Capital Acquisitions Tax (CAT)

Part 5 of the Finance Bill contains a number of provisions in relation to CAT, the most noteworthy of which are the changes to the payment and filing dates and the removal of secondary accountability.

Currently taxpayers who receive a gift or an inheritance must file a return and pay any tax due within four months of the valuation date. As a result of the Finance Bill the dates for paying CAT and filing returns are brought somewhat more in line with other self-assessment taxes. Where the valuation date arises in the period from 1 January to 31 August, the pay and file date will be on or before 31 October in that year. Where the valuation date arises in the period from 1 September to 31 December, the pay and file date will be on or before 31 October in the following year. As a result of the changes, interest will now run on outstanding tax from 1 November in the relevant year. These changes will come into effect on a date to be specified in an order made by the Revenue Commissioners.

As readers will be aware, previously if the recipient of a gift or an inheritance failed to pay the relevant tax certain individuals including the grantor of the gift, trustees, guardians and personal representatives became accountable for the tax due. This secondary accountability has now been removed and the abolition applies retrospectively.

While secondary liability has been abolished, there is provision in the Bill for the appointment of an Irish resident agent who will be responsible for the payment of any tax due in cases one or more of the beneficiaries of a gift or inheritance are not resident in Ireland.
The Bill also made amendments which will affect those who, having claimed agricultural relief, sell agricultural land within the six-year claw back period and reinvest in other agricultural property. The amendments now mean that the purchase of agricultural property which was previously transferred to a spouse will not constitute a reinvestment in ‘other agricultural property’ for the purposes of agricultural relief and will not avoid a claw back of the original relief claimed.

Other provisions relevant to CAT include the extension of the exemption from CAT for units in common contractual funds and investment undertakings to units in collective investment schemes, and the removal of the requirement for Revenue to certify the Inland Revenue Affidavit before probate or letters of administration are issued by the Probate Office.

Capital Gains Tax (CGT)

The principal amendments to the CGT provisions are contained in Chapter 6 of Part 1 of the Bill. Among the amendments are changes to some of the provisions relating to retirement relief, confirmation of when a disposal is deemed to take place when land is purchased under a compulsory purchase order (CPO), and to the exemption from CGT provided under s611 TCA 1997 for disposals to the State, public bodies and certain charities.

With regard to retirement relief, section 54 of the Bill provides that, in the case of disposals made on or after 4 February 2010, the receipt by an individual of a payment made as a result of a redemption, repayment or purchase by a company of its own shares where such payment is not treated as a distribution under s130 TCA 1997 will be taken into account for the purposes of determining if the €750,000 threshold has been reached by the retiring individual. Consequently, a retiring individual who is selling their business to a third party may now meet or exceed the €750,000 threshold for retirement relief sooner than would otherwise have been the case.

Per s53 of the Bill, for disposals made on or after 4 February 2010, land sold under CPO is deemed to have been disposed of when the person from whom the land was purchased receives the consideration. This eliminates the possibility of an individual who has sold land by way of CPO becoming liable to pay the CGT before they receive their consideration.

Section 611 TCA 1997 provides that disposals to the State, public bodies and certain charities are exempt from CGT. The amendment contained in s57 of the Bill clarifies what bodies are deemed to be public bodies for the purposes of this section and confirms that they are national cultural institutions which are funded by way of grant or grant-in-aid, or funded directly by the Department of Arts, Sport and Tourism. The section goes on to list the relevant bodies which include The Chester Beatty Library, The Irish Museum of Modern Art, and The National Concert Hall.

Mortgage Interest Relief

The Minister for Finance announced in Budget 2010 an extension of mortgage interest relief until the end of 2017. The Finance Bill has clarified that the relief will be available at current levels for loans taken out between 1 January 2010 and 31 December 2011, until the end of 2017. For loans taken in 2012, mortgage interest relief will be available at a reduced rate of 15% with a ceiling of €6,000/€3,000 married/ single for first-time buyers and a reduced rate of 10% with a ceiling of €6,000/€3,000 married/single for non first-time buyers.

Loans taken out on or after 1 January 2013 will not qualify for mortgage interest relief and mortgage interest relief will be abolished completely for the tax year 2018 and subsequent tax years.

Abolition of Reliefs and Allowances

A number of reliefs and allowances are to be abolished:

• Relief for service charges incurred after 2010 is to be abolished.
• The BIK exemption on employer-provided art objects will be terminated.
• Relief available to investments in significant buildings and gardens will be abolished where work has not already commenced before 4 February 2010.
• The scheme of capital allowances for childcare facilities now has a termination date of 30 September 2010. This date may be extended subject to satisfying certain conditions.

Domicile Levy

The Bill gives effect to the Budget announcement of a Domicile Levy. From 1 January 2010 individuals who are Irish citizens and Irish domiciled in a tax year and who have:

• Irish located property greater than €5 million,
• worldwide income in excess of €1 million and
• an Irish income tax liability less than €200,000,

will pay a Levy of €200,000.

The Bill clarifies that Irish property is all property located in Ireland, but does not include shares in a trading company or a holding company which derives the greater part of their value from subsidiary trading companies.

The individual's Irish income tax liability the year will be allowed as a credit in arriving at the amount of the domicile levy for that year. The levy will apply irrespective of where they live or where they are tax resident.

Remittance Basis of Tax – Non-Ordinarily Resident Individuals

It is proposed in the Bill that the remittance basis for foreign investment income should no longer apply to non-ordinarily resident individuals. Prior to this amendment, non-ordinarily resident individuals (i.e. had been non resident in Ireland for three consecutive years), who qualified for the remittance basis, could avoid Irish tax on foreign income by leaving the income outside of Ireland. Section 8 of the Bill provides that from 1 January 2010, the remittance basis of taxation will only be available to individuals who are not domiciled in Ireland.

Enhancement of the Assignment Relief Programme

The special assignment relief programme was introduced in Finance (No.2) Act 2008 and contained in section 825B TCA 1997. The aim of the scheme was to encourage key foreign talent to Ireland and represented a somewhat limited reintroduction of the remittance basis in respect of foreign employment earnings. A welcomed expansion of the scheme was detailed in section 9 of the Bill. From 1 January 2010 the scheme will apply to both EU and EEA nationals (i.e. the current restriction to non-EEA nationals is removed) and the stipulation that the employee exercises their duties in Ireland for a minimum of three years is reduced to one year.

Important Website

The Finance Bill 2010 can be accessed from http://www.finance.gov.ie/viewdoc.asp?DocID=6189