Sections 221 and 222 of the Finance Act, 2001
Sections 221 and 222 of the Finance Act, 2001 (no 7 of 2001) have widened the category of ‘child’ for the purposes of computing capital acquisitions tax. A child for this purpose now includes:
a) A step-child (Capital Acquisitions Tax Act, 1976, section 2(1))
b) A child adopted under the Adoption Acts, 1952–1998 or under a foreign adoption which is deemed to be a valid adoption within the meaning of the Adoption Act, 1991, as amended by the Adoption Act, 1998 (Finance Act, 1992, section 223(1))
c) A foster child (Finance Act, 2001, section 221), and
d) A natural (adopted) child (Finance Act, 2001, section 222).
The extended category of ‘child’ for the purposes of calculating capital acquisitions tax includes a foster child and a natural (adopted) child. That said, the definition of a ‘child’ for the purposes of the capital acquisitions tax legislation remains unaffected by the foregoing development. The reliefs included in the Finance Act, 2001 only apply to foster children and natural children adopted by others in terms of benefits received from the disponer, not for any other purpose.
A foster child is now classified as a child of the foster parents in limited circumstances for the calculation of capital acquisitions tax. Section 221 of the Finance Act, 2001 adds a new section 59D to the Capital Acquisitions Tax Act, 1976 by providing that a foster child (successor) will bear to the deceased foster parent (disponer), in relation to a gift or inheritance taken on or after 6 December 2000, the relationship of a ‘child’ if the following conditions are met:
a) The foster child must have been placed in the foster care of the deceased foster parent under the Child Care (Placement of Children in Foster Care) Regulations 1995 (SI no 260 of 1995), or
b) The foster child must have resided with the deceased foster parent for a period of five years before he or she reached 18 years (‘the appropriate period’) and must have been under the care of and maintained by the foster parent at the foster parent’s own expense.*
If these conditions are proven, the foster child will be deemed to bear to the foster parent the relationship of a child for the purpose of computing the tax payable on any gift or inheritance from the deceased foster parent, which relationship now has a group 1 threshold of £316,800. An independent witness must corroborate the foster child’s claim for group 1 status.
Identical rules apply in respect of the placement of children with relatives under the Child Care (Placement of Children with Relatives) Regulations 1995 (SI no 261 of 1995).
By virtue of section 222 of the Finance Act, 2001, an adopted child bears to a deceased natural parent, in relation to a gift or inheritance taken on or after 30 March 2001, the relationship of a ‘child’. Consequently, a natural child has now a group 1 threshold of £316,800 in respect of any gift or inheritance from his or her adoptive parent and his or her natural parent.
Practitioners should note that while section 14(d) of the Interpretation Bill, 2000 (no 53 of 2000) has redefined ‘adopted child’, this is unlikely to have any impact on this section.
* The interpretation of this section will be a matter for the capital taxes section and we would welcome any comments from the profession about the application of this relief.