CGT Assets Abroad

Overview

There are provisions designed to address capital gains tax avoidance in relation to non-resident trusts and companies resident abroad and two complementary provisions that attribute the capital gains of non-resident trusts to resident beneficiaries. The gains of offshore trusts may be attributed to the settlor (creates the trust) and/ or resident beneficiaries.

If the settlor of a non-resident trust has an interest in the trust and a disposal is made by the non-resident trust while the settlor is Irish resident or ordinarily resident, regardless of domicile at the date the gains were made, or when the trust was created,  the provisions apply. T

A settlor has an interest in the trust

• if the trust property will or may become applicable for the benefit of the settlor or the settlor’s spouse or a company belonging to the settlor or their spouse.
• Trust income originating from the settlor will or may become applicable for the benefit of the settlor, the settlor’s spouse, or a company belonging to them or
• They have direct or indirect enjoyment of benefit from trust property originating from the settlor or trust income, including repayment of a loan, is also considered.

Settlor or Beneficiary Liable

When an offshore trust makes a gain subject to capital gains tax,  the Irish resident or ordinarily resident settlor is liable to Irish capital gains tax on any Irish resident and domiciled or ordinarily resident beneficiary’s share of the gain.

If the settlor is not Irish resident or ordinarily resident at the date of the gain, each Irish domiciled and resident or ordinarily resident beneficiary is liable to capital gains tax on their share of the gain.

If the trustee pays the capital gains tax arising, this is not deemed a benefit received by the beneficiary for income tax or capital gains tax purposes.

If, in any year of assessment, losses exceed gains, the excess is carried forward for set-off against gains in subsequent years, impacting the net gain of the year for apportionment.

Beneficiary Issues

A domiciled beneficiary who is neither resident nor ordinarily resident in the year in which the gain is made is still liable if the beneficiary was resident or ordinarily resident in the year prior and in the subsequent year. The gain is treated as accruing to the beneficiary in the first year subsequent to becoming resident or ordinarily resident.

A domiciled beneficiary who was excluded as a beneficiary in the year the gain was made becomes liable if they are subsequently included as a beneficiary. The gain is treated as accruing to the beneficiary in the first year they become resident or ordinarily resident.

If a domiciled beneficiary who was resident or ordinarily resident receives a capital payment from the trust, the beneficiary is treated as having a chargeable gain in the year the capital payment is received equal to the lesser of the capital payment or the apportioned portion of the gain which would have accrued to the beneficiary.

Apportioning Gain

The beneficiary’s share of the gain is apportioned between the beneficiary and other individuals with an interest in the property of the trust on a just and reasonable basis. In valuing the income, no account is taken of the possibility that the asset may become worthless due to subsequent events.

If the trust is a discretionary trust, the beneficiary’s share is equal to an annuity of 20% of the income received over the past five years if the beneficiary has received income from the trust in the past five years, plus the income of any capital payments subsequently received that are not already taxed.

Benefits Received

A separate provision applies if the above provisions do not apply. It applies where

• the settlor, regardless of residence or domicile, does not have an interest in the trust
• If the settlor does have an interest in the trust and is not Irish domiciled, nor resident or ordinarily resident in the year of assessment,  gain is made by the non-resident trust in the year the trust is established
• The non resident trust makes a capital gain that would be subject to Irish CGT if resident

The gains are attributed to the beneficiary if they receive a capital payment from the trust and are Irish domiciled.

A capital payment is a payment not charged to income tax or if the recipient was neither resident nor ordinarily resident, a payment was received, other than as income. A capital payment can include the transfer of beneficial ownership of an asset, the conferring of any benefit by the trustees, or any loan, direct of indirect.

The trust gains are treated as gains of the beneficiaries in proportion to, but not exceeding, all capital payments received in the current and previous years not already taxed. The gains are attributed to the beneficiaries in proportion.

Trustees paying the capital gains tax that applies is not a benefit for this purpose.

Exceptions

Both of the above provisions are subject to an exception  if it  can be shown to the satisfaction of Revenue that the settlement was established upon by the commercial reasons and did not form part of an arrangement of which the main one of the main purposes was the avoidance of liability to Irish capital gains tax.

The provisions do not apply to losses incurred by trustees were to show the settlement carries on genuine economic activities in the EU and EEA United Kingdom.

Where benefit is subject to capital gains tax under this provision it is not also subject to the corresponding income anti-avoidance.