Deemed Benefits
Free Use of Asset
The free use of an asset is charged to give tax on its annual value. Where the person is allowed the free use of the assets, he is deemed to have the annual value if he, in fact, has the use of the asset without any entitlement to any interest in it. If he is, in fact, given or accorded the benefit of the asset or income, then he is charged on the value for such period under general principles.
Legislation deems there to be a benefit when lands or buildings are provided rent-free, interest-free loans are made, or there is a gift of assets with a right of revocation.
The valuation of the benefit is the market value of the annual benefit. Accordingly, for example, it will be the rental value of the asset for the yearly period or equivalent.
The date of the gift or the inheritance is year-end. The charge is deemed to arise on 31st December in each year. This uses the tax-free threshold of the individual or may be the subject of a charge to tax. Annual exemptions may reduce the benefit in the case of a gift/ deemed gift.
A life policy is deemed to be acquired for tax purposes when it matures, or the policy is surrendered. Similarly, any payments made in advance or by way of commutation cause an immediate acquisition.
Open Market Basis for Loan
Finance Act 2021 62 amends section 40 of the Capital Acquisitions Tax Consolidation Act 2003, which provides for the appropriate tax treatment where a gift or inheritance comprises the free use of property.
The amendment provides that in the case of a gift or inheritance of the free use of money, the value of that gift or inheritance is to be determined by reference to the best price obtainable of borrowing an equivalent sum in the open market.
Gift & Value Splitting
Where a person makes a gift to another and the latter makes a gift to a third person within two years, there is deemed to be a gift from the original disponer to the third person. This is to counter the avoidance of the appropriate threshold by making a gift through persons, each of whom has higher thresholds than would apply to a direct gift. e.g. gifts to a son following by a gift to the son’s wife or spouse, the daughter-in-law or grandchild of the person making the gift.
Where the value of assets is depressed by being split into separate gifts the overall value is assessed rather than the sum of the values. Accordingly, where a person takes one property and then another property and there is an increase in the value of the first property by the reason of the receipt of the second property, they are aggregated and the value is assessed on the increase in value of the original property as well as the value of the additional property.
The first property and the additional property must come from the same disponer, for the anti-avoidance to apply. An example would be the granting of two sites which together have a strategic value, but which separately does not have the aggregate value.
Private Companies
There are special provisions in relation to gifts and /or to an inheritance made by or to a private company. The company is “looked through” and is looked at collectively from the perspective of the shareholders.
There is deemed to be a gift or inheritance made by the shareholders of the donor company and a receipt by the shareholders of the donee company in the respect of shares, as the case may be. The increased market value of their interest in the company is assessed.
In determining market value, an interest which together with connected and related parties’ interests constitute a majority or exceed a certain threshold (collectively) are treated as such. The shares of connected and related parties are aggregated for this purpose and the higher value is applied to all of them.
Value Shifting
Arrangements which reduce the value of shares potentially constitute a shift in value, which is subject to CAT. This may include acts or omissions by a person having an interest in the shares, passing a resolution or a combination of the above by which value passes from one shareholder to another without any change in the nature of the shares.
The change in market value of the shares from that before the arrangement and to that afterwards is potentially subject to CAT. There may be CAT tax in respect of the increase in the value of the shares as a result of the arrangement.
Trustee
Where the holder is a trust without an interest in possession, the benefit is deemed to be received by the disponer of the trust rather than trust itself. The trustee is accountable rather than the disponer. The trustee is given the power to mortgage the assets in order to fund the tax interest and expenses.