Discretionary Trusts
Capital Acquisitions Tax Consolidation Act
2003 (Number 1 of 2003)
Number 1 of 2003
CAPITAL ACQUISITIONS TAX CONSOLIDATION ACT 2003
AN ACT TO CONSOLIDATE ENACTMENTS RELATING TO CAPITAL ACQUISITIONS TAX.
[21st February 2003]
BE IT ENACTED BY THE OIREACHTAS AS FOLLOWS:
PART 1
Preliminary
1Short title.
This Act may be cited as the Capital Acquisitions Tax Consolidation Act 2003.
General interpretation.
[CATA 1976 s2]
(1)In this Act, unless the context otherwise requires—
“absolute interest”, in relation to property, includes the interest of a person who has a general power of appointment over the property;
“accountable person” means a person who is accountable for the payment of tax by virtue of section 45 ;
“Appeal Commissioner” has the meaning given to it by section 2 of the Finance (Tax Appeals) Act 2015;
“benefit” includes any estate, interest, income or right;
“child” includes—
(a)a stepchild;
(b)a child who is adopted under an adoption order within the meaning of section 3(1) of the Adoption Act 2010 or the subject of an intercountry adoption effected outside the State and recognised under that Act;
“child of the civil partner” in relation to an individual, means a child of the individual’s civil partner who was born before the registration of their civil partnership or during their civil partnership;
“civil partner” means a civil partner within the meaning of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010;
“civil partnership” means—
(a)a civil partnership registration referred to in section 3(a) of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010, or
(b)a legal relationship referred to in section 3(b) of that Act;
“Collector” means the Collector-General appointed under section 851 of the Taxes Consolidation Act 1997;
“Commissioners” means the Revenue Commissioners;
“date of the disposition” means—
(a)in the case of a will, the date of the testator’s death,
(b)in the case of an intestacy or a partial intestacy, the date of death of the intestate,
(c)in the case of a benefit under Part IX or section 56 of the Succession Act 1965, the date of death of the relevant testator or other deceased person, and correspondingly in the case of an analogous benefit under the law of another territory,
(d)in the case of a disposition which consists of the failure to exercise a right or a power, the date of the latest time when the disponer could have exercised the right or the power if that disponer were sui juris and not under any physical disability, and
(e)in any other case, the date on which the act (or where more than one act is involved, the last act) of the disponer was done by which that disponer provided or bound that disponer to provide the property comprised in the disposition;
“date of the gift” means the date of the happening of the event on which the donee, or any person in right of the donee or on that donee’s behalf, becomes beneficially entitled in possession to the benefit, and a reference to the time when a gift is taken is construed as a reference to the date of the gift;
“date of the inheritance” means—
(a)in the case where the successor or any person in right of the successor or on that successor’s behalf becomes entitled in possession to the benefit on the happening of any such event as is referred to in section 3(2), the date of the event,
(b)in the case of a gift which becomes an inheritance by reason of its being taken under a disposition where the date of the disposition is within 2 years prior to the death of the disponer, the date which would have been the date of the gift if the entitlement were a gift, and
(c)in any other case, the date of the latest death which had to occur for the successor, or any person in right of the successor or on that successor’s behalf, to become beneficially entitled in possession to the benefit,
and a reference to the time when an inheritance is taken is construed as a reference to the date of the inheritance;
“decree of dissolution” means a decree under section 110 of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010;
“discretionary trust” means any trust whereby, or by virtue or in consequence of which—
(a)property is held on trust to accumulate the income or part of the income of the property, or
(b)property (other than property to which for the time being a person is beneficially entitled for an interest in possession) is held on trust to apply, or with a power to apply, the income or capital or part of the income or capital of the property for the benefit of any person or persons or of any one or more of a number or of a class of persons whether at the discretion of trustees or any other person and notwithstanding that there may be a power to accumulate all or any part of the income;
“disponer”, in relation to a disposition, means the person who, for the purpose of the disposition, directly or indirectly provided the property comprised in the disposition, and in any case where more than one person provided the property each is deemed to be the disponer to the extent that that disponer so provided the property; and for the purposes of this definition—
(a)the testator is the disponer in the case of a disposition referred to in paragraph (k) of the definition of “disposition”,
(b)the intestate is the disponer in the case of a disposition referred to in paragraph (l) of that definition,
(c)the deceased person referred to in paragraph (m) of that definition is the disponer in the case of a disposition referred to in that paragraph, and
(d)a person who has made with any other person a reciprocal arrangement by which that other person provided property comprised in the disposition is deemed to have provided that property;
“disposition” includes—
(a)any act or omission by a person as a result of which the value of that person’s estate immediately after the act or omission is less than it would be but for the act or omission,
(b)any trust, covenant, agreement or arrangement, whether made by a single operation or by associated operations,
(c)the creation of a debt or other right enforceable against the disponer personally or against any estate or interest that disponer may have in property,
(d)the payment of money,
(e)the allotment of shares in a company,
(f)the grant or the creation of any benefit,
(g)the grant or the creation of any lease, mortgage, charge, licence, option, power, partnership or joint tenancy or other estate or interest in or over any property,
(h)the release, forfeiture, surrender or abandonment of any debt or benefit, or the failure to exercise a right, and, for the purpose of this paragraph, a debt or benefit is deemed to have been released when it has become unenforceable by action through lapse of time (except to the extent that it is recovered subsequent to its becoming so unenforceable),
(i)the exercise of a general power of appointment in favour of any person other than the holder of the power,
(j)a donatio mortis causa,
(k)a will or other testamentary disposition,
(l)an intestacy, whether total or partial,
(m)the payment of a share as a legal right under Part IX of the Succession Act 1965, to a deceased person’s spouse or civil partner, or the making of provision for a widow, surviving civil partner or child of a deceased person under section 56 or section 117 of the Succession Act 1965, or an analogous share or provision paid or made on the death of a deceased person to or for the benefit of any person under the law of another territory, and
(n)a resolution passed by a company which is deemed by subsection (3) to be a disposition;
“donee” means a person who takes a gift;
“entitled in possession” means having a present right to the enjoyment of property as opposed to having a future such right, and without prejudice to the generality of the foregoing a person is also, for the purposes of this Act, deemed to be entitled in possession to an interest or share in a partnership, joint tenancy or estate of a deceased person, in which that person is a partner, joint tenant or beneficiary, as the case may be, but that person is not deemed to be entitled in possession to an interest in expectancy until an event happens whereby this interest ceases to be an interest in expectancy;
“general power of appointment” includes every power, right, or authority whether exercisable only by will or otherwise which would enable the holder of such power, right, or authority to appoint or dispose of property to whoever the holder thinks fit or to obtain such power, right or authority, but exclusive of any power exercisable solely in a fiduciary capacity under a disposition not made by the holder, or as mortgagee;
“gift” means a gift which a person is by this Act deemed to take;
“the Income Tax Acts” has the meaning assigned to it by section 2section 1(2) of the Taxes Consolidation Act 1997;
“inheritance” means an inheritance which a person is by this Act deemed to take;
“interest in expectancy” includes an estate in remainder or reversion and every other future interest, whether vested or contingent, but does not include a reversion expectant on the determination of a lease;
“limited interest” means—
(a)an interest (other than a leasehold interest) for the duration of a life or lives or for a period certain, or
(b)any other interest which is not an absolute interest;
“local authority” means a local authority for the purposes of the Local Government Act 2001 (as amended by the Local Government Reform Act 2014) and includes a body established under the Local Government Services (Corporate Bodies) Act 1971;
“market value”, in relation to property, means the market value of that property ascertained in accordance with sections 26 and 27 ;
“minor child” means a child who has not attained the age of 18 years and is not and has not been married;
“personal property” means any property other than real property;
“personal representative” means the executor or administrator for the time being of a deceased person and includes—
(a)any person who takes possession of or intermeddles with the property of a deceased person,
(b)any person having, in relation to the deceased person, under the law of another country, any functions corresponding to the functions, for administration purposes under the law of the State, of an executor or administrator;
“property” includes rights and interests of any description;
“real property” means real and chattel real property;
“regulations” means regulations made under section 116 ;
“relative” means a relative within the meaning of subsection (4) ;
“return” means such a return as is referred to in section 46 ;
“share”, in relation to a company, includes any interest whatever in the company which is analogous to a share in the company, and “shareholder” shall be construed accordingly;
“special power of appointment” means a power of appointment which is not a general power of appointment;
“successor” means a person who takes an inheritance;
“surviving civil partner”, in relation to 2 individuals who were civil partners of each other until the death of one of them, means the civil partner other than the civil partner who died;
“tax” means any tax chargeable under this Act;
“the Tax Acts” has the meaning assigned to it by section 1(2) of the Taxes Consolidation Act 1997;
“valuation date” has the meaning assigned to it by section 30 ;
“year of assessment” has the meaning assigned to it by section 2 of the Taxes Consolidation Act 1997.
(1A)For the purposes of the definition of ‘discretionary trust’ in subsection (1), any entity which is similar in its effect to a discretionary trust shall be treated as a discretionary trust irrespective of how it is described in the place where it is established.
(1B)Any reference in this Act to trustees in relation to a discretionary trust shall be deemed to include persons acting in a similar capacity to trustees in relation to an entity referred to in subsection (1A).
(2)For the purpose of the definition of “general power of appointment” contained in subsection (1), a person is deemed to have a general power of appointment—
(a)notwithstanding that the person is not sui juris or is under a physical disability,
(b)over money which the person has a general power to charge on property, and
(c)over property of which the person is tenant in tail in possession.
(3)For the purpose of the definition of “disposition” contained in subsection (1), the passing by a company of a resolution which, by the extinguishment or alteration of the rights attaching to any share of the company, results, directly or indirectly, in the estate of any shareholder of the company being increased in value at the expense of the estate of any other shareholder, is deemed to be a disposition made by that other shareholder if that other shareholder could have prevented the passing of the resolution by voting against it or otherwise; and in this subsection, “share” includes a debenture and loan stock and “shareholder” includes a debenture holder and a holder of loan stock.
(4)For the purposes of this Act, the following persons and no other person are relatives of another person, that is—
(a)the spouse of that other person,
(b)the father, mother, and any child, uncle or aunt of that other person,
(c)any child (other than that other person), and any child of a child, of any person who is by virtue of paragraph (a) or (b) a relative of that other person, and
(d)the spouse of a person who is by virtue of paragraph (b) or (c) a relative of that other person,
(e)the grandparent of that other person.
(5)For the purposes of this Act, the relationship between a child, adopted in the manner referred to in paragraph (b) of the definition of “child” contained in subsection (1), and any other person, or between other persons, that would exist if such child had been born to the adoptor or adoptors in, is deemed to exist between such child and that other person or between those other persons, and the relationship of any such child and any person that existed prior to that child being so adopted is deemed to have ceased.
(6)For the purposes of this Act—
(a)a reference to a person being resident in the State on a particular date is construed as a reference to that person being resident in the State in the year of assessment in which that date falls (but, for those purposes, the provisions of Part 34 of the Taxes Consolidation Act 1997, relating to residence of individuals is not construed as requiring a year of assessment to have elapsed before a determination of whether or not a person is resident in the State on a date falling in that year may be made), and
(b)a reference to a person being ordinarily resident in the State on a particular date is construed as a reference to that person being ordinarily resident in the State in the year of assessment in which that date falls.
(7)In this Act, references to any enactment are, unless the context otherwise requires, construed as references to that enactment as amended or extended by any subsequent enactment.
(8)In this Act, a reference to a Part, Chapter, section or Schedule is a reference to a Part, Chapter, section of, or Schedule to, this Act, unless it is indicated that reference to some other enactment is intended.
(9)In this Act, a reference to a subsection, paragraph, subparagraph, clause or subclause is to the subsection, paragraph, subparagraph, clause or subclause of the provision (including a Schedule) in which the reference occurs, unless it is indicated that reference to some other provision is intended.
3Meaning of “on a death”.
[CATA 1976 s3]
(1)In this Act, “on a death”, in relation to a person becoming beneficially entitled in possession, means—
(a)on the death of a person or at a time ascertainable only by reference to the death of a person,
(b)under a disposition where the date of the disposition is the date of the death of the disponer,
(c)under a disposition where the date of the disposition is on or after 1 April 1975 and within 2 years prior to the death of the disponer, or
(d)on the happening, after the cesser of an intervening life interest, of any such event as is referred to in subsection (2).
(2)The events referred to in subsection (1)(d) are any of the following—
(a)the determination or failure of any charge, estate, interest or trust,
(b)the exercise of a special power of appointment,
(c)in the case where a benefit was given under a disposition in such terms that the amount or value of the benefit could only be ascertained from time to time by the actual payment or application of property for the purpose of giving effect to the benefit, the making of any payment or the application of the property, or
(d)any other event which, under a disposition, affects the right to property, or to the enjoyment of that property.
Chapter 2
Initial levy on discretionary trusts
14Interpretation (Chapter 2).
[FA 1984 s104]
In this Chapter—
“object”, in relation to a discretionary trust, means a person for whose benefit the income or capital, or any part of the income or capital, of the trust property is applied, or may be applied;
“principal objects”, in relation to a discretionary trust, means such objects, if any, of the trust for the time being as are—
(a)the spouse or civil partner of the disponer,
(b)the children of the disponer,
(c)the children of the civil partner of the disponer,
(d)the children of a child of the disponer, where such child predeceased the disponer,
(e)the children of a child of the civil partner of the disponer, where such child predeceased the disponer,
(f)the children of the civil partner of a child of the disponer, where such child predeceased the disponer, or
(g)the children of the civil partner of a child of the civil partner of the disponer, where such child predeceased the disponer.
15Acquisitions by discretionary trusts.
[FA 1984 s106]
(1)Where, on or after 25 January 1984, under or in consequence of any disposition, property becomes subject to a discretionary trust, the trust is deemed, on—
(a)the date on which that property becomes or became subject to the discretionary trust,
(b)the date of death of the disponer, or
(c)where there are principal objects of the trust, the date on which there ceases to be a principal object of the trust who is—
(i)under the age of 25 years, where the property became subject to the trust on or after 25 January 1984 and before 31 January 1993, or
(ii)under the age of 21 years, where the property becomes or became subject to the trust on or after 31 January 1993,
whichever date is the latest, to become or to have become beneficially entitled in possession to an absolute interest in so much, if any, of that property or of property representing that property and of accumulations of income of that property or of property representing those accumulations as remains subject to the discretionary trust on that latest date, and to take or to have taken an inheritance accordingly as if the trust, and the trustees as such for the time being of the trust, were together a person for the purposes of this Act, and that latest date shall be the date of the inheritance.
(1A)For the purposes of this section and section 20, where a discretionary trust is created under the will (including under a codicil to that will) of a deceased person property shall be deemed to be subject to the trust on the date of death of that person.
(2)Property which, under or in consequence of any disposition, was subject to a discretionary trust on 25 January 1984 is, for the purposes of subsection (1), deemed to have become subject to the trust on that date.
(3)Property which, under or in consequence of any disposition, was subject to a discretionary trust on 31 January 1993 is, for the purposes of subsection (1), deemed to have become subject to the trust on that date.
(4)For the purposes of this section—
(a)an interest in expectancy is not property until an event happens whereby the interest ceases to be an interest in expectancy or is represented by property which is not an interest in expectancy,
(b)an interest in a policy of assurance on human life is not property until, and then only to the extent that, the interest becomes an interest in possession under section 41 or is represented by property which is not an interest in expectancy.
(5)Where, apart from this subsection, property or property representing such property would be chargeable under this section, or under this section and the corresponding provisions of the repealed enactments, with tax more than once under the same disposition, such property is so chargeable with tax once only, that is, on the earliest occasion on which such property would become so chargeable with tax.
16Application of this Act.
[FA 1984 s107 (a) to (d) and (g)]
In relation to a charge for tax arising by reason of section 15—
(a)a reference in section 27 to a company controlled by the successor and the definition in that section of “group of shares” is construed as if (for the purpose of that reference) the list of persons contained in subsection (3) of that section and (for the purpose of that definition) the list of persons contained in that definition included the following, that is, the trustees of the discretionary trust, the living objects of the discretionary trust, the relatives of those objects, nominees of those trustees or of those objects or of the relatives of those objects, and the trustees of a settlement whose objects include the living objects of the discretionary trust or relatives of those living objects,
(b)section 30 shall apply, with the modification that the valuation date of the taxable inheritance is—
(i)the date of the inheritance, or
(ii)the valuation date ascertained in accordance with that section,
whichever is the later, and with any other necessary modifications;
(c)a person who is a trustee of the discretionary trust concerned for the time being at the date of the inheritance or at any date subsequent to that date is a person primarily accountable for the payment of the tax;
(d)an object of the discretionary trust concerned to whom or for whose benefit any of the property subject to the trust is applied or appointed is also accountable for the payment of tax the charge in respect of which has arisen prior to the date of the application or appointment of the property to that person or for that person’s benefit; and
(e)section 45(1), sections 50, 56 and 81 and Schedule 2 shall not apply.
17Exemptions.
[FA 1984 s108]
(1)Section 15 shall not apply in relation to a discretionary trust which is shown to the satisfaction of the Commissioners to have been created exclusively—
(a)for purposes which, in accordance with the law of the State, are public or charitable,
(b)for the purposes of—
(i)any scheme for the provision of superannuation benefits on retirement established by or under any enactment or by or under an instrument made under any enactment, or
(ii)any sponsored superannuation scheme within the meaning of subsection (1) of section 783 of the Taxes Consolidation Act 1997 or a trust scheme or part of a trust scheme approved by the Commissioners under that section or section 785 of that Act, but shall not include a scheme or arrangement which relates to matters other than service in particular offices or employments;
(c)for the purposes of a registered unit trust scheme within the meaning of the Unit Trusts Act 1990;
(d)(i)for the benefit of one or more named individuals, and
(ii)for the reason that such individual, or all such individuals, is or are, because of age or improvidence, or of physical, mental or legal incapacity, incapable of managing that individual or those individuals’ affairs;
or
(e)for the purpose of providing for the upkeep of a house or garden referred to in section 77(6).
(1A)For the purposes of subsection (1)(a) a discretionary trust that is at any time a party to any arrangements the main purpose (or one of the main purposes) of which is to secure a tax advantage for any person shall be regarded as not having been created exclusively for purposes which, in accordance with the law of the State, are public or charitable.
(1B)For the purposes of subsection (1A)—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);
“tax advantage” has the same meaning as in section 811 of the Taxes Consolidation Act 1997.
(2)Section 15 shall not apply—
(a)in relation to a discretionary trust in respect of the property subject to or becoming subject to the trust which, on the termination of the trust, is comprised in a gift or an inheritance taken by the State, or
(b)in respect of an inheritance which, apart from this subsection, would be deemed, by the combined effect of section 15 and section 40, to be taken by a discretionary trust.
18Computation of tax.
[FA 1984 s109]
(1)In this section—
“appropriate trust”, in relation to a relevant inheritance, means the trust by which that inheritance was deemed to be taken;
“earlier relevant inheritance” means a relevant inheritance deemed to be taken on the date of death of the disponer;
“later relevant inheritance” means a relevant inheritance which, after the date of death of the disponer, is deemed to be taken by a discretionary trust by virtue of there ceasing to be a principal object of that trust who is under the age of 21 years;
“relevant inheritance” means an inheritance which, by virtue of section 15(1), is deemed to be taken by a discretionary trust;
“relevant period” means—
(a)in relation to an earlier relevant inheritance, the period of 5 years commencing on the date of death of the disponer,
(b)in relation to a settled relevant inheritance, the period of 5 years commencing on the date of death of the life tenant concerned, and
(d)in relation to a later relevant inheritance, the period of 5 years commencing on the latest date on which a later relevant inheritance was deemed to be taken from the disponer;
“settled relevant inheritance” means a relevant inheritance taken on the death of a life tenant;
(2)Subject to subsection (3), the tax chargeable on the taxable value of a taxable inheritance which is charged to tax by reason of section 15 is computed at the rate of 6 per cent of such taxable value.
(3)Where, in the case of each earlier relevant inheritance, each settled relevant inheritance or each later relevant inheritance, as the case may be, taken from the same disponer, one or more objects of the appropriate trust became beneficially entitled in possession before the expiration of the relevant period to an absolute interest in the entire of the property of which that inheritance consisted on and at all times after the date of that inheritance (other than property which ceased to be subject to the terms of the appropriate trust by virtue of a sale or exchange of an absolute interest in that property for full consideration in money or money’s worth), then, in relation to all such earlier relevant inheritances, all such settled relevant inheritances or all such later relevant inheritances, as the case may be, the tax so chargeable is computed at the rate of 3 per cent.
(4)Where 2 or more persons are together beneficially entitled in possession to an absolute interest in property, those persons shall not, by reason only that together they are beneficially so entitled in possession, be regarded for the purposes of subsection (3) as beneficially so entitled in possession.
Chapter 3
Annual levy on discretionary trusts
19Interpretation (Chapter 3).
FA 1986 s102]
In this Chapter—
“chargeable date”, in relation to any year, means—
(a)in respect of the year 2006, 5 April and 31 December in that year, and
(b)in respect of the year 2007 and subsequent years, 31 December in the year concerned;
“chargeable discretionary trust” means a discretionary trust in relation to which—
(a)the disponer is dead, and
(b)none of the principal objects of the trust, if any, is under the age of 21 years;
“object” and “principal objects”, in relation to a discretionary trust, have the meanings respectively assigned to them by section 14.
20Annual acquisitions by discretionary trusts.
[FA 1986 s103]
(1)Where, in any year commencing with the year 2003, under or in consequence of any disposition, property is subject to a chargeable discretionary trust on the chargeable date, the trust is deemed on each such date to become beneficially entitled in possession to an absolute interest in that property, and to take on each such date an inheritance accordingly as if the trust, and the trustees as such for the time being of the trust, were together a person for the purposes of this Act, and each such chargeable date shall be the date of such inheritance.
(2)(a)In this subsection, “property” includes property representing such property.
(b)Where—
(i)under or in consequence of any disposition, property was subject to a discretionary trust prior to a chargeable date,
(ii)that property is not on that chargeable date subject to that discretionary trust (being on that date a chargeable discretionary trust) because such property is on that date property to which for the time being a person is beneficially entitled for an interest in possession, and
(iii)on that chargeable date that property is property which is limited to become subject again to that chargeable discretionary trust, or will do so by the exercise of a power of revocation,
that property is deemed to be subject to that chargeable discretionary trust on that chargeable date if that interest in possession is an interest which is revocable or which is limited to cease on an event other than—
(I)the death of that person, or
(II)the expiration of a specified period, where that interest is taken by that person under a power of appointment contained in that disposition and is, at the time of the appointment of that interest, an interest for a period certain of 5 years or more.
(3)For the purposes of this section—
(a)an interest in expectancy is not property until an event happens whereby the interest ceases to be an interest in expectancy or is represented by property which is not an interest in expectancy;
(b)an interest in a policy of assurance on human life is not property until, and then only to the extent that, the interest becomes an interest in possession under the provisions of section 41 or is represented by property which is not an interest in expectancy.
(4)This section shall not apply in relation to property which is subject to a chargeable discretionary trust on a chargeable date if that property or property representing that property is subject to a charge for tax arising under or in consequence of the same disposition by reason of section 15, or that provision of the repealed enactments which corresponds with section 15, on that same date or within the year prior to that date.
21Application of this Act.
[FA 1986 s104 (a) to (e) and (g)]
In relation to a charge for tax arising by reason of section 20—
(a)a reference in section 27 to a company controlled by the successor and the definition in that section of “group of shares” is construed as if (for the purpose of that reference) the list of persons contained in subsection (3) of that section and (for the purpose of that definition) the list of persons contained in that definition included the following, that is, the trustees of the discretionary trust, the living objects of the discretionary trust, the relatives of those objects, nominees of those trustees or of those objects or of the relatives of those objects, and the trustees of a settlement whose objects include the living objects of the discretionary trust or relatives of those living objects;
(b)(i)subject to subparagraph (ii), the valuation date of the taxable inheritance is the relevant chargeable date,
(ii)where—
(I)a charge for tax arises on a particular date by reason of section 15 or section 118 (in so far as that section relates to a provision repealed by this Act that corresponds to section 15), giving rise to a taxable inheritance (in this sub-paragraph referred to as the ‘first taxable inheritance’),
(II)on a later date, a charge for tax arises under or in consequence of the same disposition by reason of section 20 giving rise to a taxable inheritance (in this subparagraph referred to as the ‘second taxable inheritance’) comprising the same property or property representing that property, and
(III)the valuation date of the first taxable inheritance is a date after the chargeable date of the second taxable inheritance,
then the valuation date of the second taxable inheritance is the same date as the valuation date of the first taxable inheritance.
(c)a person who is a trustee of the discretionary trust concerned for the time being at the date of the inheritance or at any date subsequent to that date is a person primarily accountable for the payment of the tax;
(d)an object of the discretionary trust concerned to whom or for whose benefit any of the property subject to the trust is applied or appointed is also accountable for the payment of tax the charge in respect of which has arisen prior to the date of the application or appointment of the property to that object or for that object’s benefit;
(f)section 30, section 45(1), section 50 and section 81 and Schedule 2 shall not apply.
22Exemptions.
[FA 1986 s106]
Section 20 shall not apply in relation to a discretionary trust referred to in section 17(1) or in respect of the property or the inheritance referred to in section 17(2).
23Computation of tax.
(1)Subject to subsection (2), the tax chargeable on the taxable value of a taxable inheritance which is charged to tax by reason of section 20 is computed at the rate of one per cent of that taxable value.
(2)The tax chargeable on the chargeable date that is 31 December 2006 shall be an amount equal to 73.97 per cent of the tax chargeable by virtue of subsection (1).
24Values agreed.
[FA 1986 s107]
(1)Where—
(a)under or in consequence of any disposition, a charge for tax arises by reason of section 20 on a chargeable date (in this section called the first chargeable date),
(b)an accountable person has furnished all the information necessary to enable the Commissioners to ascertain the market value of—
(i)real property, or
(ii)shares which are not dealt in on a stock exchange,
comprised in the taxable inheritance so taken on the valuation date of that taxable inheritance,
(c)pursuant to an application in writing to the Commissioners on that behalf, the market value of such property on that valuation date is agreed on between that person and the Commissioners,
(d)under or in consequence of the same disposition, a charge for tax arises by reason of section 20 on either or both of the 2 chargeable dates in the years next following the year in which the first chargeable date occurs (in this section called the subsequent chargeable dates), and
(e)the same property at subparagraph (i) or (ii) of paragraph (b) is comprised in the taxable inheritances so taken on the subsequent chargeable dates,
the value so agreed on is treated for the purposes of this Chapter as the market value of such property on that valuation date and on the valuation dates of the taxable inheritances so taken on the subsequent chargeable dates.
(1A)Where the market value of property is on a valuation date determined in accordance with subsection (1) and that valuation date is 5 April 2006, then that market value as so determined shall be treated as the market value of the property on the valuation date that is 31 December 2006.
(2)Notwithstanding subsection (1), the market value so agreed is not binding—
(a)in any case where there is failure to disclose material facts in relation to any part of the property comprised in the taxable inheritances taken on the first chargeable date or on the subsequent chargeable dates, or
(b)where, at any time after the first chargeable date and before the third of those chargeable dates—
(i)in the case of real property, there is any alteration in the tenure under which the property is held or let, or
(ii)in the case of shares, there is any alteration in the capital or the ownership of the capital of the company concerned or of the rights of the shareholders inter se,
or
(c)where, at any time after the first chargeable date and before the third of those chargeable dates—
(i)in the case of real property, there is any change whatever, whether affecting that or any other property, which would materially increase or decrease the market value over and above any increase or decrease which might normally be expected if such a change had not occurred, or
(ii)in the case of shares, there has been any material change in the assets of the company or in their market value over and above any such change which might normally be expected,
and in such cases the market value of the real property, or of the shares, may be ascertained again by the Commissioners for each of the relevant valuation dates, but in the case of any change referred to in paragraph (c), the market value may be ascertained again by the Commissioners only at the request of the person primarily accountable for the payment of the tax arising by reason of section 20 on that relevant valuation date.
(3)Any agreement made under this section shall be binding only on the persons who as such are accountable for the payment of the tax arising by reason of section 20 on the first chargeable date and on the subsequent chargeable dates.
Revenue Manual
5.1 Introduction
A discretionary trust can be defined as a trust in which property is held on trust to accumulate the income or part of the income of the property or a trust in which property, put into trust by a disponer (the person who provides the property) is held on trust by trustees for a certain class of beneficiaries (called the objects of the trust), but in which the trustees have an absolute discretion as to when, how and to which of the objects of the trust they may appoint the capital or the income of the trust property. The distinguishing feature of a discretionary trust compared to a strict settlement is that none of the objects of the trust in whose favour the discretion might be exercised, or the class of beneficiaries as a whole, is entitled, as of right, to any capital or income of the trust, except when the trustees appoint property out to them. Each object of the trust has merely a hope or expectation that the trustees may exercise their discretion in his or her favour.
The execution of a discretionary trust, while it constitutes a disposal of the property of the disponer, is for CAT purposes a non-event in the sense that no person thereby becomes immediately entitled in possession to any benefit. Consequently, there is an indefinite postponement of CAT until such time as the trustees exercise their discretion in favour of some object of the trust. When that event occurs, the object will take a gift or inheritance, as the case may be, from the disponer. The date of the appointment out of the trust funds to the object will be the date of the gift or inheritance. Pending such an event, a separate discretionary trust tax is levied on discretionary trusts.
5.2 The once-off 6% charge
A once-off 6% charge applies to any property that becomes subject to a discretionary trust. The tax is imposed on the latest of the following dates:
- the date on which the property becomes subject to the discretionary trust;
- the date of death of the disponer;
- the date on which there are no “principal objects” under the age of 21 Principal objects are the spouse or children of the disponer or the children of a predeceased child of the disponer.
Form IT 4 is the self-assessment return form for the 6% once-off charge. It must be delivered by the accountable person, i.e. the trustees or the agent on their behalf.
Where the entire trust property is appointed out of the trust to an object of the trust within 5 years of the date of the 6% charge arising, the 6% charge is reduced to 3%.
5.3 The annual 1% charge
An annual 1% charge arises on 31 December each year on the value of the trust assets.
Form IT 32 is the self-assessment return form for the 1% charge. It must be delivered by the accountable person, i.e. the trustees or the agent on their behalf.
Under section 24 CATCA 2003, the values of non-quoted shares and real property agreed for one chargeable date will also apply for the following two chargeable dates, subject to the conditions contained in the section.
5.4 Exemptions from Discretionary Trust Tax
Section 17 CATCA 2003 sets out various types of discretionary trusts that are exempt from discretionary trust tax (DTT). The following trusts are exempt where it can be shown to Revenue’s satisfaction that they have been created exclusively:
- For purposes that, in accordance with the law of the State, are public or charitable;
[Note: Prior to the passing of Finance Act 2014 only trusts created for public or charitable purposes in the State or in Northern Ireland qualified for exemption. Finance Act 2014 removed this territorial limit of “the State or Northern Ireland” from section 17 for trusts created on or after 23 December 2014 and as respects inheritances taken on or after this date thus bringing the exemption into line with the exemption under section 76 in relation to gifts or inheritances taken for public or charitable purposes.
It should be noted that the location of the trust or the location of the trustees is not relevant to the exemption nor is the actual location where the purposes of the trust are carried out. However, the question of whether the purposes of the trust qualify to be treated as public or charitable has to be determined by reference to Irish law.
Finance Act 2014 also added a new anti-avoidance provision in relation to the exemption for these public or charitable trusts by providing that a discretionary trust that is at any time a party to any arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage for any person shall be regarded as not having been created exclusively for purposes which, in accordance with the law of the State, are public or charitable].
- Superannuation or Unit Trusts;
- Trusts providing for the upkeep of a heritage house or garden;
- Trusts for the benefit of one or more named individuals who are, because of age or improvidence (see section 5.4.1 below) or physical, mental or legal incapacity, incapable of managing their affairs.
5.4.1 Improvidence
Discretionary trusts are exempt from DTT where it can be shown to Revenue’s satisfaction that they have been created exclusively for the benefit of one or more named individuals who are incapable of managing their affairs because of improvidence. They may be established for the protection of individuals who exhibit various types of improvident behaviours, such as –
- individuals who have a compulsion such as gambling or substance addiction;
- individuals with special-needs who are easily influenced and vulnerable to being financially exploited;
- individuals who are spendthrift to the point that they cannot manage their own money.
Depending on the nature of the improvidence, it may be difficult to show to Revenue’s satisfaction that a trust has been established for this purpose. In the case of a spendthrift, the requirement for the exemption from DTT goes beyond being an individual who on occasion wastefully and extravagantly spends money. To qualify for the exemption, the trustees must satisfy Revenue that the object of the trust has demonstrated a pattern of reckless spending to such an extent that he or she is incapable of managing his or her own financial affairs. It is not necessary that the improvident behaviour be actively exhibited at the establishment of the trust provided that a pattern of improvident behaviour was previously evident and it is reasonable to assume that, based on past behaviours, the individual is likely to resume improvident behaviour if he or she were to receive an unrestricted benefit.
It is not possible to provide an exhaustive list of the types of evidence that will satisfy Revenue that the requirement for the exemption has been met. In arriving at its decision Revenue needs to look at all the facts and circumstances of each individual case.
For example, an improvident individual, or his or her family, may have engaged with a registered medical professional in the area or a decision-making representative or assistant or a co-decision maker may have been appointed to the improvident individual for financial matters under the Assisted Decision Making (Capacity) Act 2015 (as amended). Where legal or mental incapacity of themselves may not have been at issue in such engagement or appointment but concerns were raised in relation to improvidence, documentary evidence from the relevant practitioner or decision-making party in such situations would be considered strong evidence in support of the exemption.
It is recognised, however, that it will not always be possible to provide medical or legal evidence of improvidence. Where such evidence cannot be provided it is necessary to provide other evidence to establish that the conditions for the relief are satisfied. This may include documentary evidence of a pattern of improvident behaviour and/or of action taken to protect the individual or to deal with the consequences of the improvident behaviour. Such evidence may include, for example:
- a declaration made on the establishment of the trust confirming why the trust was established;
- inability of the individual to live independently as evidenced by repeated default on rent payments or utility bills;
- past financial supports required in relation to daily living expenses;
- discharge of an improvident individual’s debts by other persons;
- protective financial arrangements already in place such as-
- the use of cash up-front utility providers;
- transfer of expenses such as utility bills into other persons’ names;
- payment for household essentials by way of pre-paid store credit and/or payment of on-line delivery subject to approval of another person;
- the free use of the family home or other family property;
- provision of an allowance for living expenses to the improvident person by family members on a regular, frequent and short-term basis, i.e. daily or weekly;
- inability of the individual to obtain credit from financial institutions;
- supporting affidavits from the settlor, other family members and associates attesting to improvident behaviour.
Along with such documentary evidence, it would be useful to include an affidavit from a settlor setting out the reason(s) and background for the establishment of a trust. It is appreciated that this would be more relevant in the case of proposed trusts but it may also be possible to do this in the case of existing trusts. Where a settlor is deceased, there may be other parties, such as family members, who may be in a position to provide relevant information.
5.5 Discretionary trusts created by wills – Finance Act 2012 amendments
5.5.1 Background
The initial once-off 6% charge to DTT arises by deeming the trustees to have taken an inheritance of the trust property at the latest of the three following dates:
- the date on which the property becomes subject to the discretionary trust;
- the date of death of the disponer; or
- where there are principal objects of the trust, the date on which there ceases to be a principal object of the trust under the age of 21.
After the initial once-off 6% charge arises, annual 1% charges to DTT then arise in the following years while the property remains in the trust.
In the case of a discretionary trust set up by a disponer during his or her lifetime, the initial 6% charge arises on the death of the disponer or, if later, when all the principal objects have reached the age of 21.
In the case of a discretionary trust set up by the will of the disponer, the Revenue view was that the date on which the property passing under the will became subject to the discretionary trust was the date of death of the disponer and that the initial 6% charge arose at the date of the disponer’s death or, if later, when all of the principal objects of the trust had reached the age of 21.
An alternative view was that, in the case of a discretionary trust set up by the will of the disponer, the property passing under the will only became subject to the discretionary trust when the administration of the estate was completed and that, accordingly, discretionary trust tax charges did not begin to arise until the administration was completed. This alternative view, that the property (normally the residue of the estate) was not subject to the discretionary trust under general law prior to the completion of the administration of an estate and was therefore not liable to discretionary trust tax charges until the administration of the estate was completed, had the effect of postponing the charges to DTT in trusts created by will.
In the Revenue Commissioners v Christie (2006) High Court case, the Court determined this issue and held that no charges to DTT could arise during the period when an estate was being administered. The Court determined that, during the period between the date of death of the disponer and the date when the administration of the estate was completed by the executors, the property passing under the will was not subject to the discretionary trust under general law and that charges to DTT could not begin to arise until the property became subject to the trust under general law on the completion of the administration of the estate.
Accordingly, charges to DTT were delayed in trusts created under wills until the administration of the estate was completed and until the property under general law became subject to the discretionary trust created by the will.
5.2.1 Effect of Finance Act 2012 amendments
The DTT provisions introduced by Finance Act 2012 (section 1111) apply in the case of discretionary trusts created by a person’s will where the person dies on or after 8 February 2012.
- The initial charge
Section 111 Finance Act 2012 provided that property is to be treated as being subject to a discretionary trust on the date of the disponer’s death where such a discretionary trust is created by his or her will. The initial charge to DTT therefore arises on the date of the disponer’s death or, if later, the date when all the principal objects of the trust have reached the age of 21. Section 111 set back the initial DTT charge to the date of the disponer’s death by deeming the property in the estate to be subject to the discretionary trust at the date of death. The decision in the ‘Christie’ High Court case that DTT cannot arise before the property becomes subject to the discretionary trust under general law on the completion of the administration of the estate therefore no longer applies to DTT due to the deeming provisions in section 111 The initial 6% charge, accordingly, arises at the date of the disponer’s death.
- Extension of definition of ‘Discretionary Trust’
Section 111 extended the 6% initial charge and the 1% annual charge to any entities, for example, foundations, that are similar to discretionary trusts irrespective of how such entities are described where they are established. A foundation is any legal entity, wherever established, to which an individual transfers property. Some examples of foundations are entities known as anstalts and etablissements in Liechtenstein and foundations, stiftungs, anlagestiftungs and familienstiftungs in Switzerland.
- Future trusts
The position remains unaltered in relation to discretionary trusts only coming into existence at a future date. An example would be a trust created by a will providing for a spouse or child of the deceased to hold the property for their lifetime and thereafter to hold the property on discretionary trust. No charges to DTT arise while a person, such as a life-tenant, is beneficially entitled in possession to a limited interest in the trust property. The initial 6% charge to DTT only arises on the coming to an end of the limited interest in possession and when the property then becomes subject to the discretionary trust. The trust is not required to pay either the initial charge or the annual charges during the lifetime of the life tenant as no such charges will have arisen.
1 Section 111 amended sections 2, 15, 18 and 21 CATCA 2003.
- Payment dates
The initial 6% charge arises on the disponer’s death or, if later, when all of the principal objects of the trust have reached the age of 21. It is payable within four months of the valuation date of the inheritance deemed to be taken by the trustees.
In the case of a residuary estate passing into a discretionary trust under a person’s will, the valuation date will normally be the date of the ascertainment of the residue of the estate and the 6% initial charge is therefore payable within four months of that date.
In situations where the administration of an estate lasts for a number of years, a number of annual 1% charges may also have arisen before the valuation date for the initial 6% charge arises. In these situations, the valuation dates for any of the accrued annual 1% charges will be the valuation date for the initial 6% charge.
DTT is payable, for the initial 6% charge, and for any accrued 1% charges, on the value of the trust property at the valuation date for the initial 6% charge.
- Refunds of DTT
Any claims for refunds of DTT should be made within 4 years commencing on the later of the valuation date or the date of payment of the tax concerned where that tax has been paid within 4 months after the valuation date.
5.6 Surcharge for late filing of DTT returns
An amendment to section 53A CATCA 2003 (made by Finance Act 2018) provides for a surcharge in the case of the late filing of DTT returns. Where returns are not filed within four months of the relevant valuation date, a surcharge is applied as provided for in section 53A(3).