The Gazette 1985

GAZETTE

SEPTEMBER 1985

passed to his children, a third charge to tax would arise on the death of LT on the same property. Accordingly, multiple charges to tax may arise on the same property on the same event. Prior to the introduc- tion of Section 62 FA 1985, such a situation could result in severe hardship for the ultimate beneficiary, because the tax payable on each charge was treated as a deduction from the taxable value of the estate under Section 18 CATA 1976, rather than a credit. 7 Assuming an estate valued at £30,000 and an average rate of tax of 50% ignoring exemptions, the following position could arise:—

B. Section 62 FA 1985 Section 62 FA 1985 was introduced to remedy the hardship that could arise when multiple charges were imposed on the same estate on the same event. Section 62 inserts a new Section 34A into the Principal Act, as follows:— "Where tax is charged more than once in respect of the same property on the same event, the net tax payable which is earlier in priority shall not be deducted in ascertaining the taxable value for the purposes of the tax which is later in priority, but shall be deducted from the tax which is later in priority as a credit against the same, up to the net amount of the same." (Italics added) The double charge to tax under Section 23(1) and (2) respectively falls within Section 62, which refers to tax being charged more than once on the same property "on the same event". "Event" is not defined in Section 23, however Section 24 provides that in that Section, "event" includes a death and the expiration of a fixed period. Accordingly it would appear that the 'event' under Section 23 is the death of a life tenant. The two charges to tax arise under Section 23 as follows: the first charge on the death of the life tenant under Section 23( 1) and the second on the transfer of the remainder interest under Section 23(2). The first charge would therefore be "the net tax payable which is earlier in priority" within Section 62, and the second charge "the tax which is later in priority". Therefore, the tax payable, if any, on the first charge is available as a credit against the tax payable on the second charge. If there are more than two charges, the tax payable on prior charges is available as a credit against the ultimate charge. For example:— Example 3 Post Finance Act 1985 R is the remainderman of a settlement valued at £30,000 in which LT has a life interest. R gifts his interest to a third party T. The following charges to tax arise:—

Example 2 A. Pre Finance Act 1985

R is the remainderman of a settlement valued at £30,000 in which LT has the life interest. R bequeaths his interest to T who bequeaths it to his (T's) children. R and T die before LT and T's children take on LT's death. The following charges to tax arise:—

£ 15,000

£30,000 at 50% =

Settlor to R (Section 23(1)) R to T (Section 23(2))£30,000 Less Tax Payable ( 15,000) Taxable:

(1)

(2)

7,500

15,000 at 50% 30,000

T to children

(3)

(Section 23(2) Less Section 23(1) Section 23(2) Taxable: Total Tax Payable Net Estate After Tax Effective Rate

( 15,000) ( 7,500)

7,500 at 50% =

3,750 26,250 3,750 87.5%

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Tax 15,000 15,000 (15,000) NIL

Settlor to R (Section 23(1)) 30,000 at 50% = R to T (Section 23(2)) 30,000 at 50% = Less credit for Section 23(1) Tax Payable

In the case of multiple charges, it appears that the practice of the Revenue Commissioners will be to levy the largest of the several charges to tax on the property in question as follows:— Example 4 Post Finance Act 1985 R is the remainderman of a settlement valued at £30,000 in which LT has a life interest. R gifts his interest to a third party T. T dies and his children inherit when LT dies. The following charges to tax arise:—

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