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GAZETTE
SEPTEMBER 1985
passed to his children, a third charge to tax would arise on
the death of LT on the same property.
Accordingly, multiple charges to tax may arise on the
same property on the same event. Prior to the introduc-
tion of Section 62 FA 1985, such a situation could result in
severe hardship for the ultimate beneficiary, because the
tax payable on each charge was treated as a deduction
from the taxable value of the estate under Section 18
CATA 1976, rather than a credit.
7
Assuming an estate
valued at £30,000 and an average rate of tax of 50%
ignoring exemptions, the following position could
arise:—
Example 2
A.
Pre Finance Act 1985
R is the remainderman of a settlement valued at
£30,000 in which LT has the life interest. R bequeaths his
interest to T who bequeaths it to his (T's) children. R and
T die before LT and T's children take on LT's death. The
following charges to tax arise:—
(1)
(2)
(3)
Settlor to R
(Section 23(1))
R to T (Section 23(2))£30,000
Less Tax Payable
( 15,000)
Taxable:
£30,000 at 50% =
T to children
(Section 23(2)
Less Section 23(1)
Section 23(2)
Taxable:
Total Tax Payable
Net Estate After Tax
Effective Rate
15,000 at 50%
30,000
( 15,000)
( 7,500)
£
15,000
7,500
7,500 at 50% =
3,750
26,250
3,750
87.5%
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B.
Section 62 FA 1985
Section 62 FA 1985 was introduced to remedy the
hardship that could arise when multiple charges were
imposed on the same estate on the same event. Section 62
inserts a new Section 34A into the Principal Act, as
follows:—
"Where tax is charged more than once in respect of
the same property on the same event, the net tax
payable which is earlier in priority
shall not be
deducted in ascertaining the taxable value
for the
purposes of the tax which is later in priority, but
shall be deducted from the tax which is later in
priority as a credit
against the same, up to the net
amount of the same." (Italics added)
The double charge to tax under Section 23(1) and (2)
respectively falls within Section 62, which refers to tax
being charged more than once on the same property "on
the same event". "Event" is not defined in Section 23,
however Section 24 provides that in that Section, "event"
includes a death and the expiration of a fixed period.
Accordingly it would appear that the 'event' under
Section 23 is the death of a life tenant.
The two charges to tax arise under Section 23 as
follows: the first charge on the death of the life tenant
under Section 23( 1) and the second on the transfer of the
remainder interest under Section 23(2). The first charge
would therefore be "the net tax payable which is earlier in
priority" within Section 62, and the second charge "the
tax which is later in priority".
Therefore, the tax payable, if any, on the first charge is
available as a credit against the tax payable on the second
charge. If there are more than two charges, the tax
payable on prior charges is available as a credit against
the ultimate charge. For example:—
Example
3
Post Finance Act 1985
R is the remainderman of a settlement valued at
£30,000 in which LT has a life interest. R gifts his interest
to a third party T. The following charges to tax arise:—
Settlor to R (Section 23(1)) 30,000 at 50% =
R to T (Section 23(2))
30,000 at 50% =
Less credit for Section 23(1)
Tax Payable
Tax
15,000
15,000
(15,000)
NIL
In the case of multiple charges, it appears that the
practice of the Revenue Commissioners will be to levy the
largest of the several charges to tax on the property in
question as follows:—
Example 4
Post Finance Act 1985
R is the remainderman of a settlement valued at
£30,000 in which LT has a life interest. R gifts his interest
to a third party T. T dies and his children inherit when LT
dies. The following charges to tax arise:—
244