The Gazette 1992

GAZETTE

SEPTEMBER 1992

Inheritance Tax and the Evolution of Section 60 and Section 119 Policies

the trend indicated in earlier years, and this would seem to be attributable to the introduction of the self-assessment system, in that year. The level of revenue generated under inheritance tax in comparison to that generated by discretionary trust tax and gift tax has much to do with some individuals' reluctance to deal with the CAT problem during their lifetime. This imposes a huge burden on beneficiaries, who are accountable for the payment of CAT and in many cases leaves them in the unfortunate position of having to dispose of valuable assets, whether they be business assets, investment property, personal assets or heirlooms. It is necessary therefore, that every effort be made, during the life of a disponer to highlight the significance of the CAT problem, to plan effectively, and ultimately to provide a solution which is both attractive and affordable. Much of the burden of responsibility lies with those involved in the legal profession, and necessitates a certain amount of tax planning to reduce the exposure. Although this may alleviate some of the burden, the problem of paying a hefty CAT bill may still remain, and in latter years the use of life assurance has become more prevalent, in providing funds to meet such liabilities. Prior to 1985 planning for inheritance tax usually involved one or more of the following: 1. Discretionary will trusts 2. 6.5% Exchequer Stock 2000/05 or 3. Life assurance. Discretionary will trusts The primary use of a discretionary will trust, is that the succession to the deceased's estate can be delayed at the discretion of the trustees. In CAT Planning - Pre Section 60

by Leo Clarke - Hibernian Life

Introduction

Capital Acquisitions Tax (CAT) is one of the less well known taxes administered by the Revenue Commissioners. This is because unlike income tax or corporation tax which are paid on a regular basis, CAT is a once-off type tax which arises on the receipt of a gift or inheritance. Having said this the significance of this tax cannot be underestimated - 1991 was a record year for capital acquisitions tax. The yield amounted to nearly IR£50 million, which was up by some IR£12 million (31%) on the yield for 1990. This increase was as a result of the consolidation of the self assessment system and of the amnesty for capital acquisitions tax announced by the Minister for Finance in his 1991 budget speech. Since capital acquisitions tax covers the assessment and collection of a number of taxes, namely:- discretionary trust tax, inheritance tax and gift tax, it is useful to provide particulars of the distribution of exchequer receipts classified under these headings. Distribution

Leo Clarke The greatest proportion of revenue generated is by way of inheritance tax, some £33 million in 1990. With discretionary trust tax and gift tax it is noted that over the period revenue generated from these taxes has been fluctuating in alternative years between IR£1 million and IR£2 million. However, under discretionary trust tax a marked increase is evident in 1987, when some IR£4 million was obtained. This represents the introduction in that year of the 1% annual charge on discretionary trusts on top of those discretionary trusts liable to the 3% once-off charge. A further IR£1 million was generated for gift tax in 1990 over and above

Capital Acquisitions Tax Distribution

Year

Discretionary

Inheritance

Gift Tax IR£

Tax IR£

Trust Tax

IR£

1,000,000 4,000,000 2,000,000 1,000,000 2,000,000

1986 1987 1988 1989 1990

18,000,000 20,000,000 23,000,000 28,000,000 33,000,000

2,000,000 1,000,000 2,000,000 1,000,000 3,000,000

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