I propose to take Questions Nos. 65 and 66 together.
Capital acquisitions tax (CAT) does not arise when assets pass from the settlor into a discretionary trust since neither the trustees nor the beneficiaries are beneficially entitled to the assets while the assets are in the trust. The beneficiaries become liable to CAT only when the trustees pass them the assets. However, the assets held in certain discretionary trusts are subject to a 6 per cent once-off charge and a 1 per cent annual charge. These taxes commence when the following two conditions are fulfilled: (a) the settlor dies; and (b) the youngest of the named beneficiaries reaches 21 years.
In relation to the 6 per cent once-off charge, a 3 per cent refund is available if the trust property is appointed absolutely to the beneficiaries within certain time limits.
There are exemptions from the once-off and annual discretionary trust taxes where the Revenue Commissioners are satisfied that the discretionary trust was created exclusively for one of the following purposes: (a) for public or charitable purposes in the State or Northern Ireland; (b) for the purposes of any statutory or approved superannuation scheme; (c) for the purposes of a registered unit trust scheme within the meaning of the Unit Trusts Act, 1972; (d) for the benefit of one or more named individuals and 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 his/her or their affairs; (e) for the purpose of providing for the upkeep of heritage property referred to in section 39 of the Finance Act, 1978 subject to reasonable facilities for viewing the property being extended to the public; or (f) trust property which on termination of the trust, is comprised in a gift or inheritance taken by the State.
The Revenue Commissioners advise that it would not be possible to put a cost in terms of revenue foregone from those trusts either not liable or exempt from discretionary trust tax. Statistics are not recorded in such a manner as would enable the information requested by the Deputy regarding the number of discretionary trusts which are not liable or are exempt from discretionary trust tax to be identified.
In 1995 the yield from discretionary trust tax was £4.9 million. The yield in 1996 was £10.4 million and the number of trusts which paid this tax was 186.
Income received by a discretionary trust is taxed at the standard rate of income tax (26 per cent from 1997-98) and if the income is not distributed within 18 months and it exceeds the expenses of the trust, a 20 per cent surcharge applies for anti-avoidance reasons. These rules apply to all trusts, including discretionary trusts. In addition, a distribution of trust assets by the trustees to the beneficiaries gives rise to a capital gains tax charge by reference to the gain over the period the assets were in the trust.