The Gazette 1985

GAZETTE

SEPTEMBER 1985

the disposal of the remainder interest if that disposal falls

within Section 24(4), CGTA 1975.

Section 24(4), Capital Gains Tax Act

Section 24(4), CGTA 1975, states that no charge to

Capital Gains Tax will arise on the disposal of a life or

remainder interest in a settlement unless that interest is

disposed of by a person who acquired the interest for

consideration in money or money's worth.

Accordingly, if the original remainderman of a

settlement gifts or sells his expectant interest to a

transferee, no liability to Capital Gains Tax will arise.

However, the subsequent disposal of the remainder

interest by a transferee who acquired the interest for

consideration in money or money's worth would be a

disposal for Capital Gains Tax purposes.

Section 63, Finance Act 1985

Section 63, FA 1985, provides that Capital Gains Tax

paid on any chargeable event is available as a credit

against any gift or inheritance tax liability arising on the

same event.

Section 63 states:—

"Where gift tax or inheritance tax is charged in

respect of property on an event happening on or

after the 30th day of January, 1985, and the same

event constitutes for Capital Gains Tax purposes a

disposal of an asset (being the same property or any

part of the same property), the Capital Gains Tax, if

any, chargeable on the disposal

shall not be deducted

in ascertaining the taxable value

for the purposes of

the gift tax or inheritance tax but, in so far as it has

been paid,

shall be deducted from the net gift tax or

inheritance tax as a credit against the same,

up to the

net amount of the same." (Italics added).

Therefore, if as in Example 5, the life tenant of settled

property was succeeded by a second life tenant, and a

charge to inheritance tax arose on the death of the first life

tenant, the Capital Gains Tax payable under Section

15(5), CGTA 1975, on the settled property would be

available as a credit against the inheritance tax. The

Capital Gains Tax may be offset only insofar as it has

been paid, and only up to the net amount of the gift or

inheritance tax.

Relief is available only on tax charged on events

occuring on or after 30 January 1985. Section 63(1)

empowers the Revenue Commissioners to apportion

reliefs and expenditure for the purposes of computing the

amount of Capital Gains Tax to be allowed as a credit in a

manner as appears to them to be just and reasonable.

Advance Termination of Limited Interest

1. Capital Acquisitions Tax

Section 24, Capital Acquisitions Tax Act 1976

Section 24, CATA 1976, preserves the potential charge

to inheritance tax on the death of the life tenant of a

settlement in the following circumstances:—

1) The life tenant surrenders his life interest to the

remainderman so that the latter takes absolutely,

or:

2) The remainderman surrenders his interest to the life

tenant so that the life tenant takes absolutely, or:

3) The life tenant and the remainderman agree to

terminate the settlement and to divide the trust

assets between them.

Therefore, if a life interest or interest for a fixed period

is terminated before its natural date of termination,

inheritance tax is payable as if the settled property had

passed to the remainderman immediately before the

premature cesser of the interest. For example:—

Example 6

LT is life tenant of a settlement "To LT for life, with

remainder to R absolutely". LT surrenders his life interest

to R so that R takes the entire property absolutely.

Section 24(1) preserves the charge that would otherwise

have arisen on LT's death by deeming that death to have

occurred before the surrender of the life interest. A second

charge to tax on the gift of the life interest may arise under

Section 24(2).

Tax is calculated under Section 24( 1) on the basis of the

relationship between the original settlor (the disponer)

and the remainderman. If the remainderman surrenders

his interest to the life tenant, the latter is responsible for

payment of the tax as the transferee under Section 23(1),

CATA 1976. It would appear that the recipient of a

benefit would himself personally have to qualify for

agricultural relief under Section 19, CATA 1976

Section 26, CATA 1976 sets out the method of computing

tax where the remainderman transfers his interest to the

life tenant.

Section 24(2), CATA 1976 preserves the potential

second charge to tax on the gift or inheritance of the life or

remainder interest, or the passing of a benefit on the

partition of the trust assets.

The charge to tax under Section 24 has been substan-

tially altered by Section 61, FA 1985.

Section 61 Finance Act 1985

The method of charging tax on each situation covered

by Section 24 and the effect of Section 61, FA 1985, may

be set out as follows:—

Life tenant to remainderman

If the life tenant surrenders his interest to the

remainderman, a charge to tax arises, firstly, under

Section 24(1) on the deemed death of the life tenant, and

secondly, under Section 24(2) on the gift of the life

interest.

New rules for the aggregation of gifts and inheritances

taken from all sources were introduced in the Finance Act

1984.

If these rules were applied to the surrender of a life

interest, the following position would arise:—

1) Tax would be levied on the deemed death of the life

tenant under Section 24(1) on the value of the life

trust property, aggregated with any previous gifts or

inheritances taken by the remainderman since 2

June 1982.

2) A second charge to tax would arise under Section

24(2) on the gift from the life tenant of the value of

the life interest. This would be aggregated with any

previous gifts or inheritances taken since 2 June

1982. The aggregable gifts would include the full

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