Select Committee on Finance and General Affairs debate -
Wednesday, 23 Apr 1997

SECTION 49.

Mr. Quinn

I move amendment No. 78:

In page 57, subsection (1)(d), line 45, to delete "(within the meaning of that Act)" and substitute "(within the meaning of the Family Law Act, 1995)".

The purpose of this amendment is to effect a technical amendment to section 49 which provides for the capital gains tax treatment of certain separated persons who dispose of assets to one another essentially. Section 49 provides that such disposals are to be free of capital gains tax in the hands of the spouse who makes the disposal. The purpose of this amendment if to clarify a reference in subsection (1)(d) to leave no doubt that the Act referred to is the Family Law Act, 1995, which in Part III makes provision for making relief orders following the dissolution of marriage, that is following the granting of a foreign divorce or a separation which is recognised in the State.

Amendment agreed to.

Section 49, as amended, agreed to.

NEW SECTION.

Mr. Quinn

I move amendment No. 79:

In page 58, before section 50, to insert the following new section:

"50.—(1) Section 15 of the Capital Gains Tax Act, 1975, is hereby amended by the insertion after subsection (5) of the following subsection:

‘(5A)(a) Subject to paragraph (b), where—

(i) as a consequence of a termination, on the death of the person entitled to it, of a life interest in settled property, subsection (5) applies, and

(ii) an asset, which forms the whole or any part of that settled property—

(I) is comprised in an inheritance (within the meaning of the Capital Acquisitions Tax Act, 1976) taken on the death, and

(II) is exempt from tax in relation to the inheritance under section 55 of the said Act of 1976, or that section as applied by section 39 of the Finance Act, 1978,

that asset shall, for the purposes of subsection (5), be excluded from the assets deemed to be disposed of and immediately reacquired.

(b) Where in a year of assessment, in respect of an asset an exemption from tax in relation to an inheritance referred to in paragraph (a) ceases to apply, then the chargeable gain which, but for the provisions of paragraph (a), would have accrued to the trustee on the termination of the life interest in accordance with subsection (5) shall be deemed to accrue to the trustee in that year of assessment and shall accordingly be included in the return required to be made by the trustee concerned under section 10 of the Finance Act, 1988, for that year of assessment.".

(2) This section shall apply and have effect as respects the year of assessment 1997-98 and subsequent years of assessment.".

Mr. McCreevy

Does this amendment replace section 50?

Mr. Quinn

No, it is a new section. Section 15(5) of the Capital Gains Tax Act, 1975, provides that in certain circumstances a capital gains tax liability arises to the trustee of settled property. These circumstances are where there is a termination of a life interest in possession in all or any part of a settled property and where the whole or corresponding part of the settled property remains settled property, for example, someone else takes a life interest in the property. The capital gains tax liability arises because section 15(5) requires that the property is deemed to be disposed of and re-acquired at a market value by the trustee.

Under section 55 of the Capital Acquisitions Tax Act, 1976, and section 39 of the Finance Act, 1978, there is, subject to certain conditions, an exemption from inheritance tax in respect of certain heritage assets comprised of in an inheritance. The assets are houses, gardens, pictures, prints, books, manuscripts, works of art, jewellery or scientific collections. The conditions are that the asset is of national, scientific, historic or artistic interest and that reasonable viewing facilities are allowed to members of the public or to recognised bodies or associations.

Under existing law, therefore, on the termination of a life interest in the debts of a person there can be an exemption from inheritance tax but the capital gains tax liability arises. This is what section 50 seeks to rectify. It ensures that if an inheritance tax exemption applies in these specific circumstances then a capital tax liability will not crystallise. The section also provides that the capital gains tax liability will crystallise if for any reason the inheritance tax exemption ceases to apply.

Amendment agreed to.