By Fay Kearney

Office of the Revenue Commissioners

The Courts Service and the Revenue Commissioners are committed to delivering a fast and efficient public service. The changes introduced to Capital Acquisitions Tax (CAT) and to Probate requirements, by the Finance Act 2010, are the result of a unique joint initiative between both organisations to modernise and streamline the administration of CAT and Probate.

This article outlines the main changes introduced.

Changes to Probate Requirements

The filing of an Inland Revenue Affidavit with the Revenue Commissioners in advance of applying to the High Court Probate Office for a Grant of Representation in a deceased person's estate has been a long established practice. From mid June 2010, where a deceased person died on or after 5th December 2001, this practice will be replaced by a more efficient and streamlined procedure, as follows:

• An updated version of the Inland Revenue Affidavit will be used for all new applications
• The Affidavit will be prepared and sworn in duplicate
• Both Affidavits will be submitted directly to the Probate Office/District Probate Registry together with all other appropriate documentation for a Grant of Representation. Once Probate has been issued, Revenue will receive all relevant data directly from the Probate Office

There are no changes to the form and procedures in respect of applications where the deceased died prior to 5 December 2001.

Changes to Capital Acquisitions Tax

Introduction of a pay and file regime for Gift Tax and Inheritance Tax

Finance Act 2010 introduces a fixed pay and file date for CAT of 31 October. Where the return is made via Revenue's On-line Service (ROS), an extended filing deadline will apply, similar to the extended income tax pay and file deadline. All gifts and inheritances with a valuation date in the 12 month period ending on the previous 31 August must be included in the return to be filed by 31 October.

Examples:

Valuation date 21 February 2011: File CAT return and pay tax by 31 October 2011

Valuation date 6 November 2011: File CAT return and pay tax by 31 October 2012

An important element of any fixed pay and file regime is an appropriate sanction for those who do not comply with the pay and file deadline. To this end, a surcharge applies where the return is filed late. This is consistent with the objective of bringing CAT into line with other self-assessment taxes.

CAT as a charge on property

Prior to the passing of the Act, any tax due in respect of a gift or inheritance remained a charge on the property, unless Revenue issued a certificate of discharge or (generally) 12 years had passed since the date of the inheritance or gift. The maintenance of a charge on property that was inherited or gifted, and the consequent need for certificates of discharge, is not consistent with modern, self-assessment tax administration and generates additional processing and compliance costs for both practitioners and Revenue.

Finance Act 2010 abolished CAT as a charge on property received as a gift or an inheritance. This change applies retrospectively and eliminates the need to apply for certificates of discharge (Form CA 11).

Abolition of secondary accountability

Prior to the passing of Finance Act 2010, CAT legislation extended secondary accountability to a number of other parties where the beneficiary fails to pay the tax due and the person secondarily liable had control over the property passing.

Secondary accountability has now been abolished for inheritances and gifts. This change also applies retrospectively and will eliminate processing and compliance costs relating to certificates of personal discharge. As such, Forms CA44 and IT10 are no longer being issued.

Requirement to appoint an Irish resident “agent”

Where a non-resident beneficiary is entitled to a benefit exceeding €20,000 and an Irish resident personal representative takes out probate or letters of administration, the Irish resident personal representative will be responsible for the pay and file requirements of the non-resident beneficiary, where that beneficiary does not file a return and pay the tax due.

Where there is no Irish resident personal representative, the proposed non-resident personal representative must appoint a solicitor holding a practicing certificate in the State to act in connection with the administration of the estate. On the issue of the Grant of Representation to the proposed non-resident personal representative, the acting solicitor will be responsible for the pay and file requirements of the non-resident beneficiary, where that beneficiary does not file a return and pay the tax due.

Requirement to e-file

Finance Act 2010 introduces mandatory e-filing of the CAT return (IT38) where reliefs or exemptions (other than the exemption for small gifts) are being claimed by a beneficiary of a gift or an inheritance. E-filing is the electronic filing of returns through Revenue's Online Service (ROS).

CAT is a complex tax resulting in many calculations and adjustments. As such, much of Revenue's administration of CAT involves computational adjustments. By introducing this requirement to claim reliefs through ROS, Revenue and practitioners will be able to ensure accurate returns through on-line rules. The functionality of ROS ensures that the form is simple and quick to complete as only questions that are pertinent to the return are presented for answers. As information is entered, the system progressively customises the return screens that have to be completed, thus minimising the number of screens and options presented.

Further information on the benefits of ROS and how to register for the service can be found at: http://www.revenue.ie/en/online/ros/index.html

When are Changes Coming into Effect?

The abolition of the status of CAT as a charge on property, the abolition of secondary accountability and a revised clearance threshold of €50,000 for joint accounts (Form IT8) came into effect from the date of the passing of the Act. All other changes will come into effect on a date to be specified by the Revenue Commissioners. It is envisioned that this will be mid June 2010.

Upcoming Probate and Capital Acquisition Tax Seminars

The Court Service and Revenue Commissioners invite practitioners to attend one of their joint information seminars on these important changes. The seminars are from 5–7pm and will be held at the following venues:

Practitioners attending these seminars are asked to advise David Cunniam by email at dcunniam@revenue.ie