The Gazette 1989

JULY 1989

GAZETTE

Book Review I nhe r i t ance Tax - Barry McCutcheon, British Tax Library. Publishers: Sweet & Maxwell. Stg£110.00 This work is of a very substantial nature and has to be considered bo th f r om a subjective and objective point of view. Subjective in as much as, if familiar with the UK system of Inheritance Tax, whether it would enhance the information or knowledge in that' area. It also has to be considered from an objective point of view as to whether it would enhance the capability and ability of the Irish Tax Practitioner in relation to Capital Acquisitions Tax. On both these counts, it is a success. Subjectively, it is an erudite and easily understood (with a few exceptions) work on the new UK Inheritance Tax system which was introduced under the Inheritance Tax Act, 1984. Basically, although called Inheritance Tax, it is a mutations tax (i.e. one which taxes what passes), similar in form to Estate Duty but with many new complications and d i f f i cu l t i es introduced wh i ch makes tax planning quite difficult and indeed speculative. It breaks this difficult tax down into easily understood sections which lead step by step to an overall knowledge of the system which will stand a practitioner in very good stead. It begins with an overview of the system setting out in short form the more complicated concepts which the reader will be required to investigate in the remainder of the book. This, in itself, is a most useful guide as the reader will already have an idea as to the complexities. We are then led through the specific complications starting with transfers of value and breaking this down into actual transfers and notional transfers. This explanation as to the difference between them and the reliefs etc. which flow from them and where they are different is most useful. It is interesting to note that "dea t h" is a notional transfer of value. In the area of notional transfers it covers, in exceptional detail, the use of close companies, for example, a re- duction in the value of an Estate or Shares using a close company can

be a notional transfer of value. It also covers excluded property and other reliefs insofar as they effect transfers. From there it leads us into exempt transfers and to what type of transfers these exemptions apply. Like C.A.T. it has a small gifts exemptions (annual) and for those of us familiar with Estate duty, the terms "no rma l" and "reasonable" in relation to expenditure form an exemption. The list from this particular chapter is very similar to the exemptions from C.A.T. with a few noteable exceptions. In Chapter 4, the Author leads us through the most complicated provision of the legislation namely, Potentially Exempt Transfers called in short, PETs. The advantage of making PETs, the complications they cause for chargeable transfers and ultimately on death, if the death should occur within seven years of the making of the PET, are all explained in detail and the section is liberally laced wi th examples. It also deals with anti- avoidance situations relating to gifts into settlements. Once the concept and compli- cations of PETS are understood, the rest of the compution pro- visions of IHT become relatively simple. The next step is to deal with chargeable lifetime transfers viz: gifts, and settlements which are not of the favoured kind and again, dealing with the complications arising from those in relation to death and PETS. The chapter also contains and explains the compution of tax and the concept of "grossing up". There are only t wo bands of Inheritance Tax in the U.K. namely nil and 40%. The first £110,000.00 to be increased to £118,000.00 in the recent budget is charged at nil and the balance at 40%. Under- standing this particular aspect of IHT will help the Irish Practitioner in the area of double taxation relief and tax planning in that area. Within that chapter, tax planning, taking into account reduced rates, chargeable transfers, PETs and their effect, is explained together with the benefit of Life Assurance in IHT Tax Planning. Again, for those of us familiar with Estate Duty, Chapter 6 relates to "reservation of benefit" which is again, basically, drawn from the

Estate Duty legislation with all the old cases familiar to the older practitioners such as Monro, D'Avigdor-Goldsmid etc. Logically, therefore, we are led to the charge on death and the differences between our respective taxes are highlighted in this particular area for those familiar with CAT. However, IHT is a tax with which practitioners must be familiar because of of the proximity of the UK and the likelihood that some clients will have money or property invested in the UK. It is in the area of the charge arising on death that the similarities between Estate Duty and IHT are brought out but IHT has its own reliefs such as business relief, relief for woodlands etc. There are also reliefs for persons on active service and quick succession relief which, unfortunately, do not apply to C.A.T. It is possible to see where property could be charged twice under IHT rules, for example, when a father makes a potentially exempt transfer to the son and the son dies intestate and unmarried prior to the father. This would mean that the PET or portion thereof made by the father would end again in the father's estate thereby being doubly charged. There is relief for this type of situation as well. This particular chapter is laced w i th examples explaining the convolutions of the tax as to whether PETs are chargeable or ignored, the consequences on the tax rate at the date of death, tapering relief relating to early PETs which become chargeable and so on. Again, the Chapter points out the complexities of the tax and emphasises for Irish practitioners the difference between the Irish C.A.T. and the UK IHT. This chapter also deals with posthumous variations, whether testacy, intestacy, whether by agreement among the parties or by the use of disclaimers etc. These variations also receive favourable t r ea tment for CGT purposes although under the recent budget the use of variations has been severely restricted in the UK. Part 2 of the book is concerned with the special charging pro- visions of the IHT code. Again it starts with a general introduction and review giving an idea of the problems in short, how they are overcome or otherwise met. Cir-

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