The Gazette 1995

GAZETTE

MAY/JUNE

1995

A Conveyancing Disaster - Waiting to Happen

by Richard Grogan*

Background

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.

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. 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 Effect of the Finance Act 1994

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.

special condition requiring the discharge of any such charge.

Secondly, the provisions of Section

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