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GAZETTE
Post-Death Inheritance Tax Planning
Still Alive
By
Eamonn O'Connor
A.I.T.I.,
Solicitor*
X died a widow on the 29 July 1990
leaving an Estate with gross assets of
approximately £730,000. Under the
terms of her Will, she left her entire
Estate after payment of liabilities to
her cousin, Mrs Y, who was resident,
ordinarily resident and domiciled in
England. Trustees of the Will were
given power to run the period
residence and lands for a period of up
to five years from the date of death of
the Testatrix.
At the date of death of X the assets in
her Estate comprised the following:
1. Agricultural property
(land and residence) £300,000
(34%)
2. Non-agricultural
property
£430,000
£730,000
Mrs Y owned a residence in England
valued at £150,000 Sterling.
On the death of X a liability to
inheritance tax arose amounting to
approximately £298,000.
However, under the Capital
Acquisitions Tax Act, 1976
agricultural relief is available for
"agricultural property" which is the
subject of an inheritance and is taken
by "a farmer" as defined.
"Agricultural property" as defined
(before 11 April 1994) generally
included agricultural land - and
farmhouses and mansion houses
(together with the lands occupied
therewith) as are of a character
appropriate to the property.
"A farmer" means an individual who
is domiciled and ordinarily resident in
the state and in respect of whom at the
valuation date not less than 75% (80%
since 31 May 1991) of the market
value of the property to which he is
beneficially entitled in possession is
306
Eamonn O'Connor
represented by the market value of
property in the state which consists of
agricultural property, livestock,
bloodstock and farm machinery.
At the date of death of X Mrs. Y was
not ordinarily resident and domiciled
in Ireland and only 34% of her entire
property comprised agricultural
property. Consequently, Mrs. Y would
not be entitled to Section 19 relief, as
a farmer.
However, practitioners should be
aware that it is possible to re-organise
the assets of the successor to avail of
Section 19 relief during the course of
the administration period.
Firstly, Mrs. Y transferred her U.K.
home worth £150,000 Sterling to her
spouse for natural love and affection.
This transfer was tax neutral both in
the U.K. and Ireland.
In this particular case the Trustees
were advised to expend £77,000 on
restoring the period residence which
was in a poor state of repair. In
addition, the Trustees were further
advised to purchase £60,000 worth of
livestock during the administration
period.
The successor Mrs. Y took up
permanent residence in Ireland on 1
July 1992 and formed the intention of
! creating a permanent home in this
I country and accordingly acquired a
j domicile of choice as set out in sworn
, affidavits. A valuation date was
I selected in mid-September 1992 and
| the Inheritance Tax Return submitted
to the Revenue Commissioners within
the statutory period. The Inheritance
Tax Return claimed agricultural
| relief as, on the valuation date,
77% of the assets of Mrs. Y
now
j
represented agricultural property and
the successor had also acquired on
the valuation date a domicile of
choice in Ireland.
The property as revalued on the
valuation date comprised:-
1. Agricultural Property
(land residence),
livestock, farm
machinery
£558,200 (77%)
2. Non-agricultural
Í
Property (after
deductions of
liabilities)
£159,640
|
£717,840
During the course of the following
two years, the Revenue
Commissioners challenged the
Section 19 claim on the following
grounds:
1. The power of the Trustees to
expend Estate monies on
refurbishment of the residence and
livestock purchase.
2. The appropriateness of the
valuation date selected and
3. Whether the successor could
acquire a domicile of choice
distinct and separate from that of
her domicile of dependency of her
spouse which was in England and
Wales.