Revenue Note for Guidance

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Revenue Note for Guidance

SCHEDULE 2: Computation of tax

Summary

Schedule 2 contains provisions relating to the computation of capital acquisitions tax. The Schedule provides for 3 group thresholds i.e. €280,000 (Group A), €30,150 (Group B) and €15,075 (Group C). The group threshold applying in a particular case depends on the relationship of the donee or successor to the disponer.

The Group A threshold applies where—

  • the donee or successor is, on the date of the relevant gift or inheritance the child, or minor child of a deceased child of the disponer/civil partner of the disponer, or
  • the inheritance is taken by a parent of the disponer on the death of the disponer, and the interest taken is not a limited interest.

The Group B threshold applies where the donee or successor is, on the date of the relevant gift or inheritance, a lineal ancestor, a lineal descendant (other than a child, or a minor child of a deceased child), a brother, a sister, or a child of a brother or of a sister of the disponer or a child of the civil partner of a brother or of a sister of the disponer.

The Group C threshold applies where the donee or successor (who is not a spouse/civil partner of the disponer) is not, on the date of the relevant gift or inheritance, entitled to the Group A or Group B thresholds.

Benefits taken by a beneficiary since 5 December 1991, which have the same group threshold as the current benefit, are aggregated for the purpose of calculating the capital acquisitions tax payable on that benefit.

A single 33% rate of tax applies for both gifts and inheritances.

Special provisions are made treating—

  • a beneficiary who is the surviving spouse of a deceased person who was nearer in relationship to the disponer than the beneficiary,
  • certain nephews and nieces,
  • certain foster children, and
  • certain adopted children,

as being more closely related to the disponer than their normal relationship to that disponer, in certain circumstances.

Details

para 1 This paragraph provides for the 3 group thresholds..

para 2 This paragraph defines the term “value” as used in Part 1 of Schedule 2 by reference to the aggregation rules contained in paragraph 3.

para 3 This paragraph sets out how tax is to be calculated on a taxable gift or inheritance. The taxable value of taxable gifts and inheritances taken since 5 December 1991, which have the same group threshold as the current benefit, must be aggregated to calculate the capital acquisitions tax payable on that current benefit.

For example, a beneficiary taking a current gift or inheritance from a parent will only be required to take into account previous gifts or inheritances taken from a parent since 5 December 1991, for the purposes of calculating the tax, if any, payable on the current benefit.

para 4 This paragraph provides for the application of the 33% rate of tax to the portion of the taxable value of a gift or inheritance in excess of the relevant threshold amount.

Para 5 Deleted by section 115(5) Finance Act 2012.

para 6 This paragraph provides that where, at the date of the gift or inheritance, a beneficiary is the surviving spouse/civil partner of a person who, at the date of his/her death, was nearer in relationship to the disponer than the beneficiary, the latter takes the deceased spouse’s/civil partner’s relationship for the purpose of determining the appropriate group threshold.

Example

A, by will, gives all his property to his son’s wife B (A’s son had pre-deceased him). Under this paragraph, B is entitled to the Group A threshold.

para 7 This paragraph deals with favourite nephew/niece relief.

para 7(1) “company”, “control”, “investment income”, “nominee”, “private company”, “private company controlled by the disponer” and “private non-trading company” have the same meanings as they have in section 27;

“relevant period” means—

  • the period of 5 years ending on the date of the disposition. The date of the disposition is defined in section 2 and means, broadly, the date on which the disponer disposes of his/her property, whether in his/her lifetime or on his/her death. Thus, the date of the disposition in the case of a lifetime gift is the date of the transfer of property. In the case of a bequest of property by will, it is the date of the testator’s death. For example, if a nephew has worked 5 years for his/her uncle immediately prior to his death, the nephew will be entitled to the relief in respect of business assets which he takes immediately on his uncle’s death, or which he takes on the termination of a life interest in those assets given by his uncle to, say, the uncle’s widow, for her life;
  • the period of 5 years preceding the ending of the disponer’s interest, in the case of a settlement of property made by the disponer on himself/herself for a limited period (usually for his/her life). For example, if an uncle in his lifetime settles business assets on trust for himself for life, with remainder to his nephew absolutely, the nephew need only have worked 5 years for his uncle prior to his uncle’s death.

Reasonable periods of annual or sick leave are included in calculating the 5-year period.

para 7(2) For the purpose of computing tax on a gift or inheritance, a child of a brother or a sister or a child of the civil partner of that brother or sister of a disponer is deemed to be the child of that disponer—

  • where that child has worked substantially on a full-time basis for the disponer for the relevant 5 year period in carrying on, or in assisting in carrying on, the trade, business or profession of the disponer, and the gift or inheritance consists of property which was used in connection with that business, trade or profession,
  • where that child has worked substantially on a full-time basis for a company (as defined) for the relevant 5-year period in carrying on, or in assisting in carrying on, the trade, business or profession of the company, and the gift or inheritance consists of shares in that company.

para 7(3) Where the trade, business or profession is owned directly by a disponer, the nephew or niece must have worked either—

  • a minimum of 24 hours a week for the disponer, at the place where that trade, business or profession is carried on, or
  • a minimum of 15 hours a week for the disponer, at the disponer’s place of business, where the trade, business or profession of the disponer is carried on exclusively by the disponer, his/her spouse and the nephew or niece concerned.

Alternatively, where the trade, business or profession is owned by a company (as defined), the nephew or niece must have worked either—

  • a minimum of 24 hours a week for the company, at the company’s place of business, or
  • a minimum of 15 hours a week for the company, at the company’s place of business, where the business of the company is carried on exclusively by the disponer, his/her spouse and the nephew or niece concerned.

The lower minimum period of 15 hours work, compared with 24 hours, is intended to cover cases where the trade, business or profession involved might not be substantial (for example, a small farm) not requiring extensive work. Nevertheless, some minimum input of work by the nephew or niece into the trade, business or profession is required so that the relief may be given, and this is defined as 15 hours.

para 7(4) Relief is not given to any nephew or niece of the disponer who takes a gift or inheritance of the assets of a trade, business or profession under an appointment made by the trustees of a discretionary trust set up by the disponer.

para 8 This paragraph deals with certain marriage settlements created before 1 April 1975. It provides that where, on the cesser of a limited interest to which a parent of the donee or successor was entitled in possession, the donee or successor takes a gift or an inheritance under a “specified disposition”, then, for the purpose of computing the tax payable on the gift or inheritance, the donee or successor is deemed to bear to the disponer the relationship of a child.

“specified disposition” is defined as a disposition—

  • the date of which is a date prior to 1 April 1975,
  • in relation to which the disponer is a grandparent of the donee or successor, and
  • in which the marriage of the parents of the donee or successor was, at the date of the disposition, expressed to be the consideration.

para 9 This paragraph provides that where a foster child receives a gift or inheritance from his/her foster parent, that foster child is entitled to the Group A threshold in respect of the gift or inheritance taken from his/her foster parent.

“the appropriate period” is defined as periods falling between the birth of the child in question and his/her 18th birthday which together amount to 5 years.

This relief applies to a gift or inheritance by a foster child from a foster parent where the Revenue Commissioners are satisfied that the foster child resided with the foster parent and was cared for and maintained by the foster parent throughout the appropriate period. It also applies to an inheritance which is taken on the death of the disponer where the Revenue Commissioners are satisfied that the successor had, prior to the date of the inheritance, been placed in the foster care of the disponer under the Child Care (Placement of Children in Foster Care) Regulations 1995, or the Child Care (Placement of Children with Relatives) Regulations 1995. In each situation, the foster child is given the group threshold appropriate to a child.

The relief will not apply where the claim is based on the unsupported evidence of one witness.

para 10 This paragraph provides that where an adopted child receives a gift or inheritance from a natural parent, that adopted child is entitled to the Group A threshold in respect of the gift or inheritance taken from his/her natural parent.

para 11 For the purposes of Schedule 2, a reference to a gift or an inheritance, or to a taxable gift or a taxable inheritance, includes a reference to a part of a gift or an inheritance, or to a part of a taxable gift or a taxable inheritance, as the case may be.

Relevant Date: Finance Act 2015