CAT Aggregation Rules - Theory Question

Past30Now

Hi all,

The supplementary budget introduced last month reduced the CAT thresholds by approx 20%. Previously the aggregation rules meant that on receipt of a gift or inheritance, you added any previous gifts/inheritances received in the same group threshold to the new gift/inheritance, deducted the current threshold and were left with the amount subject to CAT. Any CAT paid on the previous gift/inheritance, was deductable from the revised CAT liability.

e.g

2007 A receives gift from father of €480K. Gift below 2007 Group A threshold - no CAT payable

2008 A receives gift from mother of €280K. Aggregate gifts in group A threshold €760K. 2008 Group A threshold €540K. Taxable Amount €220K. CAT @ 20% - €44K

Under post 7 April rules, if the gift from mother was on 1st May 2009, the revised Group A threshold is €434K. The taxable amount is €326K (€760K - €434K). The tax payable is €326K * 25%, €81.5K.

This means that the gift in 2007, which was not taxable at the time is being taxed now. Where am I going wrong? There can't be a revisionary tax like this. Any help or assistance would be appreciated.

Regards,

Past30

swanvill

Hi Past30,
On the face of it you seem right. It seems the next time a gift is made in that threshold to the recipient it will trigger the increase level of taxes.

The obvious thing would be to ensure that any agricultural/business/certain dwellings/works of art relief that can be claimed is claimed.

It is my guess that this change in the threshold will be challenged in court/ Revenue Appeals and only then would we have a definite guide on what is the correct rate & amount.

But it is a real stinker.

Mr. Incognito

The previous gift was under the threshold.

The reason you aggregrate the gifts is to see how much of the threshold remains.

In this instance there would be no threshold left and the entire 2009 gift would fall to CAT (with the small gift exemption available)

You do not add in the previous gift and tax the lot. It's gone, it's been taxed and if it was over 80% of the threshold you are oblidged to file a return even if there is no CAT bill.

You would just tax the 2009 gift at 20%.

Barracudaincork

Mr. Incognito wrote: »

You would just tax the 2009 gift at 20%.

Why 20%??? am i missing something.

Past30Now

Mr. Incognito wrote: »

You do not add in the previous gift and tax the lot. It's gone, it's been taxed and if it was over 80% of the threshold you are oblidged to file a return even if there is no CAT bill.

All,

Thanks for the assistance.

Mr Incognito, In practical terms, when filling out the IT38, are you suggesting that you ignore the references to prior gifts and unused threholds, and just start with the current gift/inheritance and multiply by the current CAT rate?

Thanks again,

Past30

Mr. Incognito

Quite right 25% on CAT. Typo. The old rates are hammered into me.

Mr. Incognito

No I would include them.

Include the prior gift- the full prior threshold and then include the new gift and the amount of threshold carried over. I presume nil.

If the old gift was negated by the threshold just reflect that.

You can give the Revenue a ring just to be sure.

gingerhousewife

I am studying CAT at the moment as part of AITI.

It is my understanding that you should complete 2 aggregates:

1. prior benefits plus current benefit under threshold A = €760K, and deduct the current threshold to give you, as you said, €326K

2. Now aggregate only prior benefits under threshold A, excluding the current benefit: = €480K, and deduct the current threshold to leave you with €46K.

Now deduct 2 from 1 (€326k - €46K) = Taxable value (before small gifts exemption) of €280K.

This means, as Mr. Incognito said, you will only be paying CAT on the current benefit, and are not being taxed retrospectively on prior benefits.