The Gazette 1978

JANUARY/FEBRUARY 1978

GAZETTE

CONVEYANCING: INVESTIGATION OF TITLE TAXATION REQUISITIONS II by Roderick Buckley, Solicitor (Part I of this Article which appeared in the December, 1977, Gazette, dealt with Death Duties and Capital Acquisitions Tax.)

WEALTH TAX The Wealth Tax Act 1975 imposed an annual charge to Wealth Tax at the rate of 1% of the net market value of the taxable wealth of individuals, discretionary trusts and private non-trading companies as of 5th April 1975 and each subsequent 5th April. The Minister for Finance in his Budget Speech on 1st February 1978 has announced the abolition of Wealth Tax with effect from 5th April 1978. Wealth Tax will therefore not be payable in respect of the year 1978, and 5th April 1977 will be the last valuation date for the tax. However, so far as is known at present, requisitions regarding Wealth Tax will continue to be relevant up to 5th April, 1983, as Wealth Tax unpaid in respect of 5th April 1975, 1976 or 1977 will continue to be a charge on real property comprised in the assessable person's wealth for 6 years after the relevant valuation date. In order to decide whether Wealth Tax was payable on a property it may be necessary to consider whether the owner of the property as of 5th April 1975, 1976 or 1977 was a Discretionary Trust or Private Non-trading Company within the meaning of the Act. The definition of Discretionary Trust is contained in Section 1( 1) of the Wealth Tax Act, as amended by Section 49 of the Finance Act 1977. The definition is extremely wide and includes many trusts which would not normally be considered as Discretionary Trusts. For practical purposes it can be taken that almost every trust is deemed to be a Discretionary Trust, and where trustees appear on the title of a property on 5th April 1975, 1976 or 1977 a Certificate of Discharge from Wealth Tax should normally be obtained. The definition of a Private Non-trading Company is contained in Section 6 of the Wealth Tax Act, as amended by Section 50 of the Finance Act 1977. A company will be a Private Non-trading company if and only if it satisfies all of the following criteria: (i) The number of shareholders (excluding employees who are not directors of the company and any shareholder who is such as nominee of a beneficial owner of shares) is not more than 50; (ii) It has not issued any of its shares as a result of a public invitation to subscribe for shares; (iii) It is under the control of not more than five persons (an individual, his relatives, nominees and partners being all deemed to be a single person); (iv) Its income in the twelve months preceding the valuation date consisted wholly or mainly of investment income, i.e., income which if the company were an individual would not be earned income within the meaning of Section 2 of the Income Tax Act 1967; (v) Its property on the relevant valuation date consisted wholly or mainly of property fromwhich that investment income is derived. A body corporate which would otherwise be a Private Non-trading Company is deemed not to be a Private Non- trading Company if either

(a) It is under the control of a body corporate which is not a Private Non-trading Company or (b) the market value of the company's property on the relevant valuation date is represented as to not less than 90% thereof by the market value of shares in or debentures of a body corporate which is not a Private Non-trading Company and of which the first body corporate has control. This latter provision applies only in respect of the 1977 valuation date. Most Irish companies other than those quoted on the Stock Exchange will fulfil the first three requirements for a Private Non-trading Company. In order to determine whether the company is liable to Wealth Tax it is then necessary to look at whether most of its income in the twelve months preceding the valuation date, was unearned, for example, dividends or rent, and whether its property on that valuation date consisted mainly of property producing that unearned income. This latter requirement is included so as to provide exemption in respect of a company which is primarily a trading company and whose assets consist mainly of trading assets but which in a particular year makes little or no trading profit and might otherwise be deemed to be a Private Non-trading Company if it was in receipt of a small amount of unearned income. The exemption in favour of companies under the control of a body corporate which is not a Private Non trading Company is intended to exempt investment subsidiaries of publicly quoted companies or of other companies that are not Private Non-trading Companies. Some companies which are essentially trading operations find it convenient to have the trade carried on by an Operating Subsidiary, all of whose shares are owned by a holding company. If the Operating Subsidiary were to pay a dividend to the holding company and if the various other requirements outlined above were fulfilled, then the holding company would be liable to Wealth Tax as a Private Non-trading Company. The exemption at (b) above is intended to favour such a company. Property situated in Ireland is liable to Wealth Tax, regardless of the residence or domicile of the individual, Discretionary Trust or Private Non-trading Company owning the property. The only circumstance in which property in Ireland is not liable to Wealth Tax is if it is owned by an entity other than an individual, Discretionary Trust or Private Non-trading Company, for example, if it is owned by a publicly quoted company or by a company whose income in the twelve months preceding the relevant valuation date derived mainly from trading. Section 19 (1) of the Wealth Tax Act provides that tax due in respect of the taxable wealth of an assessable person shall "be and remain a charge on any real property comprised in the taxable wealth of the person." Unlike the corresponding provisions for death duties and Capital Acquisitions Tax, Section 19(1) does not restrict the charge on any particular item of real property to the Wealth Tax payable in respect of that particular property. The entire unpaid Wealth Tax of an assessable person is 9