Collective Affidavit/CAT - Valuation Anomaly

My siblings and I are about to sell our late parents Dublin property and our solicitor has advised us that we will be liable for CAT.

It is a flat which was valued last year for the Irish Probate at €225,000 but it is due to complete at a sale price of €370,000 thus making a gain of €145,000 which would subject to CAT at 33 per cent.

I am aware that we can adjust the value of the estate by submission of a Corrective Affidavit, but it has been suggested that the Irish Revenue service may say 'we'll take your first answer' and still apply CAT.

It has come to us as something of a shock that we would have any tax liability at all. We are five beneficiaries giving us a cumulative threshold of over 1,125,000 euro

So, to be taxed nearly €50,000 on an estate that has yielded just €370,000 seems more than perverse.

I'd be very grateful if anyone can share their knowledge of these matters.

SW

It's not CAT that's due, it's CGT.

You each took a 1/5 share in the property at a value of €45,000 - that's effectively its cost to each of you for CGT purposes. If you had a CAT liability it would be on this amount, as it's a tax on your acquisition of the property.

You are now each going to get €74,000 on the disposal of the property.

So each of you will have a gain of €29,000 (less whatever expenses on sale are deductible). That is what CGT will apply to, the gain you've each realised during your period of ownership.

If there was plenty of threshold left and none of you were ever likely to receive a benefit from a parent again, then it wasn't the sharpest of minds that completed the paperwork, since they could have safely used a higher valuation to avoid exactly this situation from materialising.

Unless the €225k valuation at the time can be shown to be manifestly unreasonable, you might find Revenue sticky on it.

I quote from the Revenue web-site in connection with the need for a Corrective Affidavit, CA26 -

"If at any time it shall appear that any material error or omission was made in an affidavit or account referred to in this section (48), the persons liable to deliver an affidavit or account shall be liable to deliver an additional affidavit or an additional account, correcting the error or omission"

and

"Fluctuations in the property market are not considered to be material errors."

So it appears you cannot submit a CA26 in order to adjust for "... Fluctuations in the property market... " See more here - http://www.revenue.ie/en/tax/cat/leaflets/ca26-corrective-affidavit.html

but on the surface it seems your collective Indexed Thresholds for Capital Acquisitions Tax would rule out the possibility of CAT. I think your solicitor is wrong, but IANAL.

PatMacG said:

but on the surface it seems your collective Indexed Thresholds for Capital Acquisitions Tax would rule out the possibility of CAT. I think your solicitor is wrong, but IANAL.

Click to expand...

Pat ... did you mean 'rule out the possibility of CGT'?

StephenWhite said:

Pat ... did you mean 'rule out the possibility of CGT'?

Click to expand...

No! He means CAT - as you've already said, you and your siblings had a combined threshold of over €1.5m, and collectively inherited much less than that.

Maybe I wasn't clear in my first reply - these are two DIFFERENT taxes:

CAT = capital acquisitions tax - tax on a gift / inheritance - due when you receive an asset. Clearly not due in your case.

CGT = capital gains tax - tax on the sale of an asset - due when you sell an asset. Clearly due in your case (unless you can convince revenue that €225k was definitely way off the mark at day one).

It all depends on the circumstances of the original property valuation and subsequent sale. A 64% rise in the value of the property within a year is not easily explainable in the context of the present property market, but there may be factors here (eg competitive bidding for the property) that we're not aware of, so it's difficult to comment definitively.

The OP may consider getting specialist tax advice here, on the off-chance that it might yield a big tax saving.

T McGibney said:

It all depends on the circumstances of the property valuation and subsequent sale. A 64% rise in the value of the property within a year is not easily explainable in the context of the present property market, but there may be factors here (eg competitive bidding for the property) that we're not aware of, so it's difficult to comment definitively.

The OP may consider getting specialist tax advice here, on the off-chance that it might yield a big tax saving.

Click to expand...

+1

However if the valuation of €225k was based on a valuation provided by a competent professional retained by the executors, they might find it hard to convince Revenue to budge.

Makes me wonder actually, did any / many people who inherited during the crash, go extra low on valuations to avoid paying CAT (at 20%) and will ultimately end up stiffing themselves on CGT at a much higher rate...

Sincere thanks for the replies so far ...

Mandelbrot ... Yes, I understand your clarification. I now understand that CAT is what we know in the UK (where we are domiciled) as IHT, or inheritance tax, and before that Death Duties.

Pat McG ... You've saved me a lot of bother by isolating that sentence for me re fluctuation of property values. I didn't assume that this dilemma could be so easily resolved as that but one is clutching at any such straws as might possibly be grasped.

I have two cousins that are barristers at law in Ireland and while neither handles tax cases it might be worth my while asking if they are acquainted with any legal tax hounds that could provide a quick 'forget it' or 'try this' opinion.

Loath as I am to take this on the chin we may well end up doing that, otherwise we are likely to interrupt the sale of the property.

I have never stinted on my dues and taxes but I can't help but feel that we are being a bit screwed over here.

I keep thinking of the imaginary five Murphy Children who sold their parents lovely house across the way, the sale price exactly matching the threshold.

Maximum allowed gain and no further liability. Life kinda sucks sometimes.


** Note to Mods - I've mis titled this thread as 'Collective Affidavit ...' and would be grateful if it can be amended to read 'Corrective Afidavit ...'