The Minister did not make secret that he intended to introduce major capital acquisitions tax changes in the Budget. He was certainly true to his word.

Apart from the introduction of a new single CAT rate of 20 per cent, two of the most significant changes were the introduction of a relief for principal private residences and a fundamental change in the basis of the charge to CAT.

The introduction of a relief for principal private residences was not unexpected. With the recent very significant increases in residential property prices, even a modest three-bedroom semi-detached house in the Dublin suburbs could be worth more than the pre-Budget parent-to-child threshold of £192,900.

Hard luck stories of children forced to sell inherited family homes in which they have been living for many years in order to pay CAT have received prominent media attention. The extent of the relief - a total exemption from CAT provided certain conditions are met - was however unexpected.

These conditions include the requirement that the recipient should be resident in the house for three years before the transfer and that the recipient cannot dispose of the house for six years after the transfer.

One of the relief's most notable features is that a total exemption may be obtained if the residence is the principal private residence of the recipient alone. It would not appear that it must also be the principal private residence of the disponer. This leaves open the possibility of a wealthy parent buying a substantial house and transferring that house to a child once the child has resided there for three years. The child must not dispose of the house for six years in order to avoid a clawback of the relief.

However, the child does not have to live in the house for this further period in order to retain the relief and the residence could therefore be leased to a third party at a handsome rent. This condition is not therefore particularly onerous.

This process could be repeated every six years by the disponer, thereby providing an opportunity to pass significant wealth to a child free of CAT. Conceivably this could further fuel the already overheated residential property market, one of the very reasons why the Minister had to introduce this relief in the first place. It will be interesting to see whether the Finance Bill will restrict what has been presented as a very generous exemption. Perhaps the most fundamental change announced is the alteration in the basis of the charge to CAT. Previously a beneficiary was within the charge to CAT if the disponer was domiciled in the State. Now a CAT liability can arise where either the disponer or beneficiary is resident or ordinarily resident in the State.

Bringing CAT into line with income tax and capital gains tax is, to an extent, to be welcomed. The old common law rules relating to domicile are complex and uncertain. Residence is a much simpler concept, clearly defined in legislation. However, the change comes as a surprise to most tax professionals.

The Minister's speech suggests this radical alteration was needed to counter avoidance. This also comes as a surprise to most tax professionals. It is true that the introduction of a charge on Irish resident beneficiaries may counter a certain very specific avoidance mechanism that has received much public attention recently. However, domicile is generally a much more difficult connection to break than residence. The onus of proving a change of domicile is extremely high. It requires a fundamental alteration of lifestyle and a substantial break with the original country of domicile.

The change to a residence basis for the disponer gives individuals the opportunity to plan to transfer assets free of CAT. This will be aided by the fact that most common law countries still retain a domicile basis of charge for gift and inheritance taxes, including, most notably, the UK.

Taking up residence in offshore jurisdictions may not therefore be necessary. Residence abroad by the donor and recipient for a period of three years could be all that is required. However, many individuals may be prepared to go to these lengths. By extending CAT to Irish resident recipients, the Minister may have caught a few big fish in the CAT net. However, by allowing Irish domiciled individuals the opportunity to plan to avoid the charge, he may end up letting many more off the hook.

Fergus McCarthy is CAT manager with Pricewaterhouse Coopers, Dublin.