The Gazette 1989

GAZETTE

APRIL 1989

it was paid by the Donee, then it would not be a deduction for Capital Gains Tax purposes as it would not have been paid by the Transferor. It appears therefore that Stamp Duty is a good de- duction for either Capital Gains Tax purposes or for Gift Tax purposes, but not for both taxes. The Transferor is account- able for the Capital Gains Tax (Section 4 Capital Gains Tax Act 1975). The tax is also recoverable from the Donee if the Transferor has not paid it within twelve months from the date when the tax became payable. The Donee, however, has a right to recover the tax from the Transferor as a simple contract debt (Paragraph 18 Schedule 4 Capital Gains Tax Act 1975). Section 63 Finance Act 1985, as amended by Section 66 Finance Act 1988, allows Capital Gains Tax to be credited against Capital Acquisitions Tax. Where Gift Tax is charged in respect of property on an event happening on or after 30th January 1985 and the same event constitutes a disposal of that property for Capital Gains Tax purposes, Capital Gains Tax payable is not deducted in ascertaining the taxable value of the property for Gift Tax purposes but, insofar as it has been paid, it shall be deducted from the net Gift Tax as a credit against the same; for example Mr. X makes a gift of his farm to his cousin and the Gift Tax payable amounts to £10,000. Capital Gains Tax of £4,000 is also chargeable on the disposal. The Gift Tax liability is reduced by £4,000 to £6,000 so that the total tax payable on the disposition is £10,000, that is Gift Tax £6,000 and Capital Gains Tax £4,000. In advising in a gift situation the relevant legislation regarding Stamp Duty, Capital Acquisitions Tax and Capital Gains Tax must be considered. To enable a practitioner to assess the fiscal liability of his client in these areas much more information is required than would be necessary if the

is deemed to be taken when a person (the Transferee or Donee) takes property under a disposition otherwise than for full consideration in money or money's worth paid by him. In arriving at the taxable value of the gift, Section 18 (2) of the Act allows a deduction for any bona fide consideration in money or money's worth paid by the Donee. Stamp Duty may also be a good deduction if in fact it was paid by the Donee. In such a case the Stamp Duty would be regarded as a liability properly payable out of the gift (Section 18 (1) of the Act). Payment of the Stamp Duty by the Donee would not be re- garded as partial consideration under Section 18 (2)(a) of the Act because the Transferor is not liable for the Stamp Duty and therefore the Donee is not taking over a liability of the Transferor. The provisions of the latter sub section would apply to Capital Gains Tax paid by the Donee, as this would be a liability of the Transferor taken over by the Donee. The Donee is primarily accountable for the Gift Tax. The Transferor (Disponer) is also accountable. The transfer of an asset by way of a gift is a disposal for Capital Gains Tax purposes. Section 9 Capital Gains Tax Act 1975, states that a person's disposal of an asset shall, for the purposes of the Act, be deemed to be for a consideration equal to the market value of the asset when he disposes of the asset otherwise than by way of a bargain made at arm's length (including in particular where he disposes of it by way of gift). Under Paragraph 3 Schedule 1 Capital Gains Tax Act 1975, sums allowable as a deduction from the consideration in computing Capital Gains Tax include the incidental costs to the transferor of the dispdsal of the asset. These incidental costs are stated specifically to include Stamp Duty. If however the Stamp Duty was already deducted for Capital Acquisi- tion purposes, on the basis that

Stamp Duty liability alone was being considered. The following check list may be of assistance in enabling a practitioner to obtain all the essential information. For example, in the case of A purporting to transfer immov- able property to B, the following data would be essential in order to advise on the tax consequences of the transaction. (A) Regarding the Property to be Transferred: (i) It is essential to ascertain the market value of the property at the date of the transfer for all three taxes. While it is generally accepted that the same market value should apply for all cases, in practice it does not always work out that way. Market value is essentially a matter for agreement between the parties involved and a third party ought not to be bound by such agreement. Accordingly, if the Revenue Commissioners agree a market value for Gift Tax purposes with the Donee, this should not bind the Transferor, who is account- able for the Capital Gains Tax, however much it may inhibit the Revenue Com- missioners in arguing another value later for Capital Gains Tax purposes. In practice, at the initial stage, the Revenue Com- missioners value property for Stamp Duty purposes only, unless requested otherwise by the taxpayer and notify the taxpayer ac- cordingly. Neither side is therefore bound by that valuation for the purposes of Gift Tax or Capital Gains Tax. This practice speeds up the adjudication process and is acceptable in general. However, if a prac- titioner wishes to agree a market value for all three taxes, he should inform the Revenue Commissioners and they will act according- ly. It is understandable that the Revenue Commis-

3. Capital Gains Tax:

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