The Gazette 1995

GAZETTE

Post-Death Inheritance Tax Planning Still Alive

By Eamonn O'Connor A.I.T.I., Solicitor*

The successor Mrs. Y took up permanent residence in Ireland on 1 July 1992 and formed the intention of ! creating a permanent home in this I country and accordingly acquired a j domicile of choice as set out in sworn , affidavits. A valuation date was I selected in mid-September 1992 and | the Inheritance Tax Return submitted to the Revenue Commissioners within the statutory period. The Inheritance Tax Return claimed agricultural | relief as, on the valuation date, 77% of the assets of Mrs. Y now j represented agricultural property and the successor had also acquired on the valuation date a domicile of choice in Ireland.

X died a widow on the 29 July 1990 leaving an Estate with gross assets of approximately £730,000. Under the terms of her Will, she left her entire Estate after payment of liabilities to her cousin, Mrs Y, who was resident, ordinarily resident and domiciled in England. Trustees of the Will were given power to run the period residence and lands for a period of up to five years from the date of death of the Testatrix. At the date of death of X the assets in her Estate comprised the following: 1. Agricultural property (land and residence) £300,000 (34%) 2. Non-agricultural property Mrs Y owned a residence in England valued at £150,000 Sterling. On the death of X a liability to inheritance tax arose amounting to approximately £298,000. agricultural relief is available for "agricultural property" which is the subject of an inheritance and is taken by "a farmer" as defined. "Agricultural property" as defined (before 11 April 1994) generally included agricultural land - and farmhouses and mansion houses (together with the lands occupied therewith) as are of a character appropriate to the property. "A farmer" means an individual who is domiciled and ordinarily resident in the state and in respect of whom at the valuation date not less than 75% (80% since 31 May 1991) of the market value of the property to which he is beneficially entitled in possession is 306 £430,000 £730,000 However, under the Capital Acquisitions Tax Act, 1976

Eamonn O'Connor

The property as revalued on the valuation date comprised:-

represented by the market value of property in the state which consists of agricultural property, livestock, bloodstock and farm machinery. At the date of death of X Mrs. Y was not ordinarily resident and domiciled in Ireland and only 34% of her entire property comprised agricultural property. Consequently, Mrs. Y would not be entitled to Section 19 relief, as a farmer. However, practitioners should be aware that it is possible to re-organise the assets of the successor to avail of Section 19 relief during the course of the administration period. Firstly, Mrs. Y transferred her U.K. home worth £150,000 Sterling to her spouse for natural love and affection. This transfer was tax neutral both in the U.K. and Ireland. In this particular case the Trustees were advised to expend £77,000 on restoring the period residence which was in a poor state of repair. In addition, the Trustees were further advised to purchase £60,000 worth of livestock during the administration period.

1. Agricultural Property (land residence), livestock, farm machinery

£558,200 (77%)

2. Non-agricultural

Í

Property (after deductions of liabilities)

£159,640

|

£717,840

During the course of the following two years, the Revenue Commissioners challenged the Section 19 claim on the following grounds: 1. The power of the Trustees to expend Estate monies on refurbishment of the residence and livestock purchase.

2. The appropriateness of the valuation date selected and

3. Whether the successor could acquire a domicile of choice

distinct and separate from that of her domicile of dependency of her spouse which was in England and Wales.