The Gazette 1984

GAZETTE

APRIL. 1984

Finance Bill, 1984 Submissions of Law Society's Taxation Committee

should recognise this situation. The Society further submits that the phrase ' in loco parentis ' is sufficiently clear in law not to require any further definition but would not of course oppose any definition to prevent abuse. 3. Aggregation — Section 107 The Society feels that there may be an unintended consequence of the new aggregation rules, which could result in hardship or unfairness, especially to a surviving spouse. For example, under the provisions proposed in the Bill:— (a) 3rd June, 1982, — Spouse received gift of £20,000 from her brother or inherited £20,000 from the Estate of a deceased brother. No tax is payable. (b) 20th June, 1984, — Spouse received gift of £10,000 from her husband. There is an immediate tax liability of £1,500 (and of £2,000 if it were an inheritance). This is so notwithstanding that the spouse has not exhausted or used any of her tax free threshold of £150,000 from her spouse. In the long term, this could produce even greater hardship where a benefit taken by a spouse from a parent after 2nd June, 1982, is aggregated with benefits received from the other spouse twenty or more years later, giving rise to a substantial tax liability on perhaps relatively modest provisions made for the surviving spouse. This is particularly so in the case of retired persons (especially public officials or representatives) who have not accumulated capital or have disposed of their capital on the education of children or otherwise and the main provision for a widow is the family home and a pension. The capitalised value of the pension together with the family home and contents, aggregated to such gifts or inheritances, will frequently give rise to a liability for tax with no liquid assets to pay same. To overcome this problem, the Society suggests:— (a) the definition of 'revised class threshold' be omitted from the Section and any necessary amendment be made in Para. 3 to ensure that any allowance for previous tax is calculated using the same class threshold, viz. notional tax. (b) alternatively, that there should be no aggregation in the case of gifts or inheritances by a spouse to a spouse of earlier gifts or inheritances from uncon- nected sources. 4. Spouse The Society again submits that the time has come to review the position of a surviving spouse and to consider either totally exempting gifts and inheritances between spouses, increasing the reliefs or exempting pensions or giving some ease on similar lines. The value of ordinary 115

1. Certificates of Discharge — Section 109 The Society welcomes the proposal for the issue of Certificates of Discharge to Executors and persons having secondary liability. The proposed sub-section, however, stipulates that the Certificate cannot be issued until a period of two years after the valuation date. This could, therefore, impose a possible delay of three years in winding up Estates — even the smallest Estates — and payments to beneficiaries. It is suggested that the Section should impose no constraints on the Revenue Commis- sioners relating to the issue of Certificates as and when they think appropriate. The Society is perfectly happy that the Revenue Commissioners will, as always, exercise such discretion fairly and reasonably. If a time limit is removed, it may in fact not merely expedite the completion of administrations and payments to beneficiaries, but it will also indirectly help to expedite the payment and discharge of tax. Accordingly, the Society requests that this time restraint be removed and the matter be left exclusively to the discretion of the Commissioners. The Society does not question the concept of taxing Discretionary Trusts where same are used to avoid or defer payment of Capital Acquisition Tax. There appears, however, to be an unintended consequence of the provisions. For example, an Estate of between £ 100,000 / £150,000, might be left to Trustees upon Discretionary Trust for a spouse and the inheritances subsequently arising would not attract any Capital Acquisition Tax on the appointment to the beneficiaries. In other words, the purpose of the Discretionary Trust here is simply to give flexibility in the administration of the Testator's Estate and not to avoid or defer tax. Nevertheless, in the example quoted, the beneficiaries would suffer a tax liability of between £3,000/£4,500. The Society believes that this was not intended and to avoid this hardship, submits that the following exemptions should be given:— (i) The tax should not be charged on a Discretionary Trust if the Trust Funds are distributed or are appointed out of the Trust within two years of the death of the Testator. (ii) There should be no tax on a Discretionary Trust where the Trust Fund does not exceed £150,000 and the principal objects are as defined in Section 100. It is also submitted that the definition of 'principal objects' in Section 100, should be extended to include persons to whom the Disponer stands in loco parentis. There are times when a nephew or niece or other relative being orphans or otherwise not having the benefit of parents (and who cannot for technical reasons perhaps, be adopted), become assimilated into a household and effectively, part of a family. The Society strongly submits that the law 2. Discretionary Trusts — Part V, Chapter 1 — Sections 100-105