Speeding up the process
Gift and inheritance tax legislation in Ireland is contained in the Capital Acquisitions Tax (CAT) Consolidation Act 2003 as amended (CATCA 2003). Significant amendments have been made to CAT legislation following the passing of the Finance Act 2010 (FA2010) in Ireland on 3 April 2010. These amendments do not change the rates or the manner in which tax is computed, but do make a number of radical changes including the removal of what was an onerous obligation on personal representatives and trustees in respect of secondary liabilities to tax. Other changes have been introduced in relation to the administration of CAT and probate practice, which will assist to streamline certain processes and hopefully speed up the administration of estates in Ireland. These changes will be welcomed although there are also new provisions that affect Irish estates with non-Irish resident beneficiaries, which place different burdens on personal representatives and solicitors acting in administration of estates.
Accountability for CAT and abolition of secondary liability
Abolition of secondary liability
CAT is payable on receipt of a gift or inheritance by the person receiving the gift or inheritance (the donee) and the donee was always primarily accountable for the tax. In addition, prior to the FA2010, certain persons (such as personal representatives, trustees, agents – which included solicitors acting on behalf of personal representatives in the administration of estates – and donors (persons making a gift)) were secondarily liable for the payment of undischarged CAT.
Since the passing of FA2010, the sole person accountable for CAT is the donee or the personal representative of the donee where the donee has died. The abolition of secondary liability is retrospective.1
Estates with non-Irish resident beneficiaries
Although secondary accountability for CAT has been abolished, new provisions apply to estates with one or more non-Irish resident beneficiaries.
In cases where one or more of the beneficiaries are not resident in Ireland, the market value of the benefit taken by any beneficiary in an estate exceeds EUR20,000 and the intended applicant for a grant of representation in the estate is not resident in Ireland, then such applicant must appoint a solicitor who is lawfully practising in Ireland to act in connection with the administration of the estate.
In circumstances where one or more of the beneficiaries in an estate are not resident in Ireland a resident personal representative, or solicitor acting in the administration of such an estate, is effectively an agent and is liable to pay any CAT liability arising in respect of those inheritances, but only to the extent that they control the relevant property or would have controlled the relevant property but for their own neglect or default. The revised CAT legislation gives powers to such an accountable person to sell or mortgage property to meet their obligations in respect of payment of CAT.
These provisions are a concern in relation to estates where there are non-Irish resident beneficiaries. The resident personal representative, or the solicitor appointed in the case of a non-Irish resident personal representative, must ensure that all CAT matters are correctly dealt with and the relevant obligations met in respect of CAT for non-Irish resident beneficiaries and should strictly follow the guidelines provided by the Irish Revenue in advance of distribution to non Irish resident beneficiaries.2
Careful consideration needs to be given to any Irish estate that benefits non-Irish resident beneficiaries. For example, it may make sense to appoint an Irish resident personal representative rather than give what could be significant powers to the solicitor acting in the administration and it should be clear that any Irish personal representative appointed fully understands their responsibilities and remains prepared to act on that basis.
There is no longer absolute clearance procedure, which is an important consideration for Irish resident personal representatives, or the solicitor appointed in the case of a non-Irish resident personal representative, in estates where one or more of the beneficiaries are not resident in Ireland.
CAT clearance certificates
Before 3 April 2010 CAT clearance certificates were issued by the Irish Revenue to persons who previously were accountable for the payment of CAT. This clearance procedure is no longer available except in the case where a CAT clearance certificate must be produced to the Property Registration Authority in Ireland upon application for registration of property held by way of adverse possession. This will also be of relevance to resident personal representatives or solicitors appointed in the case of a non Irish resident personal representative as previously clearance for tax was always dealt with but now this level of clearance does not exist.
Abolition of CAT as a charge on property
Previously in cases where CAT was not discharged it remained as a charge on property for a period of 12 years. CAT clearance certificates were required in such cases and were of particular importance in terms of conveyancing transactions. The CAT legislation has been amended to provide for the removal of CAT as a charge on property and therefore, from 3 April 2010 this amendment is retrospective.
Administration of CAT
The changes in respect of the filing of CAT returns, payment of CAT and the introduction of a surcharge for late filing of CAT returns came into effect on 14 June 2010. These amendments bring CAT in line with other self assessment taxes in Ireland.
CAT filing and payment dates
- for valuation dates arising in the period 1 January to 31 August in any tax year, pay and file on or before 31 October in the same tax year; and
- for valuation dates arising in the period 1 September to 31 December in any tax year, pay and file on or before 31 October in the following tax year.
CAT pay and file date
Difficulties may arise for tax payers and practitioners in cases where valuation dates arise close to 31 August, which will result in a very short timeframe to meet the CAT pay and file date. Filings and payments made through the Irish Revenue On-Line Service (ROS) allow for some additional time for meeting these obligations.5
Mandatory electronic filing
The mandatory filing of electronic CAT returns (through ROS) was introduced in respect of valuation dates arising on or after 14 June 2010 except in certain limited circumstances.
Surcharge for late filing
A surcharge for late filing of returns was introduced and will apply where a person fails to deliver a return in accordance with the CAT pay and file date. The surcharge is calculated by reference to the CAT liability payable if the return had been delivered on or before the CAT pay and file date as follows:
- 5 per cent of the amount of tax subject to a maximum surcharge of EUR12,695 if the return is delivered within two months of the CAT pay and file date; or
- 10 per cent of the amount of tax subject to a maximum surcharge of EUR63,485 if the return is delivered later than the expiry of two months after the CAT pay and file date.
Applications for grants of representation
Generally, a deceased’s personal representatives will apply for a grant of representation in an estate.
Previously, it was necessary for the personal representatives to submit the completed and sworn Inland Revenue Affidavit (CA24) to the Irish Revenue for certification that payment of CAT arising on inheritance on the relevant death may be deferred for the time being or that an adequate payment on account of CAT arising on inheritance on the relevant death had been made. This certification had to be obtained before submitting the papers to the probate office in Ireland.
Under the new procedures the CA24 is now submitted to the relevant probate office in duplicate and the probate office will arrange for one copy of the CA24 to be sent to the Irish Revenue in hard copy or in electronic form. Once the relevant arrangements are in place, the Irish Revenue will make regulations permitting electronic filing of the CA24 with the Irish Revenue and the relevant probate office at the same time.
The application process for grants of administration in other jurisdictions can be completed within a matter of days. Previously in Ireland the procedure could take a number of months, except in cases of expedite.
These new procedures should streamline the process of applying for a grant and should result in a significant reduction in the length of the probate process, bringing it more in line with other jurisdictions from a timing perspective.
A final word
Overall the changes to CAT legislation are to be welcomed and once fully implemented will allow for efficient processing of CAT returns and payments and also applications for grants of administration to bring Ireland into line with probate applications procedures in place in other jurisdictions. It is important for practitioners to be fully aware of the new position relating to estates with non-Irish resident beneficiaries and ensure that all CAT obligations are met.
The amendment in relation to secondary liability for CAT is retrospective except in cases where the Irish Revenue has instituted proceedings to recover gift or inheritance tax prior to this date. The Irish Revenue recently confirmed that they have not instituted any such proceedings.
- 2. Finance Act 2010, Changes to CAT and Probate: Frequently Asked Questions www.revenue.ie/en/tax/cat/leaflets/cat-probate-faqs.html
The valuation date for a benefit is the point in time at which a beneficiary becomes beneficially entitled in possession. Section 30 CATCA 2003 sets out a number of specific provisions followed by a general rule. The valuation date for a gift is generally the date of the gift. The rules relating to inheritances provide a choice of three dates which will be the earliest date on which the personal representative/trustee was entitled to retain the benefit (for the benefit of the successor) or the date which the personal representative/trustee retained the benefit or the date of payment/delivery to the successor.
- 4. With the exception of inheritances under sections 15 or 20 of the CATCA 2003 (discretionary trust tax initial and annual levy charging provisions).
- 5. Generally an extension of a two week period.
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