305. Deputy Edward Timmins asked the Tánaiste and Minister for Finance if he will consider the indexing of capital gains tax to take account of inflation; and if he will make a statement on the matter. [26898/26]

The Deputy will be aware that Ireland's Capital Gains Tax (CGT) rate is 33%. It 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 at which it is disposed. CGT is payable by the person making the disposal.

Section 556 of the Taxes Consolidation Act 1997 (TCA 1997) provides a measure of relief for capital gains which are attributable purely to inflation, commonly known as ‘indexation relief’. The section provides that, in computing the chargeable gain on the disposal of an asset, the cost of acquisition of the asset (and any other expenditure allowable in computing the gain) are to be indexed, that is, they are to be adjusted by applying to it a multiplier based on the All Items Consumer Price Index as compiled by the Central Statistics Office.

Finance Act 2003 amended section 556 TCA 1997 such that indexation relief does not apply from the 2003 tax year onwards. However, indexation relief continues 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 2003, with the relevant indexation multiplier being determined by reference to the year in which the expenditure was incurred.

Where an asset was held on 6 April 1974, the market value of the asset as at that date is deemed to be the cost of acquisition and indexation is applied to this base “cost”. Indexation relief cannot operate to create an artificial loss or to augment an actual monetary loss. There is also a restriction on the amount of indexation available on the disposal of development land. Section 651 TCA 1997 restricts indexation relief to the current use value of the land at the date of acquisition, together with such proportion of the incidental costs of acquisition as is referable to that current use value.

Indexation relief was ended as a means of gradually broadening the tax base, and it has proved to be effective.

The Programme for Government commits 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 population aging. CGT is part of a system to ensure taxation is not focused solely on income tax and that those who benefit from gains in the value of their assets are included within the tax net on an equitable basis.

As with all taxes, CGT is subject to ongoing review, which involves the consideration and assessment of the rate of CGT and the relevant reliefs and exemptions from CGT. CGT policy and legislation is reviewed as part of the annual Budget and Finance Bill process and as part of wider tax policy considerations.