579A Attribution of gains to beneficiaries

Summary

Where the trustees of a settlement are at no time in a year of assessment resident or ordinarily resident in the State gains accruing to the trustees (the trust gains) may be attributed to the beneficiaries for assessment to capital gains tax. The trust gains are attributed to those beneficiaries to whom the trustees make a capital payment. A beneficiary can only be assessed to tax on the gains attributed to him or her in a year of assessment if at some time during that year the person is domiciled in the State.

Section 579 applies in respect of a settlement with an Irish settlor who retains an interest in the settlement. In such cases, the capital gains tax liability falls on the settlor for disposals by the trust on or after 7 March 2002. This section applies to trusts with an Irish settlor who does not retain an interest in the trust, and to trusts with a foreign settlor.

Details

(1)(a) “capital payments” are defined as payments which are either not chargeable to income tax on the recipient, or in the case of a recipient who is neither resident nor ordinarily resident, any payment received otherwise as income – but excluding any payment received under an arm’s length transaction.

(1)(b) Payment includes the transfer of an asset, the conferring of any benefit, or any occasion on which settled property becomes held by a trustee as bare trustee or nominee for another person.

(1)(c) Where a capital payment is a loan or any other benefit which is not the payment of money, its amount is taken to be the value of the benefit conferred by it.

(1)(d) A beneficiary is treated as receiving a capital payment if —

• the beneficiary receives the payment from the trustees directly or indirectly;
• the trustees, directly or indirectly apply the payment in settlement of any debt of the beneficiary or otherwise for the benefit of the beneficiary; or
• a third party receives the payment at the beneficiary’s direction.

(2)(a) – (f) This section applies for a year of assessment—

• to foreign trusts of which the settlor does not retain an interest in the trust at any time in that year, and
• to foreign trusts of which the settlor does retain such an interest but the settlor was neither domiciled nor ordinarily resident in the State in that year of assessment or when the settlor made the settlement.

Where this section applies for a year of assessment to a foreign trust, then the provisions of section 579 will not also apply.

Section 579, therefore, applies for a year of assessment to foreign trusts the settlor of which retains an interest in the trust and the settlor is resident or ordinarily resident in the State, either in the year of assessment or at the time the settlor made the settlement. Furthermore, the charge to capital gains tax under section 579 falls on the settlor in respect of disposals made on or after 7 March 2002, whether or not there are other beneficiaries of the settlement.

A settlor has an interest in a settlement where—

• any property which is or may at any time become comprised in the settlement and which originates from the settlor is or may become applicable for the benefit of or payable in any circumstances to, a relevant beneficiary; or
• any income which arises, or may arise under the settlement, and which originates from the settlor, is, or will or may become, applicable for the benefit of or payable in any circumstances to, a relevant beneficiary; or
• a relevant beneficiary enjoys a benefit directly or indirectly from property originating from the settlor and which is comprised in the settlement or so enjoys any income originating from the settlor and arising under the settlement – this does not include a situation where the settlement has an obligation to repay a loan to the settlor, or repays that loan.

A “relevant” beneficiary is defined to mean—

• the settlor;
• the spouse or civil partner of the settlor;
• a company controlled by the settlor; and
• a company associated with a company controlled by the settlor.

(“associated” and “control” have the meanings assigned to them by section 432)

Property originates from a person where the property is provided by the person or represents property so provided i.e. where the original property is substituted by new property.

Income originates from a person where it arises from property originating from the person or the income is provided by the person.

(3) For a year of assessment the “trust gains for the year of assessment” are computed. This is done by aggregating —

• the amount of the gains for the year which would have been chargeable on the trustees under section 31 if they had been resident and ordinarily resident in the State in that year, and
• the corresponding amount of gains for earlier years, which have not yet been attributed to beneficiaries.

(4), (5) & (6) The trust gains for a year of assessment are treated as chargeable gains accruing in that year to beneficiaries of the settlement who receive capital payments from the trustees in that year or who have received such payments in any earlier year. The gains are attributed to the beneficiaries in proportion to, but not exceeding, the amounts of capital payments received by them. A capital payment which has given rise to the attribution of trust gains to beneficiaries in an earlier year of assessment is left out of account.

(7) A beneficiary who at no time in a year of assessment is domiciled in the State cannot be charged with trust gains of that year attributed to him or her.

(Under section 29(3), a person who is neither resident nor ordinarily resident in the State is not chargeable to gains accruing to that person – subject to the exceptions as set out in that section.)

(8) A settlement arising under a will or intestacy is treated as made by the testator/intestate at the time of death.

(9) If the trustees pay the capital gains tax of the beneficiary, that payment is not to be regarded as a payment to the beneficiary for the purposes of income tax or capital gains tax.

(9A) The section will not apply where it is shown in writing or otherwise to the satisfaction of the Revenue Commissioners that, at the time when the charge to capital gains tax arises, the settlement is carrying on genuine economic activities in a relevant Member State (within the meaning of section 806(11)(a)) which includes the United Kingdom.

Relevant Date: Finance Act 2021