Capital Acquisitions Tax, Capital Gains Tax & Death

[The new guru]

Hi All,

Perhaps you can help me as I have been looking around the net to find an answer but I haven't.

What I am trying to find out is how much a tax advisor (not an accountant) is likely to charge me for the problem I set out below as my solicitor says he needs to engage a tax consultant.

Basically, what happened is that my sister died about 10 years ago without a will. She owned land and had no other relatives other than sisters and brothers so the land ultimately was to be divided equally between us.

In 2002 probate and a certificate of discharge from CAT issued based on date of death values. Now, in 2007 the land was sold (I was still acting as a "personal representative" according to my solicitor) for a significantly far greater sum than date of death values.

The problem my solicitor has is that he is concerned about whether Revenue can go back and challenge date of death values and re-assess CAT based on sale values instead of date of death values even though there is 10 years between each event. The sale price was around €700K more than date of death values.

The solicitor is going to seek advice from a tax consultant but ultimately I will be paying the fee out of whatever sale proceeds remain from the sale last year so I was wondering what level of fee I can expect to be told is being charged by the tax consultant.

Does anyone have any idea on this fee question? I am told the tax thing is complex so I am not looking for an answer to that here.

P.S. The reason it took so long for the property to be sold is that one of my sisters was mentally incompotent to give legal consent to it's sale and as such it could only be sold following her death. So, does her death mean there is a second inheritance event in respect of her share of the land?

 

[The new guru]

Hi watersprite. thanks for the heads up. However, what I was hoping to find out though was a final cost. For example, am I looking at someone who is going to price the job purely based on the amount of tax at stake? (the difference between the date of death value and the sale price by the tax rate would, I assume, be the tax at stake) and therefore give a flat figure. You know, like a builder might say 3000 for a certain length of wall. If yes, would a figure of say 3000 be excessive. The solicitor suggested it could be as high as that given there's alot at stake.

You should call a number of recommended tax consultants and get a quote/estimate. They can charge anything from €150-€250 per hour and will be able to give you an estimate of the number of hours this issue is likley to take. That's the only way I can see that you are going to get a ballpark figure. You are unlikely to be charged anything in order to get such a quote.

Sprite

 

[The new guru]

Forgive my ignorance on this matter but we are dealing with facts here. My sister died in 1997, the land was worth X on that date. In 2007 the land was finally sold while the estate was still being concluded for a far greater sum. These are historic events that cannot be changed so I am assuming that what the solicitor is doing is getting advice on what tax law says about those facts? I mean I am assuming there are laws dealing with these things. That's what the budgets are for, no?

How would an auctioneer be familiar with such laws? Why do you believe an auctioneer is best to be talking to about tax as opposed to a tax consultant?

The whole question sounds to me to be a bit tenuous - anyone who would argue that there was not massive price appreciation in Irish land between 1998 and 2007 clearly knows nothing about the Irish property market. It sounds like you need to talk to an auctioneer & valuer, not a tax consultant.

If you're concerned about fees, get estimates beforehand. Is €500, €600 €1,000 or €x,000 worth it for peace of mind, in the context of the monies involved? You need to decide this yourself.

Do bear in mind, however, that no matter who you get or how much you pay, ultimately you will merely get an opinion. Others, including the Revenue may or may not agree with that opinion.

By the way, why are you relying on your solicitor for tax advice in the first instance? I would be alarmed that you do not seem to have got independent tax advise at the time of the 2002 valuation. If your solicitor did the tax work for you without knowing properly what they were doing, you now need a new solicitor.

 

[The new guru]

The reason it took so long for the property to be sold is that one of my sisters was mentally incompotent to give legal consent to it's sale and as such it could only be sold following her death. So, does her death mean there is a second inheritance event in respect of her share of the land?

 

[jpd]

I believe that the increase in the land value between the date of valuation and the date of sale would be liable to Capital Gains Tax at 20% and that the Personal Representative is liable to pay this before distributing the residual value of the estate.

 

[The new guru]

What about the question the solicitor is looking to get answered, i.e. can Revenue assess Inheritance tax based on the higher value of sale rather than the value at death?

I believe that the increase in the land value between the date of valuation and the date of sale would be liable to Capital Gains Tax at 20% and that the Personal Representative is liable to pay this before distributing the residual value of the estate.

 

[4th estate]

Is this an Inheritance Tax issue, or a Capital Gains Tax one? CGT I think.

The OP says that Probate was taken out in 2002, and a certificate of discharge from CAT was issued around then also.

Now that means that Revenue have accepted the values for tax but most likely this was conditional on -

A. if the property is sold within 3 years of date of death, they reserve the right to reopen the question of value.
B if Agricultural relief was claimed, the relief can be clawed back where the sale occurs within 6 years of date of death.

Both of these conditional dates have now passed.

see Certificate of Discharge here
[broken link removed]

So I really don't see the problem here (for CAT anyway). The estate was administered, the relevant returns have been made, a certificate of discharge from CAT has issued, and 3 (or 6 for Ag relief) have elapsed. The Revenue cannot reopen this case at this stage for inheritance tax. If they could, that would mean that any inheritance at any point back in the mists of time could be questioned. I don't believe this is the case.

The problem the OP has is in relation to the length of time for the property to be sold. That is not a problem for Inheritance Tax. That will involve CGT. And possibly Income Tax if for example the land was let in the intervening period.

CGT will apply to the gain made since the date of death. The date of death value is the base date and the gain between this value and the sale price (with some indexation) will be subject to CGT.

Regarding the death of your other sister well, her estate is another inheritance, but it depends on who the beneficiaries are. I suspect given that she was not compos mentis, her estate will be divided on intestacy. This is a separate matter to the estate of the first sister.

So Guru, can you give us any other information on this? It looks like there is something else happening here, but it should not be Inheritance Tax.

Apologies if I have missed something important in the posts but I really cannot see Inheritance tax on the sale being an issue, given that the estate has already been administered and Revenue clearance has issued.

 

[Mini3277]

Is this an Inheritance Tax issue, or a Capital Gains Tax one? CGT I think.

The OP says that Probate was taken out in 2002, and a certificate of discharge from CAT was issued around then also.

Now that means that Revenue have accepted the values for tax but most likely this was conditional on -

A. if the property is sold within 3 years of date of death, they reserve the right to reopen the question of value.
B if Agricultural relief was claimed, the relief can be clawed back where the sale occurs within 6 years of date of death.

Both of these conditional dates have now passed.

see Certificate of Discharge here
[broken link removed]

So I really don't see the problem here (for CAT anyway). The estate was administered, the relevant returns have been made, a certificate of discharge from CAT has issued, and 3 (or 6 for Ag relief) have elapsed. The Revenue cannot reopen this case at this stage for inheritance tax. If they could, that would mean that any inheritance at any point back in the mists of time could be questioned. I don't believe this is the case.

The problem the OP has is in relation to the length of time for the property to be sold. That is not a problem for Inheritance Tax. That will involve CGT. And possibly Income Tax if for example the land was let in the intervening period.

CGT will apply to the gain made since the date of death. The date of death value is the base date and the gain between this value and the sale price (with some indexation) will be subject to CGT.

Regarding the death of your other sister well, her estate is another inheritance, but it depends on who the beneficiaries are. I suspect given that she was not compos mentis, her estate will be divided on intestacy. This is a separate matter to the estate of the first sister.

So Guru, can you give us any other information on this? It looks like there is something else happening here, but it should not be Inheritance Tax.

Apologies if I have missed something important in the posts but I really cannot see Inheritance tax on the sale being an issue, given that the estate has already been administered and Revenue clearance has issued.

So 4th Estate, you are of the opinion that Revenue cannot query the return due to the fact that the 3 or 6 year rule has now passed??

So if the wrong valuation was used and Revenue became aware of this now there's nothing they could do about it? I'd love to see the legislation to back your opinion up!

Incidentally I recently came across a case whereby an individual was not charging RCT for a number of years and it turned out that he/she should have been charging RCT. Revenue went back 8 years. The legislation states that if Revenue become aware of a situation they can go back as far as they like.

Without knowing a great deal about the case I presume your solicitor is wondering when did you obtain an absolute interest in the real property for the purpose of the valuation. Other points he might be looking at is whether there is a Pur Autre Vie Interest, I'd doubt based on the limited information provided that such a situation is involved.

I would imagine €300 per hour would be fairly average for a Tax partner who worked in a Big 4 firm and has now moved to a top twenty practice.

I would imagine €300 per hour would be quite expensive for someone who is working independently, naturally they wouldn't have the same overheads etc...

Your initial question would be can Revenue reassess the market value of the real property. This in itself should be very inexpensive. If it turns out that you do have an issue then you're going to start building up fees.

Oh once last thing, the prices I've mentioned are net of VAT i.e. before VAT and are only my opinion.

 

[ubiquitous]

Forgive my ignorance on this matter but we are dealing with facts here. My sister died in 1997, the land was worth X on that date. In 2007 the land was finally sold while the estate was still being concluded for a far greater sum. These are historic events that cannot be changed so I am assuming that what the solicitor is doing is getting advice on what tax law says about those facts? I mean I am assuming there are laws dealing with these things. That's what the budgets are for, no?

How would an auctioneer be familiar with such laws? Why do you believe an auctioneer is best to be talking to about tax as opposed to a tax consultant?

My point is that this isn't a matter of law. It is well known that Irish agricultural land rocketed in price typically by rates of 300%-500% in the decade between 1997 and 2007. Every site, every field and every farm that was valued for Revenue purposes in 1997 would have appreciated sharply in price in the intervening ten years. You need an auctioneer in order to establish whether the valuation used as at 1997 was reasonable and fair, in the context of 1997 market values. The fact that the land was sold ten years later for a different price is probably irrelevant.

Of course its your call...

 

[The new guru]

What is a pur autrie vie interest? Can you give me a specific, practical example to explain it in real terms?

Also, would there be any tax consultants who price based on the risk they perceive to be in the case? By the sounds of it this is a risky enough case for any tax consultant to advise on so why should they not price based on risk?

Also, as I say the guy engaged is ex big 4 and ex manager in top 20 so would 300, regardless of overheads because surely that experience is good?) for that profile be reasonable?

So 4th Estate, you are of the opinion that Revenue cannot query the return due to the fact that the 3 or 6 year rule has now passed??

So if the wrong valuation was used and Revenue became aware of this now there's nothing they could do about it? I'd love to see the legislation to back your opinion up!

Incidentally I recently came across a case whereby an individual was not charging RCT for a number of years and it turned out that he/she should have been charging RCT. Revenue went back 8 years. The legislation states that if Revenue become aware of a situation they can go back as far as they like.

Without knowing a great deal about the case I presume your solicitor is wondering when did you obtain an absolute interest in the real property for the purpose of the valuation. Other points he might be looking at is whether there is a Pur Autre Vie Interest, I'd doubt based on the limited information provided that such a situation is involved.

I would imagine €300 per hour would be fairly average for a Tax partner who worked in a Big 4 firm and has now moved to a top twenty practice.

I would imagine €300 per hour would be quite expensive for someone who is working independently, naturally they wouldn't have the same overheads etc...

Your initial question would be can Revenue reassess the market value of the real property. This in itself should be very inexpensive. If it turns out that you do have an issue then you're going to start building up fees.

Oh once last thing, the prices I've mentioned are net of VAT i.e. before VAT and are only my opinion.

 

[4th estate]

Mini 3277, I'm sorry that you have a problem with my messages. I don't mind anyone picking over inaccurate information, but your tone is a bit.....you know! No one knows who or what anyone is here, and we are genuinely trying to help. Sometimes we get it wrong, but it is not intended as malicious information. Anyway...

ONCE AGAIN... Relevant Contracts Tax is one thing, but CAT is quite another. In the RCT issue you mention the payments had not been made -FACT. In Guru's case any further intervention by Revenue would be subjective... I believe Revenue can go back any time in the case of fraud or neglect, but otherwise 6 years I think.

Consider this, the Revenue look at the CGT return and say, "oh Goodo, I will get them for undervalue in 1997" But wait a minute, that means that I will get a lot less CGT now, as the lower the value at date of death, the higher the CGT. Swings and roundabouts. Everyone is well aware of the volatility of the market in recent years, hence the absolutely unbelievable increase in CGT, whereas CAT increased more steadily.

If the OP believes that the value was fair and reasonable at date of death, then, I would file the CGT return, get the CG50a, and get on with it. If there is an audit, I would appeal on the basis of market volatility in a very short time. CGT or CAT? I don't think Revnue would mind either way.

 

[ubiquitous]

Consider this, the Revenue look at the CGT return and say, "oh Goodo, I will get them for undervalue in 1997" But wait a minute, that means that I will get a lot less CGT now, as the lower the value at date of death, the higher the CGT. Swings and roundabouts. Everyone is well aware of the volatility of the market in recent years, hence the absolutely unbelievable increase in CGT, whereas CAT increased more steadily.

Regarding the second paragraph: I've little or no idea what you are saying, please excuse my utter ignorance.

I'll try to explain, using simplified figures.

A property is inherited from an uncle in 2002 & valued at €200,000. For Inheritance tax purposes, the first €50,000 is exempt in the hands of the beneficiary and he pays 20% on the excess, ie €150,000 @ 20% = €30,000

The beneficiary sells the property for €800,000 in 2007. He pays CGT at 20% of the gain within the period, ie €800,000-€200,000=€600,000@20%= €120,000.

His total tax bill on the inheritance and sale is €30,000 + €120,000 = €150,000.

If the Revenue decide to challenge the 2002 valuation, and increase it to €400,000, the guy's Inheritance tax bill is now €400,000 - €50,000 = €350,000 @ 20% = €70,000, ie an extra €40,000.

So far so good.

However when he sells for €800,000 in 2007, his CGT is now calculated as the sale price, €800,000 minus the revised valuation €400,000 = €400,000 x 20% = €80,000.

His total bill on the inheritance and sale is now €70,000 + €80,000 = €150,000.

Therefore the Revenue have not gained by challenging the valuation.

This is another reason why I can't understand the "tax advice" given by the OP's solicitor.