Capital Acquisitions tax – revisit the basics

It is opportune to revisit the basics concerning a tax that it is quite often ignored in public discourse.

Scope of liability to capital acquisitions tax (CAT)

In the first instance it is only when a person receives an asset comprised of cash or other  property and pays the person disposing of that asset less than open market value for that asset that a charge to CAT arises.

The tax exposure (at a standard rate of 33%) is limited to the difference between the open market value of that asset and the consideration paid and arises in two distinct cases:

(i)         Where the person parting with the asset (known as a disponer) is alive - in which a gift arises OR

(ii)         Where the person parting with the asset is deceased in which case an inheritance    arises.

In almost all cases the beneficiary will receive the gift or inheritance from a family member and this is reflected in lifetime exemption thresholds provided for in legislation and summarised below:

Class A Threshold

€225,000 - applicable where a child receives a gift/inheritance from a parent.

Class B Threshold

€30,150 - applicable where the beneficiary is generally speaking otherwise related to the disponer - i.e. uncle/aunt, brother or sister.

Class C Threshold

€15,075 - applicable in all other cases

It should be noted that gifts/inheritances between spouses/civil partners will be completely exempt from CAT.

Residency issues

Where either the disponer or the beneficiary are resident or ordinarily resident in Ireland then all assets passing by gift or inheritance will be liable to CAT in Ireland. This will include assets in other jurisdictions also. This has become more of an issue in recent years with the significant increase in the ownership by Irish taxpayers of assets held overseas such as investment/holiday apartments etc in countries such as Spain or Italy.

In many cases local inheritance type taxes may well arise in these countries also and depending on the nature of the Double tax agreement in place between Ireland and that overseas country a potential for at least partial double taxation may arise.

Where neither the disponer or beneficiary is tax resident or ordinarily resident in Ireland then only Irish based assets will be liable to CAT in Ireland – examples being shares in an Irish company, Irish bank accounts etc.

Date on which tax is payable

The key date for determining when tax arises is the valuation date and is defined as the date when the person receiving the asset is beneficially entitled to that asset - in other words they are free to deal with that asset in a manner of their choosing.

In the case of a gift this is quite straightforward and the valuation date will be the date of the gift. In the case of an inheritance however, it will not always be the date of death of the deceased.  This is because in most cases the Executor or personal representative of the deceased will need some time to ascertain the assets and related liabilities of the deceased. Occasionally disputes can also arise between potential beneficiaries which all have the effect of delaying the date on which the Beneficiary can have access to the assets.      

As a general guideline however the valuation date in most cases will be the date of grant of probate. Where that date falls between 1 September 2014 and 31 August 2015 then a Return with the appropriate payment will need to be made on or before 12 November 2015. This assumes that an online Return and payment will be made - an earlier date of 31 October 2015 applies for paper Returns.

This summary is intended for general guidance only and as in all matters of taxation is no substitute for specific advice based on the facts and circumstances of each case. 

 

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