149 / 424
GAZETTE
MAY/JUNE
1995
A Conveyancing Disaster - Waiting
to Happen
by Richard Grogan*
Section 146 of the Finance Act 1994
is a conveyancing time bomb, primed
and ticking and waiting to explode in
the face of any practitioner who fails
to take the appropriate evasive action
to avoid its devastating effects.
The Problem
The Finance Act 1994 introduced a
provision which requires that no
registration is to be effected in the
Land Registry on any application
where the title is based on possession
unless a certificate issued by the
Revenue Commissioners to the effect
that they are satisfied that the property
did not become chargeable to gift tax,
probate tax or inheritance tax since
28 February 1974 or that any charge
to tax has been discharged or will be
discharged within a time considered
by the Revenue Commissioners to be
reasonable is produced to the
Registry. The legislation has already
trapped practitioners. While such
applications usually involve
agricultural land, the writer is aware
of one case where a building estate
strayed on to adjoining lands by a few
feet. The only way the title could be
rectified at that stage was by way of a
claim for a title based on possession
as there was some confusion as to who
exactly was the owner of the
adjoining lands.
The existing CAT legislation deems
the abandonment of the title to lands
to be a taxable event for CAT
purposes and therefore results in
potential CAT charges. The
abandonment of a right falls within
the definition of disposition Section 2
of the Capital Acquisitions Act. Prior
to the Finance Act 1994, there was no
obligation on the person acquiring
title by way of possession to obtain a
certificate of clearance from Capital
Acquisitions Tax prior to registering
their title in the Land Registry. While
the value of the lands being acquired
Richard Grogan
can be reasonably small, the writer is
aware that due to the aggregation
rules, one unlucky home owner does
come within the CAT net.
The writer has been advised by one
practitioner of a case where a small
portion of land was acquired by
possession due to a change in a
boundary fence agreed between
neighbours to facilitate access to
lands. This arrangement only came to
light when the land was transferred to
a child. As it was not possible to
arrange for a deed from the original
owner because of a change in the
relationship between the transferee and
the successor in title of the neighbour,
it was considered that a claim by way
of adverse possession would rectify
the problem. Again, while the value of
the land was minimal, the writer was
advised it will result in a small CAT
charge. However, the administrative
difficulties in applying for a clearance
certificate from the Revenue
Commissioners to enable a title to be
registered will delay registration and
further will add to the expense in view
of the necessity of applying for this
additional clearance certificate.
Background
Prior to the Finance Act 1994,
practitioners were only concerned
with the preceding twelve year period
in ascertaining whether a charge to
capital acquisitions tax arose. This no
longer applies to conveyances of land
where the title is based on possession
and an application for registration is
made under the Land Registration
Rules of 1972.
Section 47(2) CATA 1976 provides
that the twelve year time limit applies
where there is a
bona fide
purchaser
or mortgagee for full consideration in
money or money's worth. The
property in such circumstances is
not charged with tax as against a
bona fide
purchaser or mortgagee or
any person deriving title from such
a person.
Section 47(3) CATA 1976 has a
further saving proviso that tax
will not be a charge on property
under Section 27(1) CATA 1976
where there is a
bona fide
purchaser
or mortgagee for full consideration in
money or money's worth without
notice or a person deriving title
from or under such a purchaser or
mortgagee.
Effect of the Finance Act 1994
Firstly, doubts have been raised as to
whether General Condition 15 of the
standard contract for sale is
sufficiently wide to cover a charge in
respect of which a Section 146
Certificate is required. The condition
requires a vendor to disclose, before
the sale
. . all . . . liabilities . . .
which are known to the Vendor". This
may well cover such a charge but,
pending the issue of the 1995 edition
of the Contract, Purchasers solicitors
should insist on the inclusion of a
special condition requiring the
discharge of any such charge.
Secondly, the provisions of Section
125