The Gazette 1985

GAZETTE

SEPTEMBER 1985

value of the property taken by the remainderman and taxed under Section 24(1). Therefore, two charges to tax would arise on the same person, on the same property on the same event. At the same time, the effective rate of tax on the second benefit would be higher than the first because of aggregation. To counteract this, Section 61 Finance Act 1985 provides that in such circumstances the value of the property deemed to be taken by the remainderman is not to be included more than once in any aggregate under Section 24 CATA 1976. Section 61(1) states:— "Property in respect of which tax is chargeable more than once on the same event shall not be included more than once in relation to that event in any aggregate referred to in the second schedule of the Principal Act." (Italics added). It appears that the practice of the Revenue Commissioners will be to charge tax on the basis that the benefit which produces the largest liability to tax is aggregated. An example will illustrate the position:— Example 7 Post Finance Act 1985 R is remainderman of a settlement valued at £30,000 in which LT has a life interest. LT surrenders his life interest 6,750 In this example under Section 61 R would be treated as if he had only received an inheritance of £30,000 and only this amount would be aggregated with previous benefits taken since 2 June 1982. Similarly, if R subsequently received gifts or inheritances, these would be aggregated with the amount aggregable under Section 61 and the other gift or inheritance chargeable under Schedule 24 would be ignored. As regards the second charge, under Section 62 FA 1985 the inheritance or gift tax payable on the aggregated inheritance would be available as a credit to cover this liability. Section 24(4) defines 'event' as including a death and the expiration of a specified period. Section 61, FA 1985, applies only to gifts or inheritances taken after 2 June 1982, and interest is not payable on any repayment of tax arising under Section 61 where the tax was paid prior to the date of passing of the Finance Act 1985. 20 Paragraph 7 Part I, Second Schedule, CATA 1976, which sets out the method of computing tax on benefits taken on the same day, does not apply to benefits to R. The following charges to tax arise:— Settlor to R (Section 24(1)) 30,000 at 50% = 15,000 LT to R (Section 24(2) 30,000 x (say 0.6 = 18,000 x 50% x 75% (Gift Tax) =

Act 1984 as the property would be taken by different beneficiaries. Relief would be available under Section 62, FA 1985. iii) Partition of Trust Assets if the remainderman receives a benefit from the life tenant on the termination of the settlement, or vice versa, on the partition of the trust assets a charge to tax will arise and Section 61, FA 1985, will apply as in (i) and (ii) above. Relief would also be available under Section 62, FA 1985. The value of the benefit taken on the advance termination of a limited interest by the beneficiaries of a settlement for tax purposes is valued according to who takes the benefit for the purpose of the charge to tax under Section 24. i) Life tenant to remainderman If the life tenant surrenders his interest to the r ema i n d e rma n, the p r a c t i ce of the Revenue Commissioners is to value the life interest according to the age of the life tenant using the method of calculation set out in the first Schedule CATA 1976. 22 ii) Remainderman to life tenant If the remainderman transfers his interest to the life tenant, Section 26(1), CATA 1976, provides that tax on the remainder interest is calculated on the value of the entire property, less the value of the limited interest calculated in accordance with the provisions of the First Schedule, CAT 1976. 23 Section 26(3) provides that this relief does not apply where the enlargement of the limited interest occurs under the terms of the disposition under which the original limited interest was created. 24 iii) Partition It would appear that on the partition of trust property between the beneficiaries, the benefit taken by each would be valued actuarially in the absence of express statutory rules. 2. Capital Gains Tax Sections 15 and 24(4), Capital Gains Tax Act, 1975 and Section 63, Finance Act 1985, may also apply to the advance termination of a life interest within Section 24, CATA 1976. If the remainderman surrenders or sells his future interest to the life tenant, no charge to Capital Gains Tax arises if the surrender is exempt within the terms of Section 24(4), CGTA 1975. However, a charge to Capital Gains Tax may arise under Section 15(3), CGTA 1975 if the life tenant thereby becomes absolutely entitled to the trust property. No relief is available under Section 15(4), CGTA 1975 because the life tenant does not take on a death within that sub-section. Similarly, if the life tenant surrenders or sells his interest to the remainderman, no charge arises on that disposal if the conditions in Section 24(4), CGTA 1975, are fulfilled. If the remainderman thereby becomes absolutely entitled, a charge arises under Section 15(3), CGTA 1975. No relief is available under Section 15(4), 247 C. Valuation of Benefits charged under Section 24, CATA 1976

chargeable under Section 24. 21 ii) Remainderman to life tenant

If the remainderman surrenders his interest to the life tenant, two charges to tax will arise, firstly, under Section 24( 1 )on the deemed death of the life tenant and, secondly, under Section 24(2) and Section 23(1) on the gift or inheritance of the remainder interest. No aggregation of benefits would arise under the provisions of the Finance