The Gazette 1985

105 / 406

GAZETTE APRIL 1985
is £150,000. The non-farm assets are aggregated with the
land, and tax is payable as follows:—
Taxable Value: 200,000
Taxable: 150,000 at 0% - NIL
10,000 at 20% = 2,000
40,000 at 30% = 12,000
200,000 14,000 (Average Rate
_ _ 7%)
The tax payable is apportioned between the two
inheritances according to the taxable value of each as
follows:—
Tax payable on
Business Assets: £14,000 x 160,000
200,000 = £11,200
Tax payable on Other
Assets: £14,000 x 40,000
200,000 = £ 2,800
Example 2
Peter Mulrine, who also qualifies under Paragraph 9,
takes the following inheritance from his uncle, a
businessman:—
Shares in family 100,000 Business Assets - Relief
trading company
Personal Investments 100,000 Other Assets - No Relief
200,000
The threshold amount relating to the shares is
£100,000. Tax is calculated as follows:—
Taxable
Value £200,000 (Excluding Agricultural Relief)
Taxable 100,000 at 0% = NIL
10,000 at 20% = 2,000
40,000 at 30% = 12,000
50,000 at 35% = 17,500
200,000 31,500 (Average Rate
= = = = = = 15.75%
A heavier liability to tax arises in the second example
because of the lower proportion of business assets.
(6) 'Capital Gains Tax*
S.26 Capital Gains Tax Act 1975 contains a relief which
closely resembles the 'Favourite Nephew' provisions.
Generally speaking there is no charge to Capital Gains
Tax on property passing on death24 . However, if a
disponer gifts property to a nephew during his lifetime,
the otherwise normal charge to Capital Gains Tax may be
avoided in certain circumstances. Relief is granted if the
gift is of 'business assets', by an individual aged 55 or
more, subject to certain conditions being fulfilled. This is
known as 'Retirement Relief. If the disposal is to a child,
as defined, there is no charge to Capital Gains Tax.
'Child' is defined as including25:
" . . . a nephew or a niece who has worked
substantially on a full-time basis for the period of
five years ending with the disposal in carrying on or
assisting in the carrying on of, the trade, business or
profession concerned, or the work of, or connected
with, the office or employment concerned".
'Business Assets' are defined as assets used in the course
of a trade, farming, a profession, an office or an
employment, which the person making the disposal has
owned for a period of not less than ten years ending on the
date of the disposal26.
The conditions of this relief are essentially the same as
those under the Capital Acquisitions Act, except that the
five years must end on the date of the disposal. Therefore,
a person .who wishes to gift his business or farm to a
favourite nephew may not be liable to Gift Tax or Capital
Gains Tax if he fulfils the conditions for both the
'Favourite Nephew' and 'Retirement' Reliefs.
(7) Conclusion
The 'Favourite Nephew' relief can result in an
elimination or a significant reduction in liability to Gift or
Inheritance Tax on the transfer or inheritance of
property. A similar relief is available under the Capital
Gains Tax Act. However, care must be taken to ensure
that the conditions for the relief are clearly fulfilled, in
particular that the nephew has worked substantially on a
full-time basis for a period of five years ending on the date
of the gift or inheritance in assisting in carrying on the
business, and that the property must have been used in
connection with the business.
The case of A.E. -v- Revenue Commissioners27 provides
an interesting illustration of circumstances in which the
relief may be applicable, and indicates that the applica-
bility of the relief essentially depends on the
circumstances of each case. •
Footnotes
1. The word "nephew" and uncle will be used to refer to both "nephew
and niece" and "uncle and aunt" for convenience.
2. [1984] ILRM 301.
3. [1984] ILRM 301 at 302.
4. Crook -v- Whiteley (1857), 7De G.M. & G. 490. Wells-v- Wells 4)
L.R. 18 Eq. 504. Re Cozens. Miles -v- Wilson. [1903] 1 Ch. 138. Re
Daoust, Dobell -v- Dobell [1944] 1 All ER 443.
5. This includes the children of a second or later marriage:— Re
Hammersley. Kitchen -v- Myers (1886) 2 T.L. R. 459, following
Grieves -v- Rowley (1852) 10 Hare 63. Re Cozens. Miles -v- Wilson
[1963] 1 Ch. 138.
6. Re Brown. Brown -v- Brown (1889) 58 L.J. Ch 410. Re Fish. Ingham -
vRayner [1894] 2 Ch. 83, C.A.
7. Re Daoust. Dobell -v- Dobell [1944] 1 All ER 443.
8. [1984] ILRM 301 at 303.
9. [1984] ILRM 301 at 303.
10. [1984] ILRM 301 at 303-5.
11. [1984] ILRM 301 at 305.
12. As defined in s.2 CATA 1976.
13.S.30 CATA 1976.
14. 1. Trade: Martin -v- Lowry. 1926, 11 TC 297, [1927] A.C. 312.
Rutledge -v- C.I.R. 1929, 14 TC 490. Representatives of P.J. McCall.
deceased-v- C.I.R. 1923, 1 T.C. 31 (an Irish case).
2. Profession: C.I.R. -v- Maxse 1919, 12 TC 41, [1919] 1 K.B. 647,
C.I.R. -v- Peter Mclntyre Ltd1926, 12 T.C. 1006. Inspector of Taxes
v- Brian Cronin & Associates Ltd., High Court, McWilliam J, 27 July
1984. Unreported.
15. [1984] ILRM 301 at 304.
16. [1984] ILRM 301 at 304.
17. [1884] 27 Ch. D. 88.
18. [1984] ILRM 301 at 304.
19. [1984] ILRM 301 at 304.
20. [1984] ILRM 301 at 304.
94