The Gazette 1979

GAZETTE

MARCH 1979

The Farmer and the Law.

Taxation implications of property

and inheritance transactions

by Donal G. Binchy, Solicitor

A revised version of a Lecture delivered to the Joint Incorporated Law Society/Irish Farmers

Association Seminar 14th February, 1979.

Preliminary

In 1929 a Scottish Judge set out the principles which

regulate the never ending combat between the taxpayer

and the Revenue Commissioners in the following

colourful language:

"No man in this country is under the smallest

obligation, moral or other, so to arrange his legal

relations to his business or to his property as to

enable the Revenue to put the largest possible

shovel into his stores. The Revenue is not slow —

and quite rightly — to take every advantage which

is open to it under the taxing statutes for the

purpose of depleting the Taxpayer's pocket. And

the Taxpayer is, in like manner, entitled to be astute

to prevent, so far as he possibly can, the depletion

of his means by the Revenue".

This reasoning remains just as valid to-day. And the

question I would like each person to ask himself is —

Does

arrangement of

affairs allow the Revenue to

Put a bigger shovel than necessary into my stores? Or to

Put it in plainer language will the Revenue Commissioners

collect more tax from me or my family after me by reason

of the type of will or settlement I have made or by reason

of my failure to make a will or settlement?

Before proceeding further I would like to explain that

the expression "husband and wife" "man and woman"

throughout this paper are interchangeable. If I seem to

allocate a more important role to a husband or man this is

Purely for convenience and not by reason of any male

chauvinism.

Succession/W ill/Intestacy

The first basic principle that every property owner

roust remember is that he will have to part with it sooner

or later voluntarily or involuntarily. He cannot take it

with him when death's bright angel comes. But if he

chooses he can arrange how and to whom it will go. If he

does not exercise this choice himself the law will do so for

him. This is called the law of intestate succession. In the

case of a married person this law provides that two-thirds

will go to his wife and one-third equally to his children;

and if he is a widower it will all go equally to his children.

In the case of a Bachelor or Spinster it will go his or her

Parents or surviving parent, if alive, and if no parents, to his

brothers and sisters or nephews and nieces under certain

ules. This is a fairly simple statement of the position and

I do not have to tell you that there are many cases in

which this is totally unsuitable. Most of you will be aware

°f families who have encountered serious problems

because no will was made. In simple language a will is a

document providing for the division of a man's property

fter his death among his family, relations, friends or

charities as he wishes. A will is not the only way of

disposing of property, however, — a man may also do so

during his lifetime by way of deed or a settlement — and

many people getting on in years do transfer some or all of

their property to children subject to suitable provision for

themselves and their wives. A young person should

obviously make a will to provide for the contingency of

premature or unexpected death — if a man has property

no age is too young to do this.

Before considering tax implications and how to try and

avoid or reduce the liability for taxes I would like to stress

that the primary consideration must, in my opinion, be

the proper disposition of a man's property or division of

the family cake according to his moral and legal

obligations — and to his preference — taking into

account the capacity and worthiness of those whom he

would like to succeed to his property. The full family

circumstances must be considered. A man must obviously

make suitable provision for his wife and children. On the

other hand there is little point in making over a substantial

farm on a Trappist monk or a Carmelite nun simply to

avoid Inheritance Tax; and at the other end of the scale

there is not much to be said for giving a large slice of

one's peoperty to a child who is a confirmed drunkard or

gambler and will dissipate it within a few years. Having

said this the proper arrangement of a man's affairs by will

or deed can frequently effect a substantial tax saving.

Conversely an improvident arrangement or no

arrangement at all can result in an unnecessary liability

for taxes. I hope to illustrate both points by a few

examples later.

Old and New Duties

Most of you will be familiar with the old Death Duties,

particularly Estate Duties, which were mainly a tax on the

estate or property of a deceased person. The amount of

the tax depended upon the net value of his estate and the

relationship of the Beneficiary had no relevance. The

other duties viz. Legacy and Succession Duties depended

on relationship with total exemptions for a wife and

family. With some foresight and luck it was frequently

possible to avoid the old Death Duties entirely by

transferring most or all of your assets and then having the

luck to live for five years. This is no longer possible

because the new taxes are what is described as Donee

orientated, that is they are taxes on the gifts or inheritance

received by the Beneficiary and all gifts and inheritances

from the same Benefactor to the same Beneficiary are

aggregated for the purpose of determining the amount of

tax and the effective rate of same. There are time limits

within which the aggregation takes place as will appear

later.