37 Cesser of liabilities

Summary

This section provides that where property is taken by a donee or successor subject to a liability, tax will be payable by the person benefiting when that liability ceases.

Details

(1) “appropriate part” has the same meaning as it has in section 5(5).

(2) Where property is given to A, subject to an annuity to B for his/her life, the benefit taken by A is subject to a liability. It is provided by section 28(8) that there may be deducted, in calculating the taxable value of A’s benefit, the appropriate part of the property required to produce B’s annuity. If the total property taken by A is valued at €500,000, which produces an income of €12,000 per annum and B’s annuity was €6,000 per annum, “the appropriate part” calculated as follows would be deducted from A’s benefit:

When B dies, A will be taxed on the benefit accruing to him by reason of the cesser of the annuity.

The value of the cesser of the liability is calculated at the date when the liability ceases where the liability is charged on the property. It should be noted that the value of the “appropriate part” at the date of the cesser of the liability will be different from the value of that liability at the date when it commenced.

Where the liability is not charged or secured by any property at the time of its cesser, the value of the cesser of the liability is deemed to consist of a notional sum which would produce an annual income equal to the annual value of the liability. This notional sum is calculated in accordance with section 5(2)(b) i.e. on the basis of the yield from the most recent Government security with a redemption date of not less than 10 years after the date it was issued.

If the yield were 6%, for instance, the notional capital attributed to an annuity of €6,000 would be €100,000.

(3) The notional capital is deemed not to be situated in the State at the date of the gift or at the date of the inheritance. This ensures that tax is not payable 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/successor 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 (see note on section 5(3) as regards the reason for this provision).

Relevant Date: Finance Act 2015