The Gazette 1979

GAZETTE

MARCH 1979

The Farmer and the Law. Taxation implications of property and inheritance transactions by Donal G. Binchy, Solicitor A revised version of a Lecture delivered to the Joint Incorporated Law Society/Irish Farmers Association Seminar 14th February, 1979.

charities as he wishes. A will is not the only way of disposing of property, however, — a man may also do so during his lifetime by way of deed or a settlement — and many people getting on in years do transfer some or all of their property to children subject to suitable provision for themselves and their wives. A young person should obviously make a will to provide for the contingency of premature or unexpected death — if a man has property no age is too young to do this. Before considering tax implications and how to try and avoid or reduce the liability for taxes I would like to stress that the primary consideration must, in my opinion, be the proper disposition of a man's property or division of the family cake according to his moral and legal obligations — and to his preference — taking into account the capacity and worthiness of those whom he would like to succeed to his property. The full family circumstances must be considered. A man must obviously make suitable provision for his wife and children. On the other hand there is little point in making over a substantial farm on a Trappist monk or a Carmelite nun simply to avoid Inheritance Tax; and at the other end of the scale there is not much to be said for giving a large slice of one's peoperty to a child who is a confirmed drunkard or gambler and will dissipate it within a few years. Having said this the proper arrangement of a man's affairs by will or deed can frequently effect a substantial tax saving. Conversely an improvident arrangement or no arrangement at all can result in an unnecessary liability for taxes. I hope to illustrate both points by a few examples later. Old and New Duties Most of you will be familiar with the old Death Duties, particularly Estate Duties, which were mainly a tax on the estate or property of a deceased person. The amount of the tax depended upon the net value of his estate and the relationship of the Beneficiary had no relevance. The other duties viz. Legacy and Succession Duties depended on relationship with total exemptions for a wife and family. With some foresight and luck it was frequently possible to avoid the old Death Duties entirely by transferring most or all of your assets and then having the luck to live for five years. This is no longer possible because the new taxes are what is described as Donee orientated, that is they are taxes on the gifts or inheritance received by the Beneficiary and all gifts and inheritances from the same Benefactor to the same Beneficiary are aggregated for the purpose of determining the amount of tax and the effective rate of same. There are time limits within which the aggregation takes place as will appear later. 31

Preliminary In 1929 a Scottish Judge set out the principles which regulate the never ending combat between the taxpayer and the Revenue Commissioners in the following colourful language: "No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Revenue to put the largest possible shovel into his stores. The Revenue is not slow — and quite rightly — to take every advantage which is open to it under the taxing statutes for the purpose of depleting the Taxpayer's pocket. And the Taxpayer is, in like manner, entitled to be astute to prevent, so far as he possibly can, the depletion of his means by the Revenue". This reasoning remains just as valid to-day. And the question I would like each person to ask himself is — Does my arrangement of my affairs allow the Revenue to Put a bigger shovel than necessary into my stores? Or to Put it in plainer language will the Revenue Commissioners collect more tax from me or my family after me by reason of the type of will or settlement I have made or by reason of my failure to make a will or settlement? Before proceeding further I would like to explain that the expression "husband and wife" "man and woman" throughout this paper are interchangeable. If I seem to allocate a more important role to a husband or man this is Purely for convenience and not by reason of any male chauvinism. Succession/W ill/Intestacy The first basic principle that every property owner roust remember is that he will have to part with it sooner or later voluntarily or involuntarily. He cannot take it with him when death's bright angel comes. But if he chooses he can arrange how and to whom it will go. If he does not exercise this choice himself the law will do so for him. This is called the law of intestate succession. In the case of a married person this law provides that two-thirds will go to his wife and one-third equally to his children; and if he is a widower it will all go equally to his children. In the case of a Bachelor or Spinster it will go his or her Parents or surviving parent, if alive, and if no parents, to his brothers and sisters or nephews and nieces under certain r ules. This is a fairly simple statement of the position and I do not have to tell you that there are many cases in which this is totally unsuitable. Most of you will be aware °f families who have encountered serious problems because no will was made. In simple language a will is a document providing for the division of a man's property a fter his death among his family, relations, friends or