The Gazette 1985

APRIL 1985

GAZETTE

is £150,000. The non-farm assets are aggregated with the land, and tax is payable as follows:— Taxable Value: 200,000 Taxable: 150,000 at 0% - NIL 10,000 at 20% = 2,000 40,000 at 30% = 12,000 200,000 14,000 (Average Rate _ _ 7%) The tax payable is apportioned between the two inheritances according to the taxable value of each as follows:— Tax payable on Business Assets: £14,000 x 160,000 200,000 = £11,200 Tax payable on Other Assets: £14,000 x 40,000 200,000 = £ 2,800 Example 2 Peter Mulrine, who also qualifies under Paragraph 9, takes the following inheritance from his uncle, a

substantially on a full-time basis for the period of five years ending with the disposal in carrying on or assisting in the carrying on of, the trade, business or profession concerned, or the work of, or connected with, the office or employment concerned". 'Business Assets' are defined as assets used in the course of a trade, farming, a profession, an office or an employment, which the person making the disposal has owned for a period of not less than ten years ending on the date of the disposal 26 . The conditions of this relief are essentially the same as those under the Capital Acquisitions Act, except that the five years must end on the date of the disposal. Therefore, a person .who wishes to gift his business or farm to a favourite nephew may not be liable to Gift Tax or Capital Gains Tax if he fulfils the conditions for both the 'Favourite Nephew' and 'Retirement' Reliefs. (7) Conclusion The 'Favourite Nephew' relief can result in an elimination or a significant reduction in liability to Gift or Inheritance Tax on the transfer or inheritance of property. A similar relief is available under the Capital Gains Tax Act. However, care must be taken to ensure that the conditions for the relief are clearly fulfilled, in particular that the nephew has worked substantially on a full-time basis for a period of five years ending on the date of the gift or inheritance in assisting in carrying on the business, and that the property must have been used in connection with the business. The case of A.E. -v- Revenue Commissioners 27 provides an interesting illustration of circumstances in which the relief may be applicable, and indicates that the applica- bility of the relief essentially depends on the circumstances of each case. • Footnotes 1. The word "nephew" and uncle will be used to refer to both "nephew and niece" and "uncle and aunt" for convenience. 2. [1984] ILRM 301. 3. [1984] ILRM 301 at 302. 4. Crook -v- Whiteley (1857), 7De G.M. & G. 490. Wells-v- Wells 4) L.R. 18 Eq. 504. Re Cozens. Miles -v- Wilson. [1903] 1 Ch. 138. Re Daoust, Dobell -v- Dobell [1944] 1 All ER 443. 5. This includes the children of a second or later marriage:— Re Hammersley. Kitchen -v- Myers (1886) 2 T.L. R. 459, following Grieves -v- Rowley (1852) 10 Hare 63. Re Cozens. Miles -v- Wilson [1963] 1 Ch. 138. 6. Re Brown. Brown -v- Brown (1889) 58 L.J. Ch 410. Re Fish. Ingham - vRayner [1894] 2 Ch. 83, C.A. 7. Re Daoust. Dobell -v- Dobell [1944] 1 All ER 443. 10. [1984] ILRM 301 at 303-5. 11. [1984] ILRM 301 at 305. 12. As defined in s.2 CATA 1976. 13.S.30 CATA 1976. 14. 1. Trade: Martin -v- Lowry. 1926, 11 TC 297, [1927] A.C. 312. Rutledge -v- C.I.R. 1929, 14 TC 490. Representatives of P.J. McCall. deceased-v- C.I.R. 1923, 1 T.C. 31 (an Irish case). 2. Profession: C.I.R. -v- Maxse 1919, 12 TC 41, [1919] 1 K.B. 647, C.I.R. -v- Peter Mclntyre Ltd 1926, 12 T.C. 1006. Inspector of Taxes v- Brian Cronin & Associates Ltd. , High Court, McWilliam J, 27 July 1984. Unreported. 8. [1984] ILRM 301 at 303. 9. [1984] ILRM 301 at 303.

businessman:— Shares in family

100,000 Business Assets - Relief

trading company Personal Investments 100,000 Other Assets - No Relief 200,000

The threshold amount relating to the shares is £100,000. Tax is calculated as follows:— Taxable Value £200,000 (Excluding Agricultural Relief) Taxable 100,000 at 0% = NIL

10,000 at 20% = 2,000 40,000 at 30% = 12,000 50,000 at 35% = 17,500 200,000

31,500 (Average Rate

15.75%

= =

= = = =

A heavier liability to tax arises in the second example because of the lower proportion of business assets. (6) 'Capital Gains Tax* S.26 Capital Gains Tax Act 1975 contains a relief which closely resembles the 'Favourite Nephew' provisions. Generally speaking there is no charge to Capital Gains Tax on property passing on death 24 . However, if a disponer gifts property to a nephew during his lifetime, the otherwise normal charge to Capital Gains Tax may be avoided in certain circumstances. Relief is granted if the gift is of 'business assets', by an individual aged 55 or more, subject to certain conditions being fulfilled. This is known as 'Retirement Relief. If the disposal is to a child, as defined, there is no charge to Capital Gains Tax. 'Child' is defined as including 25 : " . . . a nephew or a niece who has worked

15. [1984] ILRM 301 at 304. 16. [1984] ILRM 301 at 304. 17. [1884] 27 Ch. D. 88. 18. [1984] ILRM 301 at 304. 19. [1984] ILRM 301 at 304. 20. [1984] ILRM 301 at 304.

94