Assets are valued on date of death

Q:Q I inherited my parents' home in the autumn of 2007. I paid the appropriate inheritance tax (CAT). The tax was based on an estimated value of €4,000,000. The house has been on the market since, remains unsold, and is unlikely to realise more than €1,100,000. When the house is eventually sold will it be possible to claim back the difference between the tax due on the realised value and the tax paid on the inflated estimated value? Mr P.M., Dublin

AThe rules relating to capital acquisitions tax are quite precise. Assets tend to be valued as of the date of death and any capital acquisitions tax/inheritance tax (CAT) due is expected to be paid within four months of the valuation date – normally the date when probate is granted.

There is no provision in the tax code of which I am aware to allow you return to the well and revise the taxable value of an inheritance subsequently. You refer to the “inflated estimated value”. Unfortunately, with the benefit of hindsight, we are now aware that valuations in 2007 were grossly inflated. However, at the time that valuation was, I am sure, valid in the context of the market that existed.

The only possibility of relief for you is against capital gains tax. Since your inheritance, this property has essentially been seen as an investment asset and the deemed purchase price would be the valuation on which you were assessed for CAT. If you did sell at a loss of close to €3 million on that value you could set that loss against gains on other asset sales made this year.

If, at the end of that exercise, a lost remained, as it most likely would, that can be carried forward for offsetting against future capital gains until it is fully used up.

Would my deposit be safe?

Q I am an old lady who has just sold her house. I am going to buy an apartment and will have about €200,000 to put by for when I will be going into a retirement home. I have put this money into one of the main banks with which I always dealt. If the bank was nationalised, would my deposit be safe? If not, where could I put it?

I realise I will only be covered for €100,000 if the Government guarantee runs out on October 1st, 2010.

Ms A.R., Dublin

AYou are well informed on the status of cover for your deposit. You are also acting sensibly in putting your funds on deposit given that you may need them in the short to medium term and do not have the luxury of a long investment term in which to recover any losses.

The good news is that nationalisation in itself will not impact on your deposit. Nationalisation occurs when the State effectively assumes ownership of the bank from its shareholders. Those shareholders – as in Anglo Irish bank – clearly do lose out and bondholders – investors who have lent money to the bank – can, on occasion be exposed to losses. However, depositors are customers of the bank in these circumstances and their money remains safe.

Where your money would be at risk is if the bank were to collapse rather than be nationalised. In that case, you would become a creditor of the bank in the same way as bondholders, suppliers, the tax authorities.

Of course, in Ireland, we have some comfort on this issue – the State guarantee. Announced at the end of September last year, this means the Government guarantees that all deposits held in the seven Irish banks covered by the guarantee are safe. These are: AIB, Bank of Ireland, Anglo Irish Bank, Permanent TSB, EBS Building Society, Irish Nationwide and Postbank. Even better from your point of view is that that guarantee has now been extended. Where it originally ran only until September 2010, the Minister for Finance Brian Lenihan announced in the Dáil this week that it was being extended to run five years – i.e. to September 2013. The only event in which your money could be at risk under the guarantee is if the State itself was to default on its borrowings. In that, albeit very unlikely event, all bets are off.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com.

This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. No personal correspondence will be entered into.