“In our experience, the 33pc rate is deterring taxpayers from undertaking capital transactions, crystallising gains and reinvesting funds in the Irish economy,” its submission says.
“Not only would a lower rate of CGT increase capital transactions, it would also stimulate and promote the transfer of businesses to the next generation of Irish business leaders.
“It would boost Ireland’s attractiveness as an investment location, because entrepreneurs consider future exit strategies when considering where to invest.”
Treating the exit of a shareholder from a business as a CGT event, rather than one subject to income tax – which is levied at a higher rate – would achieve this objective, PwC says.
It claims many Irish business owners face challenges in securing a smooth exit when they decide to leave.
The tax bill inhibits the exit of a shareholder that would allow the incumbent to take over the reins.
“We are seeing instances where fully exiting shareholders are subject to taxation at marginal income tax rates, which can have the unintended consequence of making many bona fide transactions, such as management buy-outs, unviable,” the consultancy’s pre-Budget submission says.
We have seen Irish businesses opting to sell to external and often non-Irish third parties
“In some cases, we have seen Irish businesses opting to sell to external and often non-Irish third parties (eg private equity funds) to secure a tax-efficient exit, as opposed to passing it on to emerging Irish business leaders, often working within the business being sold.”
It points out that both the annual CGT exemption of €1,270, as well as the Capital Acquisitions Tax small gift exemption of €3,000, have not been changed for several decades.
As neither has been brought in line with inflation, PwC is proposing both exemptions be increased in the Budget.
The company says tax policy could also play a vital role in addressing the housing shortage. “Soft costs” of construction, such as taxes, can be easier to change quickly than “hard costs”, such as labour and materials, PwC argues.
Among the tax measures it suggests is a reduction of the CGT rate when investment properties are sold, if they have been retrofitted.
This would increase the attractiveness of retrofitting old property stock, and would also contribute towards Ireland meeting its sustainability targets.
PwC says the most pressing issue is to change the Residential Zoned Land Tax (RZLT), which was introduced as a land activation measure. The tax is levied on serviced land which has the potential to provide residential housing, but is not being used for that purpose.
Where there is a change in ownership of land before it is fully developed, some RZLT deferrals are clawed back.
“Given the increasing popularity of the forward-fund model, particularly with approved housing bodies and other public sector bodies, one significant improvement would be for such transactions to be exempt from clawback provisions,” PwC says.
According to new figures from Revenue, approximately 1,800 RZLT returns have been filed to date, with liabilities of almost €40m paid. This is the first year in which a charge arises.
In the days leading up to the filing deadline of May 30, Revenue saw a notable increase in the number of site owners registering for RZLT and filing a return.
Surcharges, ranging from 10pc to 30pc of the annual liability, apply to late RZLT returns.
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