Revenue Note for Guidance

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Revenue Note for Guidance

189A Special trusts for permanently incapacitated individuals

Summary

This section deals with the taxation treatment of income and gains arising following the creation of trusts, the funds of which were raised by public subscription on behalf of individuals who are permanently and totally incapacitated from maintaining themselves. The section exempts from tax certain income and gains arising to the trustees of such trusts and to the individual or individuals concerned.

Details

(1) “incapacitated individual” is an individual who is permanently and totally incapacitated, by reason of mental or physical infirmity, from being able to maintain himself or herself.

“public subscriptions” are subscriptions raised following a public appeal, for the benefit of one or more identified incapacitated individual or individuals, where either—

  • the total subscriptions do not exceed €381,000, or
  • if the total subscription exceed €381,000, the amount donated by any one person does not exceed 30 per cent of the total subscriptions raised. This 30 per cent limit applies from the return filing date for the first year for which the exemption is claimed by either the trustees or the incapacitated individual or individuals.

“qualifying trust” is a trust established by deed where it is shown to the satisfaction of the inspector, that—

  • the trust was established exclusively for the benefit of the incapacitated individual or individuals specified in the deed and for whose benefit the public subscriptions were raised,
  • the trust requires that—
    • the trust funds be applied for the benefit of the incapacitated individual or individuals at the discretion of the trustees,
    • in the event of the death of the incapacitated individual or the last surviving member, as the case may be, the undistributed part of the trust funds may form part of the estate of the individual provided they have a surviving spouse, civil partner or child and
    • otherwise the undistributed part of the trust funds at date of death are to be applied for charitable purposes or are to be appointed in favour of the trustees of other charitable bodies, and
  • none of the trustees are connected with the incapacitated individual or individuals.

“specified return date for the chargeable period” has the same meaning as in section 959A.

“trust funds” in relation to a qualifying trust, means funds which consist of—

  • public subscriptions raised for the benefit of the incapacitated individual or individuals who are the subject of the trust, and
  • all money and other property arising directly or indirectly from such public subscriptions.

Exemption from tax

(2) Trustees of a qualifying trust are exempt from income tax in respect of income arising to them from the investment of the trust funds which would otherwise be chargeable to tax under —

  • Schedule C (interest paid out of public revenue),
  • Case III (certain interest paid in the State without deduction of tax) of Schedule D,
  • Case IV (by virtue of section 59 (income taxed at source), section 745 (offshore income gains) and section 747E (disposal of an interest in offshore funds)) of Schedule D,
  • Case V (rents) of Schedule D, or
  • Schedule F (distributions by Irish companies).

(3) Gains arising to the trustees of a qualifying trust in respect of trust funds are not liable to capital gains tax.

(4)(a) Relevant gains are essentially chargeable gains arising from the disposal of assets that have been acquired by or on behalf of the individual concerned using payments from the trustees or income or earlier gains derived from investment of those payments. Relevant income means income derived from the investment and continuous reinvestment of the payments made by the trustees.

(4)(b) Where for a year of assessment, the aggregate of an individual’s income and gains generated from investment and continuous reinvestment of payments made by the trustees is more than 50% of the aggregate of the individual’s total income and gains from that year, then the income so generated will be exempt from income tax and the gains so generated will be exempt from capital gains tax. However even if the exemption applies, the income and gains concerned are required to be included in the individual’s tax return.

(4)(c) Where it is necessary to decide how much income is relevant income or how much gains are relevant gains, apportionment on a just and reasonable basis is to apply. This may be required where compensation payments or monies derived therefrom together with other funds available to the individual concerned are used to purchase an asset.

(5) The income tax exemption provided by this section before being amended in Finance Act 2004, apply for the year 1997/98 and subsequent years of assessment and apply irrespective of when the public subscriptions were raised or when the qualifying trusts were established. Section 17 of the Finance Act 2004 amended the section so that a capital gains tax exemption is also available in respect of gains accruing in 2004 and subsequently.

Relevant Date: Finance Act 2021