Working out the tax bill on a long-delayed inheritance
Q&A: Dominic Coyle
Ultimately, the valuation date is the date when the value of the property and assets is established.
We are in the process of concluding an estate. The beneficiaries are five siblings. One of these is not an issue: the remaining four inherit the proceeds of the sale of the disponer’s home. The will stipulated that it be sold and the proceeds after costs divided between the four.
For the purposes of applying for probate it was valued at €200,000. This was two years ago. There were delays and frustrations around getting probate. The property is now about to be sold for €275,000. It has been suggested to us that the difference €75,000 will be subject to CAT? Is this true and can anything be done to mitigate the liability?
Mr D.C., email
As you are discovering, executing even what appears to be a relatively straightforward estate can come with plenty of delays and frustrations. And it is important to get it right. The executor can be held legally liable for omissions and errors.
Any tax charge is determined by the amount declared at what is called the “valuation date”. But, confusingly, this date can be different for various elements of an inheritance – even when they are received by the same person.
According to Revenue, the valuation date is the earliest of the following
(i) The date on which a personal representative is entitled to retain assets for the successor;
(ii) The date when the asset so retained;
(iii) The date of delivery, payment etc to the successor.
Which is fine, except that it’s still a judgment call. The Revenue does add, helpfully: “It is an essential feature of a retainer that the legatee should be entitled either to demand payment or delivery, or, at all events, have the beneficial enjoyment of the legacy.”
The importance of the valuation date, among other things, is that it is the date when the clock starts ticking on the time available to file a return with the Revenue, and payment of any CAT (capital acquisitions tax, or inheritance tax).
The Revenue suggest, in places, that the default position is that the valuation is the date of death; elsewhere, it is seen as the date probate is granted.
Ultimately, the valuation date is the date when the value of the property and assets is established. In your case, it could be argued that, given the delays, the correct figure is the current worth of the property, not the figure originally supplied of probate – as, under the Revenue clarification, the four siblings would not be able to demand payment, or beneficial enjoyment, of it until now.
While the valuation date determines what is liable under CAT, any increase in value thereafter falls under the CGT (capital gains tax) regime.
While those tax rates are the same, which tax applies can be relevant as individuals have exemption thresholds (up to €310,000 for a child inheriting from parents) under CAT that are considerably higher than the €1,270 annual exemption available under CGT.
If they are over the CAT threshold, which tax heading the €75,000 comes under is pretty academic and, no, there is no way mitigate that liability – unless, under CGT, you have historic capital losses to offset against it or can crystallise such losses on other assets, for instance by selling bank shares that are worth just a fraction of what they might have been when bought.
While I’m back on the subject of wills, I should just correct one clumsy error in the piece I wrote last week about what’s involved in writing a will. In relation to witnessing a will, the important thing is that both witnesses sign the will at the same time and in the presence of the person making the will. They cannot do so separately.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice