Adverse possession and capital gains tax

Carawaystick

If someone acquires some property through adverse possession, are there tax liabilities arising from this?

I've never seen anything about this ( not that I've looked too hard) but if the original owner looses title there's a capital loss
And the new owner has a capital gain

And a capital acquisition

nompere

What a fascinating thought.

Given that market value, rather than actual consideration, applies on transactions between connected persons, there could actually be a capital gain arising if a relative acquires property by adverse possession!

The acquirer doesn't have to pay any capital gains tax unless/until he sells the property - no CGT arises on the acquisition.

Section 5 Capital Acquisitions Tax Consolidation Act 2003 supports your thought that a CAT charge might arise as full consideration has not been given for the acquisition.

Pat Mustard

Carawaystick wrote: »

If someone acquires some property through adverse possession, are there tax liabilities arising from this?

I've never seen anything about this ( not that I've looked too hard) but if the original owner looses title there's a capital loss
And the new owner has a capital gain

And a capital acquisition

Article on this.

It seems extremely unfair that a loss of land through adverse possession could not only be deemed a disposal at market rate, but that it could give rise to potentially serious CGT liability to the deemed disponor.

nompere

The Mustard wrote: »

Article on this.

It seems extremely unfair that a loss of land through adverse possession could not only be deemed a disposal at market rate, but that it could give rise to potentially serious CGT liability to the deemed disponor.

Nobody ever said tax was supposed to be fair.

Per Rowlatt J in Cape Brandy Syndicate v. IRC:
"There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." Tough stuff!

Pat Mustard

nompere wrote: »

Nobody ever said tax was supposed to be fair.

Per Rowlatt J in Cape Brandy Syndicate v. IRC:
"There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." Tough stuff!

Yeah, revenue law is interpreted in its own way.

I think that there should be presumption of fairness in favour of the taxpayer though.

Looking at the Revenue Customer Charter:

Revenue will administer the law fairly, reasonably and consistently and will seek to collect no more than the correct amount of tax or duty.

So at least there is that.

Carawaystick

The Mustard wrote: »

Article on this.

It seems extremely unfair that a loss of land through adverse possession could not only be deemed a disposal at market rate, but that it could give rise to potentially serious CGT liability to the deemed disponor.

There was share option tax relief schemes available in late 20th century/early 21st where the income tax liability of excercising share options greatly exceeded gross "income" from excercising options.
The former landowner has had a dozen years to sort it out though ...

Tom Young

Should we not look to first principles re. Adverse Possession to find the answer?

Pat Mustard

Tom Young wrote: »

Should we not look to first principles re. Adverse Possession to find the answer?

I'm not sure what you mean by that, but if you are hinting:
1. that loss of land via adverse possession cannot constitute a disposal, or,
2. that there is no gain,

The article that I posted argues that taxes can apply:

CGT
Section 28(1) TCA 1997 states that “Capital gains tax shall be chargeable […] in respect of chargeable gains […] accruing to a person on the disposal of assets”. There is no comprehensive definition of what constitutes a disposal for CGT purposes, although we can obtain some guidance from the usual sources such as legislation, case law, etc.

Meaning of “disposal”
An adverse possession case involves the owner of land losing his/her interest in that land, and this would seem to constitute a “disposal of an asset”. Keep in mind that land acquired via CPO or as a gift is clearly part of the CGT system, which confirms that a disposal can occur even if one of the parties takes no active part in the transaction or if there is no consideration passing.

Furthermore, s538 TCA 1997 states that:
“… the occasion of the entire loss, destruction, dissipation, or extinction of an asset shall […] constitute a disposal of the asset whether or not any capital sum as compensation or otherwise is received …”.

While this section deals specifically with negligible-value claims, it clearly highlights that a disposal can arise even where the owner receives no consideration, has no part in bringing about the disposal and does not give consent to the disposal.

...

Even if the parties to the adverse possession case are not “connected parties”, s547(4) may apply to the transaction. Section 547(4) ensures that market-value consideration applies to gifts, so it is fitting that it could apply also to adverse possession cases.

Did you mean something else?