheme was announced last July, the business element of the scheme required clearance to proceed from the European Commission. Agreement has now been reached with the Commission which will enable the vast majority of the projects envisaged under the scheme to commence immediately. The scheme, as agreed, will enable small and medium-sized enterprises to avail of incentives in respect of new build projects and certain categories of refurbishment projects. In addition, capital allowances will not apply in respect of expenditure incurred, on or after 6 April 2001, where any part of that expenditure is met by way of grant assistance. Similar amendments on non eligibility of grant-aided expenditure have been provided in respect of the urban and rural renewal schemes.

The qualifying period for the entire scheme has been extended from the 31st March, 2003 to the 31st December, 2003 because of the delay in securing EU approval for the commercial and industrial incentives. Qualifying floor areas under the Scheme have also been increased.

Life Assurance and Collective Funds

Sections 65 to 75 make various changes to the taxation of life assurance and collective investment funds mainly following on the arrangements introduced last year. Section 67 provides that the same tax rate will apply to investment in both Irish and certain foreign life assurance companies. Section 72 mirrors these arrangements in the case of persons who hold an interest in certain offshore funds. The other changes largely reflect discussions with the insurance industry. They clarify issues that have arisen under the new tax regime. They also make certain changes to Special Investment Schemes and Special Investment Policies recognising that the tax rate applying to these is now the same as the standard rate of tax.

Capital allowances are available for expenditure on certain buildings used for the purposes of third level education. Section 76 extends the provision to cover third level institutions which provide courses in the area of third level health and social services education. Approval for tax relief will be granted by the Minister for Health and Children following the consent of the Minister for Finance.

Calendar Year

I referred earlier to the alignment of the tax year with the calendar year from 1 January next. Specifically, the taxes involved are income tax and capital gains tax. To effect the move requires a transitional tax period or "short tax year" running from 6 April to 31 December 2001.

Section 77 and Schedule 2 make the required changes to the tax code consequent on the changeover to a calendar year of assessment. For the purposes of the short year allowances, credits, reliefs, thresholds, qualifying days etc. are being reduced in that year to 74 per cent of their full year equivalent. There are a few exceptions to this general approach including the special tax relief for widowed persons in the five years after bereavement which will remain at 100%. To coincide with the move to the calendar year, Section 78 also provides for a common return filing and payment date of 31 October for those on the self assessment system.

Section 81 results from discussions with the European Commission on the capital allowance scheme for hotels in the context of State aid rules. It was suggested by the Commission that the option now arose for small and medium-sized enterprises to be exempted from the notification process through the use of the provisions of a recent Commission Regulation on State aid to small and medium-sized enterprises. This section, accordingly, introduces a certification process to be operated by Bord Fáilte which is now necessary as a result of the decision to use this SME Regulation. In order to ensure that the scheme complies with the European Commission’s Regional Aid Guidelines the section also provides that capital allowances will not apply in respect of expenditure incurred on construction or refurbishment work on hotels on or after 20 March 2001 where any part of that expenditure is met by way of grant assistance.

Corporation Tax

Profits from shipping are currently charged to tax at the 10 per cent rate. In the absence of a change to these arrangements, shipping would be subject to Corporation Tax from 1 January 2001 at the prevailing standard rate of corporation tax - that is 20 per cent in 2001, 16 per cent in 2002 and 12½ per cent in 2003. Section 82 provides for the 12½ per cent corporation tax rate to apply from 1 January 2001 for shipping activities.

CGT rollover relief is available on farmland which is the subject of a CPO for road-building. In Section 95, I have provided for an extension of the time for the reinvestment of proceeds from such CPOs and I have also provided for the extension of this provision to all land compulsorily acquired for road building.

Excise

Part 2, Sections 96 to 153 contain provisions to consolidate and modernise general excise legislation. This continues the process of updating excise law undertaken in the last few Finance Acts.

Sections 154 to 156 confirm the Budget day decreases in rates of excise duty in unleaded petrol and auto-diesel and the increase in duty on tobacco products to compensate for the VAT reduction.

Sections 157 to 162, Sections 177 and 178 increase various penalties on the excise side to £1500. Section 233 later in the Bill applies this new limit to all summary tax offences.

Section 167 removes the requirement for the special advance payment of excise duty in December and, instead, provides that in future all payments in respect of December must be made by the end of the subsequent month. This is the practice for all other months during the year.

In Section 168 provision is being made for a 50 per cent repayment of vehicle registration tax in respect of certain hybrid electric vehicles. This should encourage the purchase of new technology vehicles that have lower levels of emissions. The scheme is to operate for a two year period from 1 January 2001 to 31 December 2002.

Section 169 amends the rules governing the classification for VRT purposes of certain vehicles, mainly jeep-derived and car-derived vans, to ensure greater evenness of treatment.

Sections 170 to 176 deal with imposition of excise duty and with definitional and other procedural matters in relation to excise duties and licences.

VAT

Sections 187 and 189 reduce the rate of VAT from 21 per cent to 20 per cent and increase the farmer’s flat rate VAT from 4.2 per cent to 4.3 per cent.

Section 188 makes a technical change to the VAT rules arising from the recognition of the Department of Agriculture, Food and Rural Development as a taxable person for the purposes of the Cattle Testing or Purchase for Destruction Scheme.

Section 199 contains three significant provisions. Firstly, it clarifies that the supply of research activities is not an exempt educational activity. It applies VAT at the standard rate to research provided for a fee by educational institutions. This will help to ensure a level playing field in tendering for research services and assure compliance with EU rules. It will also enable Irish third-level bodies to reclaim VAT on taxable services provided under EU and other research programmes.

Secondly, the section gives effect to the European Court of Justice ruling that existing tolled facilities (tolled roads and bridges) operated by the private sector in Ireland are subject to VAT. Such tolls will be subject to the standard rate of VAT from 1 September 2001.

Thirdly, the section exempts adjusters and claims handling services from VAT, which is the way services supplied by insurance companies and related services by insurance agents are treated.

Stamp Duties

Section 212 abolishes the £1 per policy stamp duty on Permanent Health Insurance Policies and Critical Illness Policies. The 0.1 per cent stamp duty on life assurance policies is also being abolished.

Capital Acquisitions Tax

I referred earlier to changes to the Capital Gains Tax code where land is acquired under a Compulsory Purchase Order. As a parallel to this, Section 217 changes the Capital Acquisitions Tax code to extend the period during which the proceeds must be reinvested from 1 year to 4 years.

Section 218 provides for an exemption from CAT for works of art which are lent to cultural institutions in the State by non-Irish resident individuals. A CAT liability could have arisen if the lender died during the period of the loan as the asset would be situated in the State at the date of death.

The House will be aware that fostering of children is a relatively long standing practice in this country. While fostering has been on a regulated footing for some time, many inheritance situations arise from fostering arrangements that predate the formalised structures. Section 221 provides that foster children will be treated the same way as other children for the purpose of CAT rules.

Section 222 allows an adopted child to avail of the Group 1 threshold for gifts or inheritances received from a natural parent.

At present, where an amount exceeding £5,000 stands in a joint deposit account in the names of a deceased person and another person, the Bank concerned cannot release the account into the name of the survivor without a clearance from the Revenue Commissioners. Section 223 increases this clearance threshold to £25,000.

Section 225 provides for the abolition of Probate Tax which has applied since 1993.

Section 228 amends CAT business relief to allow the relief to apply in the case of businesses which are carried on either within or outside the State. The change acknowledges the increased overseas diversification of Irish businesses since the relief was introduced in 1994.

E Filing

Section 232 abolishes the requirement that electronic record-keeping systems be approved on a case-by-case basis by Revenue. Instead, Revenue will set out standards for such systems and the taxpayer will ensure that the system used complies with the published standards.

Sections 236 to 237 strengthens tax collection procedures.

Amounts in tax legislation are converted in Section 240 and Schedule 5 into convenient amounts in euro. The principle followed is that amounts are smoothed in favour of the taxpayer.