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GAZETTE
SEPTEMBER 1992
Inheritance Tax and the Evolution
of Section 60 and Section 119 Policies
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.
Distribution
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.
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
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.
Pre Section 60
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
Capital Acquisitions Tax
Distribution
CAT Planning -
Year
Discretionary
Inheritance
Gift
Trust Tax
Tax
Tax
IR£
IR£
IR£
1986
1,000,000
18,000,000
2,000,000
1987
4,000,000
20,000,000
1,000,000
1988
2,000,000
23,000,000
2,000,000
1989
1,000,000
28,000,000
1,000,000
1990
2,000,000
33,000,000
3,000,000
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