The Gazette 1989

GAZETTE.

SEPTEMBER 1989

for some time. Because he had been dead for some time, the business could not be considered to be his business. The situation in Example Three was considered by the Appeal Commissioners in the case of K.K. -v- the Revenue Commissioners. 12 In that case, the taxpayer Appellant worked for his uncle from an early age. His uncle died in 1941 and left the farm to his wife for life with remainder to the taxpayer Appellant. The life tenant did not die until some 40 years later. The taxpayer Appellant had worked on the farm for the entire period. The Appeal Commissioner held that paragraph 9, as originally drafted, required that the nephew work for a period of five years ending on the date of the inheritance in the trade of the disponer. In this case, the date of the inheritance was the date of death of the life tenant. As the uncle disponer had been dead for some 40 years at this time, it could not be said that the taxpayer Appellant was working in his uncle's business. Under Paragraph 9, as newly enacted, the taxpayer Appellant in this case would be entitled to relief, as he would have been working for five years ending on the date of the disposition. The date of the disposition would be the date of death of the uncle. It should be noted that the period of five years must be continuous, subject to reasonable exclusions for sick leave and holidays. The nephew cannot for example work for four years, leave for two years and come back and work for another four years. The new paragraph 9 also removes the anomaly whereby, if a gift was subject to a power of revocation and did not vest in possession in the nephew, the five year period did not begin to run until the power was terminated or the uncle died. "Assets of a trade business or profession, or shares in a private trading Company". The property comprised in the gift or inheritance for which relief is sought must have been used in connection with the trade, business or profession. Thus, if a farmer left his entire estate to a favourite nephew and the estate included the proceeds of life assurance policies and personal investments, such as shares in public companies, the

treated as a favourite nephew for the purposes of both dispositions. Example Two U, by deed of transfer, settles property on himself for life with remainder to N. The date of the disposition is the date of the settle- ment. If N has worked for U for 5 years ending on the date of death of U, he will qualify as a favourite nephew. Example Three U, by Will, settles property on his wife (W) for life with remainder to N. The date of disposition is the date of death of U. If N has worked for U five years ending on the date of death of U, on the death of W he will qualify as a favourite nephew. A peculiar feature of this example is that N could stop working on the date of U's death and could still qualify as a favourite nephew on W's death some years later. This is because the relevant period is the period of 5 years ending on the date of the disposition, which is the date of U's death. Example Four U, by Will, settles property on W for life with remainder to N. The date of disposition is the date of death of U. N only commences to work after U's death and works for five years ending on W's death. N will not qualify for the relief. This is because the relevant period is the period of five years ending on the date of the disposition. In this case, N was working for five years ending on the date of the inheritance, namely the date of W's death. The interest is not limited to U but to W and, accordingly, the second leg of the test does not apply. The fourth example above has been considered by the Appeal Commissioners on at least t wo occasions. As originally drafted, Paragraph 9 referred to a period of five years ending on the date of the gift or inheritance. In Example Four above, the date of the inheritance is the date of death of W. Accordingly, in the DR case, the taxpayer Appellant argued that he qualified as a favourite nephew as he worked for five years ending on the date of the inheritance. This argument was rejected by the Appeal Commissioners on the ground that the nephew was not working in the business of the disponer. The disponer was the uncle and the uncle had been dead

enacted, the taxpayer Appellant in the D.R. case would now qualify as a favourite nephew if he spent more than 24 hours per week in the business. He could not qualify if he spent less than that, having regard to the presence of the other employee. Accordingly, a person can be a favourite nephew and can also have another employment, business or profession provided he qualifies under the time requirement and provided he fulfils the requirement in the AE case of working under the direction of the uncle and con- ferring material benefit upon the uncle's business. "Relevant Period" The nephew must carry on or assist in the carrying on of the trade, business or profession substantially on a full- time basis for the relevant period. "Relevant Period" is defined by Paragraph 9(1) as (1) The period of five years ending on the date of the disposition or (2) The period of five years ending on the coming to an end of a limited interest where the interest was limited to the disponer. "Date of the disposition" is defined in Section 2 CATA 1976 as, broadly speaking, the date of death in the case of an inheritance and the date of the last act whereby the disponer bound himself to provide the property in the case of a gift. Where there is a will or an intestacy the date of the disposition will be the date of death. Accordingly, the relevant period will be the period of five years ending on the date of death. In the case of a gift by way of voluntary transfer, the relevant period will be the period of five years ending on the date of the deed of transfer. The second leg of the definition covers rights of residence, life interests and interests for a period certain, where the uncle grants the interest to himself. It is best illustrated by examples:- Example One Uncle (U), by deed of transfer, gifts the farm to his nephew (N) reserving a right of residence in one room of the farmhouse for his life. Under Section 28 CATA 1976 there are t wo inheritances, one on the date of the gift and one on U's death. The date of the disposition is the date of the deed of transfer. Accordingly, if N has worked for U for 5 years ending on the date of the deed of transfer, he will be

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