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GAZETTE
APRIL 1979
to carry this form of "asset splitting" to extremes could
result in impractical and unworkable solutions. This
would certainly be the case if for example a business or
farm were divided out between, say, three or four children
of a Testator, one or two of whom were interested and
actively involved in the enterprise while the others had
separate and perhaps well established vocations in life.
The ensuing difficulties in such a situation might not only
lead to family friction but could also necessitate a sale of
the property sooner or later to satisfy the individual rights
and expectations.
Conversely, a division of property equally or partially
between husband and wife can prove to be particularly
beneficial in the case of a "single family unit" where each
spouse has separate thresholds in favour of their children
thus facilitating in due course dispositions from each with
effectively double Tax exempt thresholds. It should be
noted, however, that in the matter of "passing on"
property in such an instance to the children, the anti
avoidance provisions of Section 8 of the Act inhibit this
for a three year period subsequent to the first disposition.
Where circumstances permit, exempted or relieved
assets should be appropriately bequeathed e.g. Irish
Government Stocks to beneficiaries normally resident and
domiciled abroad and in the case of Irish residents re-
ceiving such a bequest, the Stocks in question subject to
certain conditions, if standing at a discount at the date of
death can be surrendered at par in discharge of the Tax
liability.
Considerable reliefs are afforded in cases where the
subject matter of the inheritance is agricultural land pro-
vided the successor is deemed to be a farmer within the
meaning of the Act, i.e. that 75% of his total wealth com-
prises agricultural assets subsequent to receiving the gift
or inheritance. Notwithstanding these concessions, the
manner in which the value of agricultural land in
particular has appreciated in recent years clearly indicates
that even in an immediate family context, the level of
thresholds and the reliefs available in effect mean that on
average perhaps less than 100 acres of land can be be-
queathed to an individual beneficiary effectively free of
Tax so that bequests in excess of that figure or to be pre-
cise with a total "agricultural" value of £250,000 will
attract Tax at varying rates from 25% upwards. As pre-
viously mentioned, there is a provision in the legislation
whereby the Tax due can be paid in relation to such
bequests by five annual instalments. To consider pay-
ment of the Tax by instalments is essentially a post death
decision but with a view to considering some mitigation of
the Tax liability in a pre death situation, consideration
might be given to devaluing such high value bequests by
either splitting the assets in question or placing certain
encumbrances thereon.
A typical example is as follows:-
'B' transfers his farm of, say 200 acres to his son
absolutely
value £500,000.
An outright gift of that nature after appropriate agri-
cultural relief will attract a C.A.T. liability of £65,625.
If'' B's giftto his son were charged with the paymentof, say,
£50,000 to a daughter at a commercial rate of interest (who
had not received any previous gift), then the taxable value of the
gift would be abated by a proportion of dial sum, and, as the
charge is below the tax threshold of the daughter, die actual
C.A.T. liability would reduce as follows:-
Market Value
Less Agricultural Relief
Agricultural Value
Charge £50,000; proportion 4/5
£500,000
100,000
£400,000
40,000
£360,000
Tax
Less 25% for 'Gift"
£69,500
£17,375
£52,125
A saving of £13,500 as compared with £65,625.
It could be left to the son and daughter to make their own
arrangements as to the payment of the sum of £50,000 (e.g.
yearly instalments) subject, of course, to a commercial rate of
interest.
If the daughter were willing to postpone claiming the charge
for a sufficientiy lengthy period, it might be worthwhile for the
son to finance the charge by means of an Insurance Policy.
A reservation of an annuity is not recommended as it only
postpones payment of part of the tax and can create difficulties
not only for the interested beneficiary but also in the work of
administration.
However, the principle of transferring the valuable and
appreciating asset to the donee is the prime consideration
coupled with the concept of introducing an acceptable means
of reducing the value of the said asset at the time of the dis-
position by way of encumbrance or the like.
In commenting previously on the significance of
Capital Transfer Tax in relation to U.K. assets, reference
was made to the principal exemption in relation to that
Tax in the context of transfers between spouses. Conse-
quently it follows that bequests to spouses in Wills should
in the first instance be charged against U.K. assets.
Further, where exempt U.K. Stocks are comprised in an
Estate, they should be bequeathed to non-resident
beneficiaries of the U.K.
In relation to this Tax, as stated, subject to certain
exemptions, a liability will arise in relation to any U.K.
assets exceeding £25,000 in value, thus for example, if a
father bequeathed £100,000 to his son, half of which is
represented by U.K. assets, no Irish C.A.T. liability will
arise but a C.T.T. liability of £4,700 would be payable
against which there is no availability of relief not-
withstanding the terms of the recent Double Taxation
Agreement since, of course, no C.A.T. is payable to
offset the U.K. Tax liability.
The "grossing up" provisions of C.T.T. as previously
referred to have a parallel in the context of Capital
Acquisition Tax and the point at issue is a very important
one which keeps recurring even in modern Wills.
It was more or less standard practice in an Estate Duty
context to leave legacies and bequests under a Will "free
of Duty". Section 65 of the C.A.T. Act provides for the
continuation of that "freedom" in the context of all Wills
in relation to deaths occurring on or after 1st April 1975.
In the brief commentary on the Tax earlier, attention was
drawn to one of the significant differences between
C.A.T. and Estate Duty in that in the former the donee is
liable for the Tax whereas in the latter Estate Duty was
chargeable against the residue of the Estate.
Consequently, if a legacy or bequest is given "free of
Tax" this means in effect that there is a double legacy
(a) the specified amount and (b) the freedom from Tax. It
follows, therefore, that Tax is not only payable on the
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