Up to the recent past, most people inheriting assets on the death of their parents escaped Inheritance Tax.  They did this by virtue of the fact that each child could receive more than €500,000 tax free from their parents.  In addition, there were generous tax reliefs available where the values of certain business or agricultural assets were heavily discounted before the tax free threshold was applied.

That landscape has changed since the economic crisis.  The Gift / Inheritance tax rate has increased from 25% to 30% and, more importantly, the tax free threshold has now reduced to €250,000 for each child.  While asset values are lower, in practical terms, many more people are now paying Gift or Inheritance Tax and indeed sizeable tax payments are becoming more frequent, particularly for inheritances.

In my recent article of the same name, Gifts and Inheritance Tax Planning – Shifting Goalposts, available in the Articles Section of our website, I discuss some simple tax planning strategies for those of more modest net worth and also examine some significant pending changes under the Finance Act 2012 to Capital Gains Tax Retirement Relief which are very important to higher net worth individuals.

For further advice on tax planning measures, please contact Fergal McManus of Morgan McManus Solicitors.

fergal Capital taxes & Planning, Cross-Border law, General, Wills & Administration of Estates

In my Article titled “Employers take note : Employment Tribunals are making large Awards” of the 11th April 2012, I advise employers to take care before instituting Disciplinary or corrective action against employees.
Any mistaken assumption by employers that Employment Law issues need not be taken too seriously as Decrees made by Tribunals are generally low in value has now been corrected by the Claims of O’Brien v Persian Properties trading as O’Callaghan Hotels (DEC-E2012-010) where the Equality Officer in the Equality Tribunal ordered the respondent pay the complainant a total of €315,000.00 compensation and the case of Paul Taylor v David Lloyd Leisure Limited (UD 2366/2009) (MN2191/2009) where the Employment Appeals Tribunal awarded the claimant €280,000.00 compensation under the Unfair Dismissals Acts and an additional €19,038.42.00 under the Minimum Notice and Terms of Employment Acts.

While one cannot prevent an Employment Law Claim being issued by an aggrieved employee a sensible employer will ensure to take timely advice to minimize cost.
For further information on these cases can be accessed on the Articles section of the Morgan McManus website.

bmorgan Business Law, Employment Law, General, Litigation & Injury Claims

I have written a number of BLOGS on our website www.morganmcmanus.com recently on Accident Claims which have been dismissed by the High Court in circumstances where liability may even have been admitted but the Plaintiff is deemed to have exaggerated his injuries and thus has had his Claim dismissed under Section 26 of the Civil Liability & Courts Act 2004. This has put a huge strain on Plaintiffs who are genuinely seriously injured but who run the risk that an aggressive approach by the Defendant questioning the honesty of the Plaintiff could lead to the dismissal of the Plaintiff`s entire Claim with an Order for legal costs against him.

I have now written an Article on this case Goodwin –v- Bus Eireann [SC Rec No 262/08] delivered on the 23rd February 2012 on our website at http://www.morganmcmanus.com/pdfs/supreme_court_upholds_refusal_to_dismiss_personal_injuries.pdf

The Court brought some clarity as to the circumstances in which a Plaintiff should be deemed to have exaggerated his symptoms and the manner in which the Court should address the medical evidence of the Defendant.

The Supreme Court stated that the defendant had to establish that the plaintiff had given evidence which was false or misleading in a material respect and, most crucially, that she knew it to be false or misleading. The Court commented that it was obvious that the defendant, upon whom the burden lies, faces a daunting task in making its case on appeal in circumstances where the trial judge, invited expressly to do so, declined to make such a finding and expressly said that she was not satisfied that the plaintiff had knowingly given false or misleading evidence.

The Court dismissed the appeal and affirmed the order of the High Court.
Further detail is available on my Article.

bmorgan General, Litigation & Injury Claims

A tenant’s right to compensation for improvement arises under Part 4 of the Landlord & Tenant Amendment Act 1980.  Hardly topical one might say, but the significance of this provision has come to the fore in recent years since the introduction of “Renunciations” of Tenant’s Rights under 2008 legislation referred to below.  If a Tenant does renounce their rights under mechanism laid down in the 2008 legislation, can they still claim compensation for improvements?

Ignoring the issue of “Tenant’s Renunciation” for the moment, when can a Tenant claim compensation for improvement?  Section 45 of the 1980 Act defines improvement as meaning “any addition to or alteration of the buildings comprised in the tenement and includes any structure erected on the tenement which is ancillary or subsidiary to those buildings and also includes the insulation of the tenement of conduits for the supply of water, gas or electricity, but does not include work consisting only of repairing, painting and decorating, or any of them”.

A tenant is not entitled to compensation unless he quits the tenement “because of the termination of his tenancy”.  However, he has no entitlement where he himself has terminated it by Notice of Surrender or otherwise or the landlord has terminated for non-payment of rent.  It should be noted that the right to compensation is not excluded where the tenancy is terminated by the landlord for any other reason, e.g. breach of covenant not relating to rent.

A tenant is entitled to compensation for any improvements only if, at the termination of the tenancy, it “adds to the letting value”.

The improvement must also be “suitable to the character of the tenement”.  It would appear that substantial expenditure, which adds little to the letting value is unlikely to be suitable to ground a right to compensation.

If compensation is payable, then such compensation is payable within one month from the date of the fixing the amount (either by agreement or as set by the Circuit Court) or delivery of clear possession of the tenement to the landlord, whichever is the later.

It appears that the overriding principle in this matter is whether the “improvement” actually adds to the letting value of the property and if it does not, then no compensation is likely.

The main restriction on the right to claim compensation for improvement centres around the requirement for notice by the tenant to the landlord of the tenant’s intention to carry out improvements to the premises.  Earlier legislation required the service of an Improvement Notice as a precondition to claiming compensation, but the current legislation, being the 1980 Act, modified that position.  Currently, failure to serve the requisite notice deprives the tenant of compensation only if a landlord satisfies the Court that (a) he has been prejudiced by the notice not having been served; or (b) the improvement contravenes any covenant in the Tenancy Agreement; or (c) it injures the amenity or convenience of the neighbourhood.  Where the improvement comprises works required by a sanitary or housing authority, the rule is that failure to serve the requisite notice on the landlord does not deprive the tenant of his right to compensation if the tenant satisfies the Court that the landlord did not suffer loss or damage thereby.  It is to be noted that here the onus rests on the tenant to establish lack of prejudice whereas in the other cases, the onus rests on the landlord to establish prejudice etc. 

When the parties cannot agree on the amount of compensation, the compensation is calculated on the basis of being the capitalised value of such addition to the letting value of the tenement at the termination of the tenancy as the Court determines to be attributable to the improvements but making a deduction in such sum as the Court thinks proper to reflect previous benefits enjoyed by the tenant or his predecessor in consideration of the improvements, expressly or impliedly, an example of a tenant benefit might be a reduction in the rent for having carried out the improvement.  In fixing the capitalised value of the addition to the letting value, the Court is to have regard to the probable duration of the addition, the probable life of the improvement and all other relevant circumstances, but in no case is the capitalised value to exceed 15 times the annual amount of the addition.  So by way of example, if the addition of the improvement meant a €5,000 annual additional rental income on a property that would last 15 years, then a Court could award up to €75,000 as compensation.

The provisions of the Civil Law Miscellaneous Provisions Act 2008 which provides for the renunciation of the right to a new tenancy does not impact upon a tenant’s right for compensation, even when such a renunciation has been executed.  It should be noted that if such renunciation has been executed, it does mean that the tenant is not entitled to compensation for disturbance, but it is an interesting distinction that compensation for improvement still survives such renunciation provided such improvement was made and qualifies as per the foregoing requirements.

fergal Business Law, Property Law

In previous BLOGS I have advised how the High Court has dismissed Accident Claims made by victims in circumstances where they might otherwise have been entitled to compensation, because the Plaintiff victim was deemed to have made an exaggerated and misleading Claim.

It appears that it will only be in exceptional cases that the Plaintiff`s Claim will not be dismissed.

In the case of Patrick Higgins –v- Caldark Limited and Michael Quigley [High Court Rec No 2004 1440 P] delivered on the 18th November 2010 Mr Justice Quirke dismissed the Plaintiff`s Claim in circumstances where he would otherwise have been happy on liability to award the Plaintiff 75% of his compensation for his personal injuries. This was because the Plaintiff had failed to disclose earning which he had received after the accident in circumstances where he was claiming Loss of Earnings by way of actuarial evidence in Court over and above his General Damages Claim for his pain and suffering. The Claim was dismissed under Section 26 of the Civil Liability & Courts Act 2004.

The Plaintiff`s Senior Counsel submitted that that it would be unjust and disproportionately harsh to deprive him of any compensation, even if he has adduced some evidence on affidavit which was materially false and misleading. He stated that such a harsh penalty “would result in injustice being done” within the meaning ascribed to that term by s. 26 of the 2004 Act. Mr Justice Quirke responded that the fact that the dismissal of an action will deprive a plaintiff of damages to which he or she would otherwise be entitled cannot, by itself, be considered unjust. He stated that section 26 of the Act is mandatory and contemplates and requires such a consequence.

The judge did however acknowledge that evidence in some proceedings may disclose the likelihood of injustice consequent upon a dismissal. For instance, it may be unjust if the claim of a catastrophically injured claimant for the cost of ongoing care is dismissed because he or she has knowingly adduced some (perhaps trivial) misleading evidence in respect of some other of category of damages. Similarly, the dismissal of a fatal injuries claim based upon misleading evidence knowingly adduced by an adult plaintiff, may unjustly penalise infant or incapacitated dependents.

In this case, dismissal of the plaintiff’s action would have severe consequences for him. It would deprive him of significant compensation for his injuries and their consequences. It would affect his life and lifestyle in the future. However, the judge stated that the court’s discretion is limited. It may not be exercised “simply because the statutory sanction required will have very severe consequences for a hardworking and likeable man who has suffered a serious injury”. He commented that no evidence of exceptional or other circumstances had been adduced which would enable the court to find that dismissal of the action would result in an injustice and accordingly dismissed the Plaintiff`s Claim.

bmorgan General, Litigation & Injury Claims

Following on from my blog of the 23^rd January last warning of the dangers of any oversight in filing a CGT Return after making a gift of property, the importance of the matters covered in my blog were brought home to me in the recent High Court decision of Joseph Tobin v Eileen Foley (2011) IEHC432 http://www.courts.ie/__80256F2B00356A6B.nsf/0/85EE0F089EBA1C358025798A0052877B?Open. This case did not relate to a gift per se, but to the sale of a public house in Co Kerry back in 2003.  Eileen Foley was the vendor and while she did make a payment to Revenue of less than €10,000 prior to the then tax deadline of the 31^st January 2004, she failed over a sustained period to ever submit the full Tax Return and/or a proper CGT calculation.  The Revenue pursued the matter doggedly over the years in correspondence but could never get full satisfaction from Ms Foley and ultimately the CGT computation that was submitted was shown to contain unsubstantiated tax deductions that did not stand up to scrutiny.  For example, deductions for legal costs were found to be overstated, auctioneer’s fees to be overstated, if indeed there were any at all, and deductions claimed for refurbishment found to be not deductible within the meaning of the legislation.  In 2010, the Revenue Commissioners assessed the sale of the pub as liable to CGT in the sum of €111,451 and offsetting at least two payments made by Ms Foley over the years, the sum outstanding was in the order of €107,000, a significant portion of the tax already paid having been swallowed up in interest.

From reading the judgement of Mr Justice Peart, it is clear that the taxation of the 2003 transaction had taken many twists and turns over the years.  It had been before the Appeal Commissioners and then the Circuit Court, but on each occasion with the taxpayers ultimately losing her fight.  In essence, her defence was that she was not experienced in business or tax affairs and that she relied on her husband (or former husband) to deal with her tax affairs as he was a former tax inspector.

The matter came before the Court as evidently the Revenue Commissioners had long lost patience with Ms Foley and while they already had judgment for the underlying tax and interest, the Revenue Commissioners were now demanding payment of a penalty of 100% of the outstanding tax liability under Section 1053 of the Taxes Consolidation Act 1997.  The Revenue are allowed impose such a penalty where they can show that a Tax Return was filed negligently.

Mr Justice Peart held that despite this being a tax penalty, a criminal standard of proof was not required in order to find Ms Foley liable for the penalty, i.e. the Revenue were not obliged to prove beyond reasonable doubt that she had negligently made a Tax Return – they merely had to prove that on the balance of probabilities, she had negligently made an incorrect Tax Return.  Quoting directly from Mr Justice Peart, he states “Negligence in the context of this legislation means that a person having a duty to make a Tax Return truthfully and honestly fails to make all appropriate enquiries in order to ensure that the details contained in the Return were complete, accurate and truthful.  A person completing such a Return must be expected to make appropriate enquiries if she herself does not have the necessary facts and information in order to complete the Return.  If she has to rely on others for information, she is under an obligation to ensure as far as reasonably possible that the information is correct and truthful”.  Mr Justice Peart goes on to say that there was no evidence that Ms Foley had taken any steps whatsoever to satisfy herself that what was contained in the Return, or the information she gave at any later stage, was correct.  Mr Justice Peart went on to state “If her evidence is to be accepted at all, it is to the effect that she blindly accepted what others had told her, and completed and signed the Return.  That is negligence and not merely careless or an oversight”.  As a consequence, the Court ordered that Ms Foley pay a penalty of in excess of €100,000 in addition to the underlying tax and interest.  The case is an interesting read and it is clear evidence that the Revenue will doggedly pursue taxpayers that they consider are not playing by the rules.

fergal Capital taxes & Planning, Property Law

In the classic situation of a gift between family members in the Republic of Ireland, e.g. the transfer of site or house from parent to child, the parties to that transaction tend to only think in terms of two possible tax “heads”. As it is a gift, the average person will typically understand that there may be gift tax implications, also known as Capital Acquisitions Tax (CAT). If the gift relates to land or buildings then there is a general public consciousness that there may be a Stamp Duty liability.

The Superior Courts in Ireland have made it clear in various judgments that the Disponer (the person giving the gift) and the Disponee (the person getting the gift) should ideally be separately legally represented in respect of any transaction relating to land, buildings or other significant assets. Sometimes, the Disponee will assure the Disponer that they will take care of any expenses associated with the gift, typically any of the taxes being involved and the cost of getting independent legal advice for the Disponers. That offer to cover taxes and other expenses can often be a lot more expensive than anticipated.  When retained to give independent legal advice to disponers, I am often surprised by their reaction that there is a third tax head in respect of which they must be aware, being Capital Gains Tax (CGT).  This tax does not tend to appear on the radar of the Disponer or Disponee.

Capital Gains Tax arises on any notional gain in value of the property since the Disponer acquired it. The Revenue Commissioners deem the gift of any property to be a sale of it at its market value and any such notional increase in value of the asset falls to be assessed under Capital Gains Tax legislation.   A CGT Return should be filed in all cases, even if there is no liability. As such, there will be costs of preparing a tax return, the cost involved in taking appropriate advice in order to claim any reliefs that may be available to reduce that tax liability, and if a liability arises – the payment of that tax.   Will the Disponer still be able to rely on the Disponee’s good intentions to cover all the costs and taxes, if they didn’t know the extent of those costs and taxes?  Good legal/tax advice is required.

Whatever about Republic of Ireland residents, Northern Irish residents are even more unlikely to realise that they may have a CGT liability is respect of any gift of land or buildings in the Republic of Ireland, as in the United Kingdom gifts are frequently not taxable under any heading.  Despite the apparent unfairness to tax a person giving a gift, a failure by a Solicitor, Accountant or Financial Adviser to advise a Disponer of their obligations under the CGT heading could certainly have very serious consequences for that Disponer.  Not alone would the Disponer face payment of the tax together with interest and penalties, they could also face prosecution and possible publication as a tax defaulter – all because they were doing something generous for a child, friend or relative.  CGT is a self assessment tax; the obligation to file the return and pay the tax rests wholly and completely with the Disponer.  It is no excuse to say that the Revenue Commissioners never wrote to you or raised an assessment, they are not obliged to do so and typically do not do so.

The Revenue Commissioners will be aware of the transaction by virtue of the Stamp Duty Return that must be made in respect of all transfers of land and buildings.  Separately, the Disponee may have filed a CAT return which will also disclose to the Revenue that a taxable event has taken place for the purposes of CGT.  It could be some years later before the Revenue Commissioners might investigate a failure to make a CGT return by the Disponer, and by the time they might raise an assessment against them, it could at that time require payment of very significant interest and penalties which could have the effect of dramatically increasing the underlying tax liability.  Unless there is a written agreement with the Disponee, the Disponer may well be left high and dry and having to take care of the Capital Gain Tax liability and endure all of the stress of dealing with the matter with the Revenue Commissioners and the possibility of getting published under the tax defaulters list or some other punitive sanction.

In the context of the foregoing, it is notable that the Revenue Commissioners are now contacting Solicitors, “to remind” them of the importance of advising clients that there are Capital Gains Tax implications in respect of gifts that have been returned to them (CAT Returns) under the gift tax head. Firstly, it is a sign of the times that the Revenue Commissioners are being proactive in making sure all tax heads are being collected efficiently, but secondly it is perhaps a form of indictment on the solicitors profession that the Revenue Commissioners believe that Solicitors have not been advising Disponer clients of their obligations under Capital Gains Tax or perhaps there has been a failure of Disponers to heed that advice.  Solicitors should need no reminding in respect of such matters.

fergal Business Law, Capital Taxes and Planning, Capital taxes & Planning, Cross-Border law, Property Law, Wills & Administration of Estates

In our Blog dated 31st October last titled “Employment Law Reforms in the Republic of Ireland”, we advised on major reforms to be introduced by the Minister for Jobs, Enterprise & Innovation Richard Bruton, one of which was the introduction of a single point of entry for all Employment Law Claims.
We have now seen the establishment of a single website to support information provision and the State’s services across the employment, equality, equal status and industrial relations areas as promised by Minister Bruton.

The website is now up and running as an interim measure whilst the websites of the Labour Relations Commission, National Employment Rights Authority, Employment Appeals Tribunal, the Labour Court and the Equality Tribunal will ultimately be replaced by a final single website for Workplace Relations – http://www.workplacerelations.ie/en/ .
The new website covers publications such as:

* Codes of Practice
* Complaints Guidelines
* Appeals & Enforcement Forms
* Information Guides and Booklets
* General Forms
* Annual Reports

The Employment Relations website also has information on a large range of employment rights and obligations.
This development has also resulted in the amalgamation of the complaint forms from the Labour Relations Commission, Equality Tribunal, National Employment Rights Authority, Employment Appeals Tribunal and the Labour Court into one, single Complaint Form, which must be used for all Employment complaints in the Republic of Ireland from 30 December 2011. This form can be accessed on this new website and, when completed, must be delivered to Workplace Relations Customer Services, Department of Jobs, Enterprise and Innovation, O’Brien Road, Carlow.

This is a welcome development where previously many different forms existed for the resolution of Employment Law disputes and Claimant ran the risk of submitting Claims to the wrong Tribunal.

bmorgan Employment Law, General

Thanks to Legal Island – www.legalisland.com for bringing the following to our attention :

The Labour Relations Agency (Code of Practice on Disciplinary and Grievance Procedures) (Jurisdictions) Order (Northern Ireland) 2011 is now available online.

This Order comes into operation on 1/1/12 and essentially provides for complaints under Regulation 51 of the Companies (Cross-Border Mergers) Regulations 2007 to be covered as a jurisdiction to which the new Labour Relations Agency Code of Practice on Discipline and Grievance will apply.

This amendment will enable an industrial tribunal to vary an award where there has been an unreasonable failure to comply with the Labour Relations Agency Code of Practice on Disciplinary and Grievance Procedures in respect of complaints brought under regulation 51 of the Companies (Cross-Border Mergers) Regulations 2007. Regulation 51 of the 2007 Regulations enables certain employees and their representatives to make a complaint to an industrial tribunal where they have been subject to detriment for exercising rights and entitlements in the context of a cross-border merger.

The Employment Act (Northern Ireland) 2011 Act inserted a provision into the Industrial relations (Northern Ireland) Order 1992 that permits a tribunal to vary an award by up to 50% where there has been an unreasonable failure to comply with good practices set out in the LRA Code of Practice on Disciplinary and Grievance Procedures. This was qualified by the insertion of a Schedule listing the tribunal jurisdictions to which the provision would apply. It is this Schedule – Schedule 4A of the 1992 Order – in which the omitted provision ought to have been included.
The Labour Relations Agency (Code of Practice on Disciplinary and Grievance Procedures) (Jurisdictions) Order (Northern Ireland) 2011 is now available online.

This Order comes into operation on 1/1/12 and essentially provides for complaints under Regulation 51 of the Companies (Cross-Border Mergers) Regulations 2007 to be covered as a jurisdiction to which the new Labour Relations Agency Code of Practice on Discipline and Grievance will apply.

This amendment will enable an industrial tribunal to vary an award where there has been an unreasonable failure to comply with the Labour Relations Agency Code of Practice on Disciplinary and Grievance Procedures in respect of complaints brought under regulation 51 of the Companies (Cross-Border Mergers) Regulations 2007. Regulation 51 of the 2007 Regulations enables certain employees and their representatives to make a complaint to an industrial tribunal where they have been subject to detriment for exercising rights and entitlements in the context of a cross-border merger.

The Employment Act (Northern Ireland) 2011 Act inserted a provision into the Industrial relations (Northern Ireland) Order 1992 that permits a tribunal to vary an award by up to 50% where there has been an unreasonable failure to comply with good practices set out in the LRA Code of Practice on Disciplinary and Grievance Procedures. This was qualified by the insertion of a Schedule listing the tribunal jurisdictions to which the provision would apply. It is this Schedule – Schedule 4A of the 1992 Order – in which the omitted provision ought to have been included.

http://bit.ly/tHf0vN

bmorgan Business Law, Cross-Border law, Employment Law, General

We have previously covered the history of the Employment Regulation Orders (EROs) created by the Joint Labour Committee (JLC) and Registered Employment Agreements operating in the Republic of Ireland on the Morgan McManus website at http://bit.ly/fc9Pld

We also pointed to the significance of the Decision of the High Court in John Grace Fried Chicken where Mr Justice Feeney ruled that the provisions of the 1946 and 1990 Industrial Relations Acts permitting JLCs to prepare EROs, which were incorporated into law by the Labour Court, were unconstitutional.

We stated that there were significant plans for reform in the area of both JLCs and REAs and that on 28 July 2011, the Minister for Jobs, Enterprise and Innovation, Richard Bruton, announced that legislation reforming JLCs and REAs, was to be introduced in Autumn 2011. The Bill introducing that legislation has now been published. More information is available on the website of the Department of Jobs, Enterprise and Innovation at http://bit.ly/u89OUX

Some of the proposed reforms of REAs are :
• Companies will be able to derogate from REAs in cases of financial difficulty. For this to occur, the Labour Court must satisfy itself that specified criteria have been met. Such derogation will be granted, for a limited period, in cases of proven economic difficulty, following consultation with the employees;
• Providing for use of civil remedies rather than an exclusive reliance on criminal sanctions;
• Establishing a time-bound process by which the terms of an Agreement may be varied by the Labour Court in certain circumstances without necessarily obtaining the consent of all parties to the Agreement. More flexible mechanisms have been introduced to enable REAs to be reviewed, challenged and cancelled, as appropriate;
• Defining more clearly what “substantially representative parties” means in the context of being entitled to make and to maintain such Agreements; and
• Clarifying circumstances when a Registered Employment Agreement may be cancelled where either the trade union(s) or employer parties have ceased to be substantially representative of workers or employers in the sector concerned and/or for other reasons related to substantial change in the sector concerned such that the continued registration of an Agreement would be undesirable.
While a lot of this remains to be clarified by Decisions of the Labour Court this development can only be good news for companies, covered by the REAs, who are struggling to survive and to companies from Northern Ireland who come into the Republic of Ireland market and often learn of these Agreements for the first time when they receive a visit from either a Trade Union or the National Employment Rights Authority (NERA).

The Departmental announcement records that, publishing the legislation, Minister Bruton said:
“From the beginning of this process I have been determined to strike a balance between protecting vulnerable workers and providing reforms that would make the systems more competitive and more flexible so as to allow for the creation of jobs in these sectors.
“Over the course of the drafting process, we managed to include changes to ensure that the new flexibilities would not be open to abuse. At this difficult time it is important to strike a balance between creating new opportunities for employment and providing protection for vulnerable workers”.

The writer would argue that in the current state of this economy the priority should be make the systems more competitive and more flexible so as to allow for the creation of jobs but one must await decisions of the Labour Court to see where priorities lie.

bmorgan Business Law, Cross-Border law, Employment Law, General