Powers of Revocation
Legislation - Section 39, Capital Acquisitions Tax Consolidation Act 2003.
If a disponer, under a disposition, has retained to himself the power to revoke a disposition, then no tax is charged at the date of the disposition on the basis that ownership is deemed to remain with the disponer. Tax will only become payable when the power to revoke is released or when the disponer dies without revoking the disposition. In the event that the disponer dies without revoking the disposition, the benefit taken will be an inheritance as it is taken on a death, i.e. the death of the disponer.
If, as is usually the case, the beneficiary has the free use of the property during the period between the date of the original disposition and the date of death of the disponer, a charge to tax arises on the annual value of the property i.e. annual letting value, on the free use basis as described in the following example:
Example
By deed of transfer dated 1 January, 2000, Owen transfers his house in Dublin to Declan but reserves to himself a power to revoke the transfer. Owen died on 30 June, 2003 without having exercised the power of revocation. At the date of Owen's death, the house is valued at €500,000. The value of the market rent from January, 2000 to December, 2003 is €20,000 per annum.
Declan is deemed to take the following benefits:
- On 31 December, 2000 Gift €20,000
- On 31 December, 2001 Inheritance* € 20,000
- On 31 December, 2002 Inheritance* € 20,000
- On 30 June, 2003 (6 months “free” use of house) Inheritance* € 10,000
- On 30 June, 2003 (house) Inheritance €500,000
* Gifts that became inheritances because disponer died within two years. The small gift exemption still applies.