Revenue Note for Guidance

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Revenue Note for Guidance

5 Gift deemed to be taken

Summary

This section identifies the type of benefits which will be a gift for the purposes of gift tax, distinguishes a gift from an inheritance and identifies the property which is to be valued for gift tax purposes.

Details

(1) A person is deemed to take a gift when, under or as a consequence of a disposition, he/she becomes beneficially entitled in possession to a benefit. He/she is deemed to take a gift whether or not he/she already has some interest in the property in which he/she takes that benefit. In order to be regarded as a gift, the benefit must arise “otherwise than on a death”. Most dispositions are for full consideration in money or money’s worth. No question of a gift arises if full consideration has been paid. Normal commercial standards of value apply in determining whether a gift is deemed to be taken.

(2)(a) A gift is deemed to consist of the whole, or the appropriate part, as the case may be, of the property in which the donee takes a benefit, or on which it is charged or secured or which the donee is entitled to have it charged or secured (see note on subsection (5) regarding the meaning of “the appropriate part”). It will be noted that what is valued is not the particular interest taken by the beneficiary but the property in which he/she takes the interest.

(2)(b) Where annuities or other periodic payments are not charged or secured on property, they are treated as consisting of a capital sum equal to an amount which, if invested in the Government security most recently issued prior to the date of the gift, would yield an income equal to the annuity or periodic payment. The relevant security must be redeemable not less than 10 years after the date it is issued.

Example

A executes a deed of covenant whereby he covenants to pay B an annual sum of €1,000 for 7 years. The last security issued prior to the execution of the deed of covenant was 9% Government Bond 2001 issued on 21 May 1991. In order to obtain an income of €1,000 from this stock, a holding of—

€1,000 × 100


= €11,111

9

would be required.

If the stock is quoted at 97.5 cent, €11,111 of stock would cost—

€ 11,111× 97.5


= €10,833.

100

The capitalised value of an income of €1,000 per annum is, therefore, €10,833 using this method.

(3) Tax is not chargeable on the notional sum deemed to exist for the purposes of section 5(2)(b) where the disponer was not domiciled in the State at the date of the disposition, where that date was before 1 December 1999. This is also the case where the disponer or the donee are not resident or not ordinarily resident in the State at the date of the disposition, where that date is on or after 1 December 1999. [Because the notional sum is deemed to consist of Irish Government securities, that notional sum would be deemed to be located in this country and might be taxable in the absence of this provision.]

(4) Where the whole or part of the consideration is an interest for the disponer’s lifetime and the transferee is a relative of the disponer (see the definition of “relative” in section 2(1)), that interest is not treated as consideration for the purpose of deciding whether a gift has been taken. It may, however, be treated as partial consideration for the purposes of section 28. This provision is aimed at an artificial “sale” between relatives where the transferor “pays” for the benefit taken out of the gift itself.

(5) The “appropriate part” means, in effect, the part of the property which is sufficient to meet the benefit which is charged or secured on the property. It is calculated in accordance with the following formula:

gross annual value of benefit

Entire property ×


gross annual value of entire property.

Example

If A transfers land to B absolutely, subject to and charged with an annuity of €10,000 per annum payable to C for life, and the land produces an income of €30,000 per annum, the gift taken by C is deemed to consist of one-third of the land. The gift taken by C is “the appropriate part”.

C is treated, in effect, as taking a life interest from A in one-third of the land and B is treated as taking absolute interest from A in two-thirds of the land. Under section 28(4), C’s life interest is valued in accordance with Schedule 1.

When C dies, B will be deemed to take an inheritance of “the appropriate part” of the property then set free by the cesser of the annuity (see section 37) from A absolutely.

(6) Where a person acquires a right to a benefit, but that right is not legally enforceable because of lack of evidence (e.g. a memorandum sufficient to satisfy the Statute of Frauds) and the gift is completed at a later date, the gift is deemed to be taken at the later date.

(7) Where a gift arises on the transfer of shares in a family-controlled private company, the value of such shares is ascertained for gift tax purposes in accordance with section 27. Genuine arm’s length sales are excluded from this provision, however.

Relevant Date: Finance Act 2015