Administration
The system of collection of capital acquisitions tax was radically reformed in 2010. In broad terms, it has moved to an annual tax, largely returned by way of self-assessment through the Revenue Online Service.
Consequential on the modernisation of CAT in 2010. The changes include clarification that the 4-month period of grace continues to apply to Discretionary Trust Tax, the abolition of the provision dealing with the apportionment of benefits taken on the same day and changes the method of how payments on account of CAT are to be dealt with.
The amendment applies on and from 8 February 2012.
The Finance Act 2012 changed the pay and file date for CAT from 30 September each year to 31 October. The amendment makes consequential changes relating to interest on outstanding tax and the surcharge applicable where returns are filed after the due date for delivery of such returns respectively. The amendment applies on and from 8 February 2012.
A person who takes a gift or a benefit by way of inheritance is potentially liable to pay capital acquisitions tax. The primary obligations rest on the donee, the transferee or successor. The tax is recoverable from the recipient or his personal representative if a notice is served on a deceased recipient.
The donee’s successors, transferees or personal representatives may raise the tax by means of sale or by charging the property even if it is not vested in them.
Formerly, personal representatives and certain other persons were secondarily liable and could be pursued if the beneficiaries did not pay. This is now applicable only to a non-resident beneficiary. Where a non-resident takes an inheritance of more than €20,000 and there is no personal representative resident in the State, the representatives must appoint a solicitor who is practising in the State to act in the administration. The solicitor may be charged with the inheritance tax in respect of a beneficiary who he is non-resident under a will, intestacy or Succession Act benefits.
The personal representatives or solicitors are not liable if the non-resident beneficiary has not disclosed prior gifts or inheritances and the personal representative or solicitor has made reasonable enquiries regarding the same and acted in good faith.
A resident personal representative or solicitor is only liable to pay the CAT on behalf of a non-resident beneficiary, to the extent that property or assets are within his control or which but for his neglect or default would be under his control.
The personal representative or solicitor has the power to retain the asset as is required to make payment. He may raise the tax by sale or mortgage.
Any person who is liable to pay capital acquisitions tax whether inheritance tax, gift tax or discretionary trust levies must deliver a full and true return of all gifts or inheritances in respect of which he is accountable with details of the assets comprised in the gift, an estimate of the market value and such other particulars as are relevant to the assessment. He must assess the tax to be charged and paid on the valuation date to the best of his information, knowledge and belief and pay the tax so assessed.
Where the valuation date is in the first eight months of the year, the return must be filed by 31st October in that year. In relation to gifts, inheritances in the last four months, they must be included in the return in the following year.
The return is now an annual return including all gifts or inheritances. Formerly, gifts or inheritances were to be the subject of a return made within four months of the valuation date.
There was formerly a manual return form, IT38S, where no relief or exemptions was claimed apart from the general small gift exemption and where what passed was an absolute interest, without conditions or restrictions from a single disponer. The longer IT38 form was required in other cases. In almost all cases, return online through ROS is now required.
The obligation to file arises once the gift or inheritance exceeds 80% of the relevant group threshold.
The Revenue may require a return from a beneficiary by giving notice at any point. Where a notice is given in the relevant period, the relevant filing return must be made by 31st October.
Where an incomplete or defective return is made, Revenue may require a corrective return which may require payment of additional tax and interest. Where the return is defective in a material respect, an obligation to make an additional self-assessment return and pay the outstanding tax arises within three months of the person becoming aware of the material defect.
The Revenue may give a notice at any time on a person requiring a return to be submitted within 30 days of every taxable gift or inheritance taken during the period referred to in the notice. He must respond even if a nil return arises.
The obligation to return arises if tax would arise but for an exemption. The includes the principal exemptions including in particular, agricultural relief, business relief, foster child relief, favourite nephew relief, certain exemptions for parents.
Certain other benefits including the dwelling-house exemption, certain policies or insurance retirement benefits and other exemptions also give rise to the obligation.
The Revenue may give notice requiring persons made a gift to make a return within 30 days of the property comprising the gift, estimated market value and other factors relevant to the assessment. This applies where the amount exceeds 80% of the relevant tax-free thresholds.
A person who is resident in the State and makes a disposition under which property becomes subject to a discretionary trust must make a return within four months of the disposition setting out the terms of the trust, the address in the State of the trustees, address of the potential beneficiaries and an estimate of the market value.
The same applies in respect of a foundation. This obligation does not apply to persons who have been resident for less than five years and are not domiciled.
As with other tax an accountable person may make a return and make an expression of doubt. Provided it is accepted as genuine, any additional CAT is payable within 30 days of the assessment without additional interest.
The CAT return must be signed in writing or electronically confirming that the declaration of liability is correct to the best of the person’s information, knowledge and belief. The Revenue may accept an unsigned return on return signed by an agent. The Revenue can require an additional return to be sworn before a Peace Commissioner, Commissioner for Oaths, Notary Public etc., on oath.
The Revenue retains the power to make assessments notwithstanding the self-assessment obligation. They may require further or corrective assessments.
Revenue may serve a notice of assessment on a person who is accountable for tax or his agent or his personal representative if he is deceased. It may assess an accountable person even if his address is not known by publication in the official journal.
An assessment must be made within four years unless there are reasonable grounds for believing that there has been fraud or neglect.
CAT is managed by the Revenue in common with the other principal taxes.
A CAT return can be made manually and now in most cases, mandatorly through Revenue Online Service. It is necessary to register with the Service.
Interest arises at the rate specified on arrears of tax from the due date. Interest rates run from the day after the due date. Interest is not compounded.
The rate of interest is specified from time to time at a daily rate, which was formerly an annual rate. In certain cases, a lower rate of interest is allowed where CAT is being paid under an instalment arrangement. The general rate since 2009 check is 0.219% per day.
Where exemptions are clawed back because a subsequent condition does not apply, interest is not charged retrospectively. It arises from the date of clawback. However, if paid within 30 days, interest is not charged. Payment on account on part payment is treated as the payment of the tax rather than interest.
In certain cases, payments are allowed by instalment over five years. This applies to gifts and inheritances of real property and a limited interest in real property and non-movable property. Where non-real property is taken absolutely, instalments are not available on the basis it is assumed to be liquid.
Where property is subject to an instalment arrangement and is subsequently purchased or otherwise realized, unpaid instalments become immediately due in most cases. Where the beneficiary is a life tenant and dies within the instalment period, the balance of instalments is not paid.
Instalment arrangements are also available in respect of property receiving, qualifying for business property and agricultural property relief. This applies to movables and not just real property. Where the assets are sold or otherwise realised within the five year instalment periods, unpaid instalments must be paid immediately unless there is reinvestment within the period of year as required generally within a year or for other periods in other cases. Where instalments are paid, a reduced rate of interest arises.
The Revenue may if they are satisfied that payment of tax when otherwise due cannot be paid without excessive hardship may allow for payment to be postponed on such terms as they think fit. Each case is looked at separately.
Where interest exceeds the amount of unpaid tax, Revenue may cap interest at 100% if it sees fit. This is a discretionary power.
Certain categories of government security may be used to pay inheritance tax. It must have formed part of the estate at least three months prior to the death. There is a very limited category of such stock available.
There is special capital gains tax relief in respect of the repurchase of the company’ shares for the purpose of payment of inheritance tax. See the separate sections on capital gains tax. The relief applies to trading companies which are unquoted. One of the conditions is that the proceeds are used to pay inheritance tax in the relevant year or a debt incurred in discharging inheritance tax which must itself be repaid or redeemed. The relief requires that the person could not have discharged the tax without undue hardship.
Where a gift is made of heritage item to an approved body, its market value may discharge liability to arrears of current and future taxes including CAT. It is applicable only to items worth more than €150,000. Where it is part of a collection, at least one item must be worth a minimum of €50,000. The maximum that can be gifted in total across the State is €6,000.000 annually.
A heritage item must be a cultural item including an archaeological item, archived book, estate record, manuscript, painting or collection, which selection committee of a relevant body considers to be an outstanding example of its type, preeminent in its class and the export of which from the State would constitute a diminution of the accumulated cultural heritage of the State or whose import would constitute a significant enhancement and it must be suitable for acquisition by the relevant body. The relevant bodies are the National Archives, National Library, National Gallery, National Museum and certain other institutions.
The relief must be specifically applied for and approved by a relevant committee. There is a credit of 80% of the market value against most taxes including arrears and it may be carried forward.