Week 2 - CAT

Question 1

What are the 2 principal types of limited interests?

Answer 1

• Life interest

- Interest for a period certain

Question 2

How do you calculate the value of a limited interest where the annuity is charged/secured on a specific asset?

Answer 2

Value of annuity = Market value of property * (annual value of benefit)/(annual value of property)

• Where the annuity is not charged/secured on a specific asset, a capital sum would need to be invested in the most recently issued government stock of at least 10 years to yield an income equal to the annuity.

Question 3

When do you file the return and pay CAT?

Answer 3

• For gifts/inheritances with a valuation date between 1 January and 31 August, the donee/successor must pay and file by 31 October in that year.
• For gifts/inheritances with a valuation date between 1 September and 31 December, the donee/successor must pay and file by 31 October in the following year.
• Even if no CAT is due, a return must be filed where the aggregate value of all benefits post 5/12/1991 exceeds 80% of the relevant threshold.

Question 4

Explain the dwelling house exemption relating to CAT.

Answer 4

• Post 1/1/2017
• Donee/successor must occupy property for 3 years prior to disposition and have no interest in any other dwelling.
• For inheritances: applies to property occupied by the disponer only (i.e. with successor)
• For gifts: applies to property occupied by the disponer and not so occupied but only in very limited circumsrances.
  
  • Donee must be dependent relative of disponer,
  • Either over 65 or permanently and totally incapacitated by old age of infirmity.

Question 5

There is a relief on the gift or inheritance of agricultural property. What does this apply to?

Answer 5

Agricultural land, pasture, woodland in Ireland/EU.

• Crops, trees, underwood on such land.
• Livestock, bloodstock and machinery on such land.
• houses and buildings on such land.
• EU CAP support payments - e.g. single farm payment.

Question 6

What 2 tests are done to see if the donee/successor is a “farmer” and therefore eligible for agricultural relief?

Answer 6

2 tests:

• Asset test (sometimes called the farmer test)
• Activity/qualification test

Question 7

What is the relief?

Answer 7

Relief is: For agricultural property, reduce market value by 90% (agricultural value).

Question 8

What is the asset test?

Answer 8

• 80% of assets are agricultural property (including benefit).
• No deduction for mortgages/debts except for off-farm PPR.

Question 9

What is the activity/qualifaction test?

Answer 9

• Must farm land on a commercial basis.
• Must have agricultural qualification (or obtain one within 4 years) OR must spend 50% of the time farming the land (20 hours per week).
• Must farm for not less than 6 years OR
• Must lease land for 6 years to farm (meets either above test).

Question 10

How do you apportion liabilities, cost and expenses (LCE) between agricultural and non-agricultural assets?

Answer 10

• LCE charged on agricultural assets: deduct only from those assets (10% deduction only).
• General LCE (not charged on specific property): split between agricultural assets (10% deduction only) and other assets.

Question 11

What are the rules for clawback of the agricultural relief?

Answer 11

Relief is clawed back if the agricultural property is sold/compulsorily acquired within 6 years of date of gift/inheritance:

• Unless sale is on death of donee/successor.
• No clawback if property is replaced within one year.
• Where property consists of development land, the period is 10 years.

Relief is clawed back if donee/successor ceases to qualify as a farmer within 6 years of date of gift/inheritance.