Overview

A question arises about liability to capital gains tax for solicitors when they are assisting non-resident beneficiaries with respect to voluntary transfers of land. We might be familiar with S 45AA of the Capital Acquisitions Tax Consolidation Act 2003 (CATCA). Essentially this is the section that imposes secondary liability for CAT for solicitors who are acting for non-resident beneficiaries. However, there is an important qualification under this regime, being the concept of control. A solicitor will have the secondary liability “only to the extent that that person … [has] control of the property” (cf S45AA (3)). So if the solicitor is not in control of the funds, then there is no exposure for CAT in relation to non-resident beneficiaries.

Not so with respect to the capital gains tax regime. This is set out in s. 1034 of the Taxes Consolidation Act 1997 (TCA). This is the section (read in conjunction with s. 1043) that deals with secondary liability for solicitors in relation to capital gain tax liabilities for non-resident beneficiaries. However, importantly under this regime capital gains tax can arise regardless of whether the solicitor

“has the receipt of the profits or gains or not” (see section 1034).

So a solicitor can be liable for CGT, even if he/she never had the funds in his/her client account. This is in stark contrast to the CAT regime. This should lead solicitors to be very wary about assisting clients with respect to the voluntary transfer of land between two non-residents which would give rise to a charge to CGT. In those cases, the solicitor should not become involved until such a time as the solicitor has been placed in funds with respect to any potential capital gains tax that could arise.

As one is aware the trigger event for a liability to capital gains tax is a disposal and normally the disposal is the execution of a transfer deed. Therefore, prior to the execution of the deed the solicitor should be placed in funds for the capital gains. Further, if there is any query about the amount or extent of the gain, then the solicitor should obtain the maximum amount possible of the capital gain. Further, the solicitor should obtain an indemnity from the client with respect of any secondary liability.

Reflection

Being involved in a voluntary transfer of land can appear to be relatively innocuous and straightforward. However, a solicitor could quite unwarily allow themselves to be embroiled in a tax liability very quickly and particularly for non-residents if they were not alive to the issue. It is unclear why there is a distinction between CAT liability and CGT liability and why secondary liability will be imposed on solicitors even if they never have access to sale proceeds.

Hope this helps and if you have any queries on tax matters, will drafting or CAT issues please do not hesitate to reach out to me on the website.