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GAZETTE
APRIL 1979
The Effect of Capital Taxation
Legislation on the Drawing of Wills
and Administration of Estates
The revised text of a lecture given by E.M.A. CUMMINS, Chief Trustee Manager, Bank of
Ireland, to the Dublin Solicitors' Bar Association on 28th February 1979.
INTRODUCTION
The package of Capital Taxation introduced in 1975
as a replacement for Estate Duty has now been in opera-
tion for almost five years — a very short period by any
standards, yet long enough to see substantial changes in
the system to the point of complete abolition of Wealth
Tax and a major revision of the Capital Gains Tax
proposals as originally introduced.
The one Tax that has remained virtually intact is
Capital Acquisition Tax and it is with this Tax that this
commentary is concerned particularly in its practical im-
plications on the administration of Estates, the drawing of
Wills and in the context of mitigating the incidence of the
Tax.
However, before proceeding, it is appropriate to
comment briefly on Capital Gains Tax as presently con-
stituted with particular reference to its relevance "on
death" and also to consider what implications, if any,
U.K. Capital Transfer Tax may have on U.K. assets
passing on the death of persons normally resident and
domiciled in Ireland.
CAPITAL GAINS TAX
As a result of the Capital Gains Tax (Amendment) Act
1978 effective from 6th April 1978, a disposal of assets
passing on death is deemed to arise at the date of death
but there is an exemption from a charge to Tax. This pro-
vision applies to all deaths occurring on or after 6th Apirl
1978 and also relates to disposals made after that date
even though the death may have occurred before the date.
(If the death occurred before 6th April 1974 the Market
value at that date would replace the Market value at the
date of death). Therefore, Executors and Administrators
are deemed to acquire the deceased's assets at their
Market value at the date of death and this is the acquisi-
tion cost for subsequent disposals.
Further, it should be noted that where Executors pass
assets on to the Legatees/Beneficiaries, the Market value
at the date of death will pass through. However, assets,
sold in the course of administration may give rise to a
Capital Gains Tax liability as between the date of death
and the date of sale.
The extent of the liability will, as already stated, be on
the basis of date of death value being acquisition cost,
with tapering rate relief for period of ownership and in-
flation relief applying as appropriate. It should be noted,
however, that the personal exemption of the first £500 of
capital gains does not apply insofar as Executors and
Administrators are concerned.
From the foregoing, it will be appreciated that if the
time factor between the date of death and the date of sale
of assets in the course of administration is significant, a
C.G.T. liability can arise.
In summary, the computations and administrative
provisions relative to C.G.T. are such as to urge all
legitimate means of avoiding them — hence expeditious
distributions, with caution, to beneficiaries and successors
are, to say the least, desirable.
CAPITAL TRANSFER TAX
Capital Transfer Tax as a replacement for Estate Duty
in the U.K. was introduced as of 26th March 1974 in the
Finance Act of that year. Voluminous amendments to the
initial legislation were added in 1975 and subsequently,
all of which point to the horrific complexities of this Tax
which in the context of Irish domiciliaries is best avoided
if at all possible.
The subject matter of this paper is not directly con-
cerned with Capital Transfer Tax, nevertheless, it is
opportune to comment briefly on the broad outline of the
Tax since it has relevance in many Irish Estates
particularly where the value of the U.K. assets exceeds
£25,000 - that is the sole threshold above which C.T.T. is
payable at varying rates on life time gifts and inheritances
on death — with one major exception, transfers between
spouses.
The method of assessing the Tax is similar to the old
Estate Duty system with an appropriate table of Rates -
one for lifetime gifts and another for inheritances on
death. There is, however, one significant difference in
determining the incidence of the liability. The donee is
liable for the Tax, a fact which gives rise to the "grossing
up" provisions - one of the infamous features of C.T.T.
A further significant difference between Capital
Transfer Tax and the old Estate Duty code concerns the
question of domicile. C.T.T. effectively establishes a
deemed domicile concept on a residence basis.
Specifically, 17 years residence in the U.K. out of twenty
year period is deemed to establish U.K. domicile
irrespective of the old Domicile of Origin and Domicile of
Choice concepts. It follows, therefore, that many Irish
persons who have been living and working in the U.K.
have well established deemed U.K. domicile and hence a
potential liability to C.T.T. — notwithstanding their
definite intention of returning to Ireland permanently. A
further consequence of the definition is that following a
lengthy period of residence in the U.K. it takes three years
residence outside the U.K. before the deemed domicile
provisions cease to apply.
If the U.K. domicile is deemed, then the World Assets
of the individual come within the C.T.T. net. Even if U.K.
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