571 Chargeable gains accruing on disposals by liquidators and certain other persons

Summary

This section imposes a liability to pay capital gains tax or, where appropriate, corporation tax on chargeable gains, on persons designated in the section as “accountable persons”, that is, liquidators, receivers (whether appointed under a fixed or a floating charge), mortgagees or any other persons entitled to assets by means of security. The liability affects tax on any disposal made by an accountable person where section 537(2) (or section 78(8) or 570 in the case of a liquidator) would make a different person (who might have no funds to pay the tax) chargeable on the disposal by the receiver, mortgagee, liquidator, etc. The accountable person is assessable to the tax referable to the chargeable gain and that tax is recoverable from the accountable person. The tax must be paid by the accountable person out of the proceeds of the disposal in priority to charges and encumbrances on the property.

Details

Definitions

(1) An “accountable person” includes not just a liquidator of a company but also persons whose disposals of certain assets are treated for capital gains tax purposes as being disposals by the owner of the assets so that the owner is the chargeable person (even though the asset is being dealt with, for example, by a liquidator, mortgagee or receiver), and tax is computed by reference to the owner’s entitlement to indexation, exemptions and reliefs. The relevant provisions which “look through” the receiver, liquidator, etc are sections 78(8), 537(2) and 570.

Definitions of “referable capital gains tax” and “referable corporation tax” are provided for respectively by reference to subsections (2) and (3) which contain rules for computing the amount of tax payable by an accountable person (the “referable” tax), while “the debtor” and “the company” are given the meaning set out in subsections (5) and (6), respectively.

A definition of “relevant disposal” is also provided by reference to section 648 which deals with the taxation of chargeable gains on the disposal of development land. As these gains are treated in a special way under that section, they must be distinguished from “normal” gains in many of the provisions of this section. For instance, where such gains accrue to companies they are charged to capital gains tax (rather than corporation tax) so that they are within the provisions of subsections (2) and (5) which deal with capital gains tax but must be excluded from subsections (3) and (6) which deal with corporation tax.

Referable capital gains tax

(2) The definition of “referable capital gains tax” must necessarily take account of various circumstances in which different rules for the computation of capital gains tax are provided in the Capital Gains Tax Acts.

The simple case is where in a year of assessment no gain arises to “the debtor” other than chargeable gains (“the referable gains” dealt with in subsection (5)) on disposals by the accountable person. In such a case the provisions of section 31 (under which tax is to be levied on the net amount determined by deducting all allowable losses from the amount of the chargeable gains) apply without modification and, thus, the “referable capital gains tax” is the tax on the referable gains as if they were the debtor’s gains and before the set-off provided for in subsection (5)(c).

(2)(b) A special rule is needed to determine “referable capital gains tax” in a case where there are a number of chargeable gains accruing to the debtor in the year of assessment, including referable gains, and all of those gains are taxable at the same rate so that allowable losses and the annual exemption, if the debtor is an individual, do not fall to be allocated in priority to any one gain under sections 546(6) and 601(3). Because loss relief is restricted under section 653 in the case of “relevant disposals” (that is, disposals of development land), this rule operates only where none of the disposals is a relevant disposal or all of the disposals are relevant disposals.

The rule provides a formula A/B x C to apportion the full capital gains tax (after all deductions and reliefs) of the debtor on all gains, including referable gains, by reference to the proportion which the accountable person’s tax (as if no deductions or reliefs were available) bears to the total tax (as if no deductions or reliefs were available). It thus allocates to the accountable person his/her correct share of the net tax for the year of assessment, after all allowances and reliefs have been taken into account (but before reducing that tax by the set-off under subsection (5)(c)).

(2)(c) A further special rule deals with all cases other than those dealt with in subsections (2)(a) and (b). Essentially, this further rule deals with cases where different rates of tax apply to gains. This provision is now largely redundant.

Referable corporation tax

(3) The definition of “referable corporation tax” is modelled somewhat on the definition of “referable capital gains tax” with additional wording similar to that in section 78(2) which provides for the determination of a “notional amount” of capital gains tax in charging companies to corporation tax. The definition is, however, necessarily more complex than its capital gains tax counterpart because, where corporation tax applies to chargeable gains of companies, there may be (unlike the position of capital gains tax) a spill-over of trading losses, charges on income or group relief which would reduce or wipe out corporation tax on chargeable gains. Thus, in determining “referable corporation tax”, a number of different scenarios have to be catered for.

(3)(a) The simple case is where no chargeable gain accrues to the company in the accounting period other than the chargeable gain, the tax in respect of which the accountable person is liable (or any development land gains which are liable to capital gains tax even when made by companies and, as a result, are outside the scope of subsections (3) and (6) but come within subsections (2) and (5).) In any such case, the referable corporation tax is normally the notional amount of capital gains tax, computed as if capital gains tax applied (following the precedent set in section 78(2)). However, it is also provided that the referable corporation tax is a lesser amount if the company’s overall corporation tax liability for the period is less than the tax on the gains – that is, because of a spill-over of a surplus of losses, etc which cannot be set against income of the company.

(3)(b) A special rule is necessary to deal with the case where a number of gains (including the chargeable gain for the tax on which the accountable person is liable) liable to corporation tax accrue in the accounting period and all of these fall to be taxed at the same rate in the notional capital gains tax computation under section 78(2).

In any such case, the referable corporation tax is determined by the formula —

	F
D ×
	E

This formula apportions the tax due by the company (F) by reference to an amount of capital gains tax on the accountable person’s gains (D) and an amount of capital gains tax on the entire (non-development land) gains of the company (E), both of the latter amounts being computed without allowing deductions or reliefs. The amount at F is either the “notional amount” (see note on subsection (3)(a) above) or, if less, the amount of the company’s overall corporation tax (taking account of trading losses etc).

(3)(c) A further special rule is necessary to deal with cases where, in effect, different capital gains tax rates apply to the various gains liable to corporation tax. However, this provision is now effectively redundant.

(4) Where an amount of tax is to be ascertained under subsection (2)(c) or (3)(c), that is, where more than one rate of tax is applicable to the gains of the debtor or company and a number of those gains are taxable at the same rate, it is necessary to apportion deductions (losses and annual exemption) over gains which have equal priority under section 546(6) or 601(3). However, this provision is now effectively redundant.

(5)(a) Where section 537(2) (which deals with disposal by mortgagees, receivers, etc) or section 570 (which deals with disposals by liquidators) applies in respect of the disposal of an asset by an accountable person, any referable capital gains tax in respect of any chargeable gains which accrue on the disposal is assessable on and recoverable from the accountable person. In the absence of such a provision, the person disposing of the asset would be deemed to do so as nominee of the owner of the asset so that the tax charge would fall on the owner. The reference to “any chargeable gains which accrue on the disposal” include chargeable gains on earlier disposals of the asset the accrual of which was deferred under section 597 (roll-over relief on replacement of business assets).

(5)(b) The referable capital gains tax is treated as a necessary disbursement out of the proceeds of the disposal and must be paid by the accountable person out of those proceeds. The words “necessary disbursement” are used to ensure that the referable capital gains tax must be paid out of the proceeds before those proceeds are applied in satisfaction of charges or encumbrances on the property disposed of.

(5)(c) A double charge to tax is avoided by permitting the set-off of tax paid by an accountable person, which apart from this section would be payable by the debtor (that is, the owner of the assets who is the chargeable person), against the debtor’s tax bill.

(6)(a) Where section 78(8) (which deals with disposals of a company’s assets by a liquidator) or section 537(2) (which deals with disposals by mortgagees, receivers, etc) applies in respect of the disposal of an asset by an accountable person, any referable corporation tax in respect of any chargeable gains which accrue on the disposal is assessable on and recoverable from the accountable person. In the absence of such a provision, the person disposing of the asset would be deemed to do so as nominee of the company owning the asset so that the tax charge would fall on the company. The reference to “any chargeable gains which accrue on the disposal” include chargeable gains on earlier disposals of the asset the accrual of which was deferred under section 597 (roll-over relief on replacement of business assets).

(6)(b) The referable corporation tax is treated as a necessary disbursement out of the proceeds of the disposal and must be paid by the accountable person out of those proceeds. The words “necessary disbursement” are used to ensure that the referable corporation tax must be paid out of the proceeds before those proceeds are applied in satisfaction of charges or encumbrances on the property disposed of.

(6)(c) A double charge to tax is avoided by permitting the set-off of tax paid by an accountable person, which apart from this section would be payable by the company (that is, the owner of the assets who is the chargeable person), against the company’s tax bill.

(7) Any referable capital gains tax or referable corporation tax which is assessable on an accountable person is recoverable by way of an assessment to income tax on that person under Case IV of Schedule D for the year of assessment in which the disposal giving rise to the referable tax occurred. Any such assessment is to be on an amount the income tax on which at the standard rate for the year of assessment in question would equal the amount of the referable capital gains tax or the referable corporation tax, as the case may be. For example, if the referable tax due in relation to a disposal in the year 2002 is determined as being €520, an income tax assessment of €2,600 at 20 per cent is to be made to recover it.

(8) Any excessive tax paid by an accountable person under the section may be repaid to that person (or set off against other tax due by that person in the same capacity).

(9) The basic charge to capital gains tax or corporation tax on disposals is preserved, subject to the set-off against the liability of the person normally chargeable on a disposal of any tax paid by an accountable person under this section. This ensures that the amount of “referable” tax is determined by reference to the circumstances of the chargeable person and enables tax to be assessed on and recoverable from the chargeable person to the extent (if any) to which the accountable person fails to pay the tax in accordance with this section.

Relevant Date: Finance Act 2019