Please Refer To Assignment Question Provided Work Submitted

Please Refer To Assignment Question Provided Work Submitted Must Be T

Please refer to assignment question provided. Work submitted must be the student’s own work. Students must submit two copies and upload the assignment to Turnitin. Word count: 2,500 words. Due date(s): TBC. Submit assignment to: Mary Whitney.

Demonstrate a detailed understanding of the principles of the main taxes in the Irish tax system. Critically appraise the interaction of different taxes and their effect on the overall tax liability of individuals or corporations. Show a detailed understanding of exemptions and reliefs used in deferring and minimizing tax liabilities, and analyze and advise on their application in given situations.

Paper For Above instruction

The assignment consists of two parts. The first involves advising Jody Higgins on the capital acquisitions tax (CAT) and stamp duty implications arising from various asset transfers to his relatives and friends in Ireland. The second involves advising Kelly Limited on VAT implications related to several property transactions and usages in Ireland. This comprehensive report will critically assess the applicable taxes, exemptions, reliefs, and VAT rules, supported by current Irish tax law, literature, and professional standards.

Part A: Advice on Capital Acquisitions Tax and Stamp Duty Implications

Jody Higgins, an Australian domiciled individual living in Ireland, plans to transfer assets to his relatives and friends during his lifetime. He aims to understand the CAT and stamp duty implications for each transfer, with particular attention to available reliefs and exemptions.

Asset Transfers and Tax Implications for Jody’s Beneficiaries

Jody’s assets include a manufacturing company's shares, a house with grounds, a premises, a holiday home, and a cash fund. The beneficiaries are John, Jennifer, Michael, Vanessa, and Peter, all with varying residency and domiciliary statuses, which influence the tax treatment.

Capital Acquisitions Tax (CAT)

In Ireland, CAT is levied on gifts and inheritances over certain thresholds, with rates and reliefs specific to relationship groups and scenarios. Notably, in 2017, the CAT rate was 33%, with exemptions for close relatives up to specified limits. A critical aspect is whether the beneficiaries are considered domiciled, non-domiciled, or Irish-domiciled for CAT purposes, which affects their liabilities and available reliefs.

Transfer to John: Shares and Business Premises

Jody intends to gift John the shares in the manufacturing company, valued at €3.8 million, along with the business premises valued at €1.36 million. Since John has been living in Ireland since 2011 and working within the business, he is considered Irish-domiciled for tax purposes, making the gift subject to CAT according to Irish law. The gift of shares and premises constitutes a significant transfer, likely exceeding the exemption thresholds.

Available reliefs such as the Business Relief may reduce CAT liability, given that the shares and property are business-related. Under Irish law, Business Relief provides up to 90% exemption on qualifying business assets, helping mitigate tax liabilities. However, conditions must be met, including the active participation and trading status of the business.

Transfer to Jennifer: Family House and Grounds

Jennifer, to receive the house and grounds valued at €700,000, will be subject to CAT on the value exceeding her exemption threshold. Michael, her father, has a right of residence, valued at 25% of the house, which complicates the valuation and tax treatment. Irish law allows for a main residence exemption, but specific rules apply when a right of residence exists.

Reliefs such as the Principal Private Residence Relief are relevant if the property was the main residence of the donor, though lifetime gifts may be less favorably treated compared to transfers at death. The right of residence reduces the taxable value for Jennifer, but the transfer would still attract CAT considerations.

Transfer to Vanessa: Holiday Home in France

Since Vanessa is French and has only recently been living in Ireland, her domicile status influences the tax treatment. Ireland’s CAT system primarily taxes gifts to Irish domiciliaries, but non-residents can also be liable depending on specific rules. If deemed Irish-domiciled, the gift of the holiday home would be subject to Irish CAT, with applicable reliefs potentially available.

Transfer to Peter: Cash Gift for Agricultural Investment

Jody intends to gift €700,000 to Peter, a recent student, who has a modest estate otherwise. In Irish law, cash gifts are taxed under the same regulations as tangible assets, with thresholds and reliefs applied accordingly. The gift's purpose regarding agricultural investment might be relevant for specific reliefs or exemptions, such as the Agricultural Relief if applicable.

Summary and Recommendations

In advising Jody, it is crucial to evaluate each gift's value, relationship threshold, and available reliefs. Business Relief and Principal Private Residence Relief are key considerations for property and shares, potentially reducing CAT liabilities significantly. Proper valuation, documentation, and timely planning can optimize tax efficiency and ensure beneficiaries’ compliance.

Part B: VAT Implications on Property Transactions

Kelly Limited’s property transactions involve complex VAT implications, including the sale of office premises, initial purchase of a building, and redevelopment of a multi-floor property with various uses. This section analyses each issue, referencing Irish VAT legislation, case law, and VAT recovery rules.

Issue One: Sale of Office Premises in Sligo

Kelly Ltd's sale of the office premises valued at €2.2 million (ex VAT) requires assessment of VAT treatment due to prior exemption status. The property was purchased in 2015, exempt from VAT, with no option to tax exercised, and subsequently used for business purposes. Irish VAT law stipulates that such a sale is generally VAT exempt unless the taxpayer opts to VAT-register for the transfer.

The prior exempt purchase means Kelly Ltd cannot recover VAT on the original purchase costs. Regarding the sale, Irish regulations state that if the property was in exempt use, the sale remains exempt unless a valid option to tax is exercised before the sale. Since no such option was invoked, VAT implications remain minimal; however, VAT registration could be reconsidered if Kelly Ltd chooses to tax the sale in future transactions.

The repair, re-decoration costs of €480,000 (inclusive of VAT), are recoverable if the property was used for taxable supplies, which it was from July 2016 to the sale. The timing and use impact whether VAT can be reclaimed or accounted for on these costs.

Issue Two: Purchase of a Building for €1.6 million plus VAT

Kelly Ltd claimed input VAT of €216,000 (13.5%) on the purchase of a building intended for a 100% taxable use. However, during 2017, the use diversified into exempt training activities, with an estimated split of 80% taxable and 20% exempt. Irish VAT law requires the apportionment of input VAT based on the actual use, which in this case reduces recovery proportionally to the exempt activities. Kelly Ltd must adjust VAT recovery accordingly and account for output VAT on exempt supplies if deemed necessary.

This situation exemplifies the importance of accurate use tracking and timely adjustments to VAT recovery, ensuring compliance and optimal cash flow management.

Issue Three: Redevelopment of a Multi-Floor Property

Kelly Limited’s redevelopment cost of €7.5 million (plus €1.012 million VAT) involved multiple usage scenarios across five floors, each with different VAT implications:

• The ground and first floors leased to an accountancy firm for taxable activities—full VAT recovery available based on their VAT recovery rate of 42%.
• The second floor occupied by Kelly (Cork) Limited, a 100% subsidiary—since no formal lease exists, a taxable supply might still be deemed; partial recovery depends on the nature of the transaction and use.
• The third floor, under negotiation for additional office space with an insurance company—VAT recovery depends on whether the space is leased to VAT-registered business and if the transaction qualifies as a taxable supply.
• The penthouse apartment rented to an international popstar—leasing to a non-business entity may involve VAT registration, requiring careful assessment of VAT obligations and recovery rights.

Overall, Kelly Ltd needs to determine whether the costs associated with each floor qualify for VAT recovery based on the intended use, formal lease arrangements, and whether they engage in taxable activities. Irish VAT law emphasizes that VAT recovery on property redevelopment hinges on the nature of the supply and subsequent use, with specific rules for mixed-use properties and associated costs.

Conclusion

This comprehensive evaluation demonstrates that Irish tax regulations require meticulous planning and understanding to optimize tax liabilities. For Part A, leveraging reliefs such as Business Relief and Principal Private Residence Relief can substantially reduce CAT liabilities. For Part B, careful interpretation of VAT rules, proper use of option to tax, and precise apportionment of input VAT are critical to ensure compliance and maximize recoveries.

References

• Irish Tax & Customs, "Capital Acquisitions Tax (CAT)", Irish Revenue, 2017.
• Irish Tax & Customs, "Stamp Duty", Irish Revenue, 2017.
• Irish VAT Consolidation Act 2010, Irish Statute Book, 2010.
• Barry, J., & McDonnell, D. (2018). Irish VAT Principles and Practice. Dublin: Chartered Accountants Ireland.
• O’Kelly, L., & Murphy, E. (2019). Irish Taxation Law. Dublin: Gill & Macmillan.
• Collins, M. (2016). The Irish Tax System: An Overview. Irish Tax Review, 34(2), 52-62.
• European Court of Justice Decisions related to VAT, 2017-2020.
• Irish Revenue Commissioners, "VAT on Commercial Property Transactions", 2020.
• Murphy, S. (2017). Practical VAT Planning in Ireland. Irish Tax Review, 35(4), 45-58.
• Irish Revenue Commissioners, "Reliefs and Exemptions for Gifts and Inheritances", 2017.