The Gazette 1989

GAZETTE

JULY 1989

Book Review

I nhe r i t ance Tax -

Barry

McCutcheon,

British Tax Library.

Publishers: Sweet &

Maxwell.

Stg£110.00

This work is of a very substantial

nature and has to be considered

bo th f r om a subjective and

objective point of view. Subjective

in as much as, if familiar with the

UK system of Inheritance Tax,

whether it would enhance the

information or knowledge in that'

area. It also has to be considered

from an objective point of view as

to whether it would enhance the

capability and ability of the Irish Tax

Practitioner in relation to Capital

Acquisitions Tax. On both these

counts, it is a success.

Subjectively, it is an erudite and

easily understood (with a few

exceptions) work on the new UK

Inheritance Tax system which was

introduced under the Inheritance

Tax Act, 1984. Basically, although

called Inheritance Tax, it is a

mutations

tax (i.e. one which taxes

what passes), similar in form to

Estate Duty but with many new

complications and d i f f i cu l t i es

introduced wh i ch makes tax

planning quite difficult and indeed

speculative.

It breaks this difficult tax down

into easily understood sections

which lead step by step to an

overall knowledge of the system

which will stand a practitioner in

very good stead. It begins with an

overview of the system setting out

in short form the more complicated

concepts which the reader will be

required to investigate in the

remainder of the book. This, in

itself, is a most useful guide as the

reader will already have an idea as

to the complexities.

We are then led through the

specific complications starting with

transfers of value and breaking this

down into actual transfers and

notional transfers. This explanation

as to the difference between them

and the reliefs etc. which flow from

them and where they are different

is most useful. It is interesting to

note that "dea t h" is a notional

transfer of value. In the area of

notional transfers it covers, in

exceptional detail, the use of close

companies, for example, a re-

duction in the value of an Estate or

Shares using a close company can

be a notional transfer of value. It

also covers excluded property and

other reliefs insofar as they effect

transfers.

From there it leads us into

exempt transfers and to what type

of transfers these exemptions

apply. Like C.A.T. it has a small gifts

exemptions (annual) and for those

of us familiar with Estate duty, the

terms "no rma l" and "reasonable"

in relation to expenditure form an

exemption. The list from this

particular chapter is very similar to

the exemptions from C.A.T. with a

few noteable exceptions.

In Chapter 4, the Author leads us

through the most complicated

provision of the legislation namely,

Potentially Exempt Transfers called

in short, PETs. The advantage of

making PETs, the complications

they cause for chargeable transfers

and ultimately on death, if the

death should occur within seven

years of the making of the PET, are

all explained in detail and the

section is liberally laced wi th

examples. It also deals with anti-

avoidance situations relating to

gifts into settlements.

Once the concept and compli-

cations of PETS are understood,

the rest of the compution pro-

visions of IHT become relatively

simple.

The next step is to deal with

chargeable lifetime transfers viz:

gifts, and settlements which are

not of the favoured kind and again,

dealing with the complications

arising from those in relation to

death and PETS.

The chapter also contains and

explains the compution of tax and

the concept of "grossing up".

There are only t wo bands of

Inheritance Tax in the U.K. namely

nil and 40%. The first £110,000.00

to be increased to £118,000.00 in

the recent budget is charged at nil

and the balance at 40%. Under-

standing this particular aspect of

IHT will help the Irish Practitioner

in the area of double taxation relief

and tax planning in that area.

Within that chapter, tax planning,

taking into account reduced rates,

chargeable transfers, PETs and their

effect, is explained together with

the benefit of Life Assurance in IHT

Tax Planning.

Again, for those of us familiar

with Estate Duty, Chapter 6 relates

to "reservation of benefit" which

is again, basically, drawn from the

Estate Duty legislation with all the

old cases familiar to the older

practitioners such as Monro,

D'Avigdor-Goldsmid etc.

Logically, therefore, we are led to

the charge on death and the

differences between our respective

taxes are highlighted in this

particular area for those familiar

with CAT. However, IHT is a tax

with which practitioners must be

familiar because of of the proximity

of the UK and the likelihood that

some clients will have money or

property invested in the UK. It is in

the area of the charge arising on

death that the similarities between

Estate Duty and IHT are brought

out but IHT has its own reliefs such

as business relief, relief for

woodlands etc. There are also

reliefs for persons on active service

and quick succession relief which,

unfortunately, do not apply to C.A.T.

It is possible to see where

property could be charged twice

under IHT rules, for example, when

a father makes a potentially exempt

transfer to the son and the son dies

intestate and unmarried prior to the

father. This would mean that the

PET or portion thereof made by the

father would end again in the

father's estate thereby being

doubly charged. There is relief for

this type of situation as well.

This particular chapter is laced

w i th examples explaining the

convolutions of the tax as to

whether PETs are chargeable or

ignored, the consequences on the

tax rate at the date of death,

tapering relief relating to early PETs

which become chargeable and so

on. Again, the Chapter points out

the complexities of the tax and

emphasises for Irish practitioners

the difference between the Irish

C.A.T. and the UK IHT.

This chapter also deals with

posthumous variations, whether

testacy, intestacy, whether by

agreement among the parties or by

the use of disclaimers etc. These

variations also receive favourable

t r ea tment for CGT purposes

although under the recent budget

the use of variations has been

severely restricted in the UK.

Part 2 of the book is concerned

with the special charging pro-

visions of the IHT code. Again it

starts with a general introduction

and review giving an idea of the

problems in short, how they are

overcome or otherwise met. Cir-

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