Capital taxes - Finance Bill 2018

Oct 22, 2018

In addition to the increase in the CAT Group A threshold to €320,000 announced on Budget day, Finance Bill 2018 included an extension of CGT relief on the transfer of a site by a parent to a child to a spouse or civil partner, some anti-avoidance legislation for dwelling house relief and some tidy up administration measures to account for Companies Act 2014. 

Disposal of a site to a child relief

Section 28 of the Finance Bill provides that the relief from CGT that is available on the transfer of a site by a parent to a child to enable them to build their home is now extended to the spouse or civil partner of the child for disposals made on or after 1 January 2019. The area of the site must not exceed 1 acre and the value of the site can’t exceed €500,000.

Trusts ceasing to be resident

Section 579B TCA 1997 imposes a CGT charge where the trustees of a trust become neither resident nor ordinarily resident in Ireland.  The Court of Justice of the European Union recently ruled that the equivalent UK legislation was incompatible with freedom of establishment as it required immediate payment of CGT.  Section 27 of the Bill amends section 579B TCA 1997 to allow trustees to opt to pay tax under the section in instalments over 5 years.

CAT thresholds

As was announced as part of the Minister’s Budget speech, the Group A CAT threshold which applies for gifts or inheritances from a parent to a child has increased by €10,000 to €320,000.  This increase is small, particularly given that the threshold was €542,544 at its highest point in April 2009 and will do little to reduce the tax burden for children inheriting the family home.  The revised threshold applies to gifts or inheritances taken on or after 10 October 2018.

Dwelling house exemption

One of the conditions to avail of dwelling house exemption, a mechanism to relieve a charge to CAT on the inheritance of certain property, is that the person receiving the benefit doesn’t have a beneficial interest in any other residential property at the date of the inheritance.  

Section 50 of the Bill introduces an anti-avoidance measure which says that the beneficiary will be treated as having an interest in a residential property at the date of the inheritance if the property is in a discretionary trust that they have established and where the trust property may be applied for their benefit.   

Time limits for Revenue enquiries

Revenue can generally make enquiries about a tax return during the four years after the return is received.  There are a number of CAT reliefs such as business property relief or agricultural relief which can be clawed back if conditions are not met for a longer period than four years.  Schedule 1 of the Bill allows Revenue to make enquiries during the four year look back period which starts on the latest date on which all of the conditions for the relief were required to be met.

Surcharge for late filings

Schedule 1 of the Bill applies a surcharge where discretionary trust tax returns are not filed by the due date which is within four months of the valuation date.

Payment of tax following an appeal

Schedule 1 of the Bill provides that any additional CAT that is due following the outcome of an appeal before the Appeal Commissioners is due on the original due date unless the tax paid before the appeal was made was at least 90 percent of the tax due.  In these cases, the taxpayer has one month after the date of the determination to pay the tax due.

Companies Act 2014 – definitions for business property relief

The Bill updates some definitions included in the business property relief legislation to align them with the definitions in the Companies Act 2014.

Credit for capital gains tax (CGT)

Tax legislation allows a credit for CGT already paid against CAT due on the same event but this relief is clawed back when the asset is sold within two years of the gift or inheritance. The Bill dis-applies the usual clawback of the credit in instances of a life assurance policy that must be cashed in and cannot be retained for the required two year period (as it is generally cashed in on a death).