Government ignore tax loophole benefiting wealthy (was Open Letter..)

Dougal

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Sep 7, 2011
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2,692
On 21st February 2016, Ken Foxe writing in the Sunday Times, exposed a widely abused loophole within our Inheritance Tax system. The majority of us would not be aware of it as it is so out of our reach, many would consider it to be fantasy, least of all consider it to be an option available to us. This loophole has been abused by the rich & powerful since it was first introduced over 16 years ago, in Finance Act 2000. We are losing tens of millions every year because of this one little loophole. Even when it was first written into our tax legislation, the Department of Finance was warned that it would be abused. Wealthy individuals are purchasing properties with cash, it doesn't really work where there is a mortgage, and just passing the properties over to their children after three years, no Inheritance Tax, no Capital Gains Tax. A transfer of wealth with no tax implication. This transfer does not even affect any future inheritances the children receive. Over the years they have been warned time & time again as to how this singular piece of legislation was being abused by wealthy individuals to transfer large amounts of cash into the hands of their children completely tax free.

However, in the Sunday Business Post (16th October 2016), it is being reported that consideration to altering this specific piece of legislation is being put on the “back-burner” as there is “not enough evidence” of it being abused. Well let’s have a look at the evidence. Since this legislation was introduced, the following examples are only a snapshot of what has been put forward to & by the Department of Finance.

Warning from the Wealth Managers
The unidentified wealth manager had a meeting with officials from the Department of Finance after discovering evidence of suspicious transactions where individuals had gifted houses worth €1 million or more to their children without paying a cent in tax.

Even before that meeting took place, a detailed submission had been prepared for Finance Minister Michael Noonan by his own officials warning of the scale of abuse.

However, Minister Noonan – for reasons that are not explained in documents released under FOI – opted to do nothing to close the loophole. The submission seeking a change is bluntly marked: “No.”

In January 2015, officials from the Department of Finance met with an unnamed wealth manager who told them the loophole was bringing the law “into disrepute”. He told them that in the previous eighteen months, abuse of inheritance tax had “taken off” where high-wealth individuals were buying houses in cash.

The wealth manager told them of a case involving one family, where the parents had bought each of their four children a house worth more than €1 million and gifted it to them entirely tax-free.

In a follow-up email in February 2015, he wrote of further cases he had come across.
“Since we met, I have come across two situations where clients have bought €1m+properties for each of their children in the past 12 months with a view to passing over ownership after 3 years. It is up to you but I think it is going to be a substantial revenue loss to you”

Contact from the office of the Tánaiste
The Department of Finance were also contacted by the office of Tánaiste Joan Burton, who had been contacted by a concerned constituent. That constituent had described a number of cases where people were missing out when trying to buy houses, which ended up being bought by wealthy individuals for their children as a tax avoidance measure.

A proposal to restrict the availability of inheritance tax to a single primary residence had already been put forward in the Department of Finance in 2014 but Minister Michael Noonan decided against reforming it.

It explained how wealthy parents were using the loophole.
“Cases are coming to attention where wealthy parents to buy and gift houses to their children. There is nothing in this exemption as currently drafted to prevent a parent with (say) four children for purchasing a dwelling house for each of them and gifting/bequeathing them subject to the above conditions being satisfied – in practice it can be difficult for Revenue to determine whether or not the conditions are satisfied”

Representation from Revenue Commissioners prior to Fin Act 2007
The Revenue Commissioners made a substantial submission to the Department of Finance prior to Finance Act 2007. Within the submission they detailed how this specific provision was being abused and highlighted some case. They also advised as to how the legislation could be altered. All advise provided by the Revenue Commissioners was ignored as it has been to this day.

They informed that during the year 2005, cases which they investigated showed a loss of up to €28m in Revenue. For the year 2015, it has been reported that 741 people claimed this exemption. If each had a property valued at €500k (some could be less but some could be substantially more) this would represent a tax loss of over €120m.
In addition to this, they highlighted three specific cases of future losses in Revenue. (Text is word for word what Revenue wrote in 2006)

Case 1
A couple sold their investment property so they could claim CAT exemption for a gift of a €2.25m house (in which they had been living in for 3 years) from the wife’s father – (she had already received a gift valued at €19m which was eligible for business relief). Her sister, who had likewise received a similar gift valued at €19m, is living in a house owned by her parents and one can expect it to be gifted to her in due course. (A condition of the relief is that at the time of the gift, the successor/beneficiary did not have any beneficial interest in any dwelling house.

Case II
Two children of a settlor of a trust are beneficiaries of that trust. They have utilised their tax free threshold in respect of parental gifts already received. The trustees bought a house, the children lived in it for 3 years, and it is now being gifted to them – valued €2.5m.

Case III
A newspaper report, earlier this year, indicated that a wealthy individual had purchased a house worth €9.6m, for his daughter to live in. No doubt in 3 years time it will be gifted to her.
It is worth noting her that the Revenue Commissioners specifically warn the Department of Finance of the abuse currently seen by them but also future abuse.

“It would appear, therefore, that Section 86 is being used by some wealthy individuals to avoid CAT and its provisions are, from a policy perspective, decidedly unfocused. It is highly probable that, if Section 86 is not curtailed, it will become the vehicle of choice for CAT avoidance when passing on wealth to the next generation.”

The above is only a snapshop of evidence of which this Government now state they have “not enough evidence”. Seriously, how much evidence do they need? I called upon each and every one of our 158 elected representatives to examine this matter and raise it in the Dáil. Can anyone of you seriously stand by and allow this abuse to continue. If they wish to protect cases where there are legitimate transfers, well let the rules and regulations dictate what they are, let them be dealt with on a case by case basis. Can you seriously stand by and allow open ended abuse where there is clear evidence that this is being abused. This Government, as with previous Government, have stood back for 16 years and allowed this to happen. Will you be the first one to raise the matter in the Dáil or on our nation airwaves? Ken Foxe exposed this back in February and not once have I heard it raised in the Dáil, not once have I heard any one of you mention this anywhere. Will you now stand up and speak and begin the end of this abuse?

For further evidence and backup documentation, notes and Revenue Correspondence, visit the Facebook page of Ken Foxe “No Expense Spared”, visit his Twitter account or contact Ken Foxe directly at ken.foxe@gmail.com, which I am sure he will be more than happy to provide you with all you need. The following are some links to Ken Foxe blog pages.

Whistleblower warned that abuse of inheritance tax loophole used by the wealthy was about to take off

Why did Fine Gael government postpone decision on tax loophole used as vehicle for tax avoidance by wealthy individuals?


EDIT - Please feel free to copy the text of my post to any of your elected representative. There is a clear unwillingness within our political classes to address this issue. Make them listen.
Your voice is the most powerful tool you have, don't let them silence you.



EDIT - Previous Threads I did on this matter.
24th January 2016 http://www.politics.ie/forum/economy/245200-inheritance-tax-latest-election-issue.html
23rd February 2016 http://www.politics.ie/forum/economy/246272-capital-acquisitions-tax-those-loopholes.html
 
Last edited:


realistic1

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Messages
11,253
That old expression "turkeys voting for Christmas" comes to mind. Like the current property shortage, the Political class has a vested interest in not effecting their families and friends finances.
 

Man or Mouse

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The greatest tool of the wealthy to continue their family hegemony on wealth and, further enrich the one percent, is a lack of inheritance tax at certain levels by effective lobbying.

There should be a cap on all passed on wealth which should be free of tax and above that cap, a heavy tax. For some reason whenever this is mooted, or even a small bit of it, there is a certain demographic up in arms immediately. The wealthy seem to have an easy ability to con the middle classes that they are on the way to wealth too and so should back them on such issues, which they go right ahead and do.

Turkeys.
 

Man or Mouse

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PS, Dougal, I hope you are not going to stop at posting your information on an anonymous internet forum.
 

VHF

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Messages
2,932
That old expression "turkeys voting for Christmas" comes to mind. Like the current property shortage, the Political class has a vested interest in not effecting their families and friends finances.
40 gaffs being one such character over at FF
 

ShoutingIsLeadership

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49,731
A very useful and very well-written post.

It's maybe a bit of a pity the title doesn't tell you straight away something about its content, which is pretty shocking really.
Good point.

Don't agree that it's shocking, though. Scandalous? Yes.
 

Man or Mouse

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40 gaffs being one such character over at FF
40 gaffs being? I'm afraid I don't keep up all the time.
 

*EPIC SUCCESS*

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May 19, 2016
Messages
3,087
Good point.

Don't agree that it's shocking, though. Scandalous? Yes.
Indeed. Considering some of what Noonan has been getting up to these last few years, I am no longer suprised at his dearth of ethics, honesty or common decency.

The fact he is held up as being some sort of elder statesman type figure is laughable. He's a parochial chancer at best.
 

Dougal

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Messages
2,692
A very useful and very well-written post.

It's maybe a bit of a pity the title doesn't tell you straight away something about its content, which is pretty shocking really.
Thanks, & I know, the title does not really explain it. Would be more than happy for a mod to change it to something more appropriate.

End of the day, this government has once again ignored this loophole which only benefits the wealthy. It needs a TD in the Dáil to raise the matter. We have the Finance Bill being brought before the Dáil and it this is not highlighted now, it will be once again hidden. This has been going on for years. I raised it last February on her but it did not get much traction. People should be angry, we are not talking chicken feed here. Feel free anyone here to share it, with your TD's, with anyone who will listen, copy and past my initial post.
 

Dougal

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Noonan seems to have ignored many opportunities to change this
Charlie McCreevy was the MoF at the time and you are right, Noonan among others have ignored this, even when the Revenue Commissioners have directly pointed out to them that it is being abused.
 

Dedogs

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Joined
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Messages
6,219
On 21st February 2016, Ken Foxe writing in the Sunday Times, exposed a widely abused loophole within our Inheritance Tax system. The majority of us would not be aware of it as it is so out of our reach, many would consider it to be fantasy, least of all consider it to be an option available to us. This loophole has been abused by the rich & powerful since it was first introduced over 16 years ago, in Finance Act 2000. We are losing tens of millions every year because of this one little loophole. Even when it was first written into our tax legislation, the Department of Finance was warned that it would be abused. Wealthy individuals are purchasing properties with cash, it doesn't really work where there is a mortgage, and just passing the properties over to their children after three years, no Inheritance Tax, no Capital Gains Tax. A transfer of wealth with no tax implication. This transfer does not even affect any future inheritances the children receive. Over the years they have been warned time & time again as to how this singular piece of legislation was being abused by wealthy individuals to transfer large amounts of cash into the hands of their children completely tax free.

However, in the Sunday Business Post (16th October 2016), it is being reported that consideration to altering this specific piece of legislation is being put on the “back-burner” as there is “not enough evidence” of it being abused. Well let’s have a look at the evidence. Since this legislation was introduced, the following examples are only a snapshot of what has been put forward to & by the Department of Finance.

Warning from the Wealth Managers
The unidentified wealth manager had a meeting with officials from the Department of Finance after discovering evidence of suspicious transactions where individuals had gifted houses worth €1 million or more to their children without paying a cent in tax.

Even before that meeting took place, a detailed submission had been prepared for Finance Minister Michael Noonan by his own officials warning of the scale of abuse.

However, Minister Noonan – for reasons that are not explained in documents released under FOI – opted to do nothing to close the loophole. The submission seeking a change is bluntly marked: “No.”

In January 2015, officials from the Department of Finance met with an unnamed wealth manager who told them the loophole was bringing the law “into disrepute”. He told them that in the previous eighteen months, abuse of inheritance tax had “taken off” where high-wealth individuals were buying houses in cash.

The wealth manager told them of a case involving one family, where the parents had bought each of their four children a house worth more than €1 million and gifted it to them entirely tax-free.

In a follow-up email in February 2015, he wrote of further cases he had come across.
“Since we met, I have come across two situations where clients have bought €1m+properties for each of their children in the past 12 months with a view to passing over ownership after 3 years. It is up to you but I think it is going to be a substantial revenue loss to you”

Contact from the office of the Tánaiste
The Department of Finance were also contacted by the office of Tánaiste Joan Burton, who had been contacted by a concerned constituent. That constituent had described a number of cases where people were missing out when trying to buy houses, which ended up being bought by wealthy individuals for their children as a tax avoidance measure.

A proposal to restrict the availability of inheritance tax to a single primary residence had already been put forward in the Department of Finance in 2014 but Minister Michael Noonan decided against reforming it.

It explained how wealthy parents were using the loophole.
“Cases are coming to attention where wealthy parents to buy and gift houses to their children. There is nothing in this exemption as currently drafted to prevent a parent with (say) four children for purchasing a dwelling house for each of them and gifting/bequeathing them subject to the above conditions being satisfied – in practice it can be difficult for Revenue to determine whether or not the conditions are satisfied”

Representation from Revenue Commissioners prior to Fin Act 2007
The Revenue Commissioners made a substantial submission to the Department of Finance prior to Finance Act 2007. Within the submission they detailed how this specific provision was being abused and highlighted some case. They also advised as to how the legislation could be altered. All advise provided by the Revenue Commissioners was ignored as it has been to this day.

They informed that during the year 2005, cases which they investigated showed a loss of up to €28m in Revenue. For the year 2015, it has been reported that 741 people claimed this exemption. If each had a property valued at €500k (some could be less but some could be substantially more) this would represent a tax loss of over €120m.
In addition to this, they highlighted three specific cases of future losses in Revenue. (Text is word for word what Revenue wrote in 2006)

Case 1
A couple sold their investment property so they could claim CAT exemption for a gift of a €2.25m house (in which they had been living in for 3 years) from the wife’s father – (she had already received a gift valued at €19m which was eligible for business relief). Her sister, who had likewise received a similar gift valued at €19m, is living in a house owned by her parents and one can expect it to be gifted to her in due course. (A condition of the relief is that at the time of the gift, the successor/beneficiary did not have any beneficial interest in any dwelling house.

Case II
Two children of a settlor of a trust are beneficiaries of that trust. They have utilised their tax free threshold in respect of parental gifts already received. The trustees bought a house, the children lived in it for 3 years, and it is now being gifted to them – valued €2.5m.

Case III
A newspaper report, earlier this year, indicated that a wealthy individual had purchased a house worth €9.6m, for his daughter to live in. No doubt in 3 years time it will be gifted to her.
It is worth noting her that the Revenue Commissioners specifically warn the Department of Finance of the abuse currently seen by them but also future abuse.

“It would appear, therefore, that Section 86 is being used by some wealthy individuals to avoid CAT and its provisions are, from a policy perspective, decidedly unfocused. It is highly probable that, if Section 86 is not curtailed, it will become the vehicle of choice for CAT avoidance when passing on wealth to the next generation.”

The above is only a snapshop of evidence of which this Government now state they have “not enough evidence”. Seriously, how much evidence do they need? I called upon each and every one of our 158 elected representatives to examine this matter and raise it in the Dáil. Can anyone of you seriously stand by and allow this abuse to continue. If they wish to protect cases where there are legitimate transfers, well let the rules and regulations dictate what they are, let them be dealt with on a case by case basis. Can you seriously stand by and allow open ended abuse where there is clear evidence that this is being abused. This Government, as with previous Government, have stood back for 16 years and allowed this to happen. Will you be the first one to raise the matter in the Dáil or on our nation airwaves? Ken Foxe exposed this back in February and not once have I heard it raised in the Dáil, not once have I heard any one of you mention this anywhere. Will you now stand up and speak and begin the end of this abuse?

For further evidence and backup documentation, notes and Revenue Correspondence, visit the Facebook page of Ken Foxe “No Expense Spared”, visit his Twitter account or contact Ken Foxe directly at ken.foxe@gmail.com, which I am sure he will be more than happy to provide you with all you need. The following are some links to Ken Foxe blog pages.

Whistleblower warned that abuse of inheritance tax loophole used by the wealthy was about to take off

Why did Fine Gael government postpone decision on tax loophole used as vehicle for tax avoidance by wealthy individuals?
i didnt understand all that mate but what i did is a discrace.... powerful post....
 


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