Capital Acquisitions Tax / Probate Query

[Stephen Brennan]

Good afternoon,

My Aunt left instructions in her Will "I direct my Executor to sell my property known as _ _ _ and to divide the net proceeds thereof after legal and estate agents fees as follows:- 50% to my nephew Stephen & 50% to my Niece Clare.

Because of Covid and a few other issues, it took the Executor 3 years to sell the property in which time the value had increased a lot from the date of probate plus the probate valuation may have been a bit low to start with.

Probate Valuation: €200,000
Sale Price: €300,000
Legal fees / Estate Agents Fees: €7,000

I'm fully aware Capital Gains Tax is calculated based on the €100,000 gain less expenses - €93,000 x 33% = €30,690
This leaves net proceeds to myself and my sister of €262,310 (€300,000 - €7,000 - €30,690)

The accountant dealing with the Estate says that Capital Acquisitions Tax is payable on the net proceeds €262,310 x 33% = €86,562
My own accountant says the Capital Acquisitions Tax is payable on the probate valuation €200,000 x 33% = €66,000

Can somebody please advise who is right as it's a big difference in tax.

 

[ClubMan]

My understanding is...

The estate pays CGT on the €100k.
You (and your sister) pay CAT/Inheritance Tax on what you individually receive (€131,155) less the group B tax free threshold (€32,500) = €98,655 x 33% = €32,556.15 assuming that you never previously received any group B inheritances.

CAT groups and group thresholds

This page explains thresholds, rates and aggregation rules for calculating Capital Acquisitions Tax

www.revenue.ie

(Note that you and your sister are separately and not jointly assessable for CAT on your individual inheritances).

 

[Gordon Gekko]

My understanding is that you pay CAT based on the Valuation Date, which in this case is when you got the €131,155, so that minus the Group B Threshold, taxed at 33%.

 

[Stephen Brennan]

Many thanks for the replies. It turns out you were both correct as my accountant has since realised he made a mistake.

 

[Bronte]

Is this not 2 separate tax events.

CAT on the 200K in the valuation year (less B threshold) and has to be paid in a tax return by a certain date in that year (something special about November being a cut off for the next year)

Then CGT on the gain on actual sale. In this case 3 years later.

If it's only payable on sale, in the 3rd year, than a low valuation is beneficial as you wouldn't have to get the money to pay CAT in year 1.

 

[Gordon Gekko]

Is this not 2 separate tax events.

CAT on the 200K in the valuation year (less B threshold) and has to be paid in a tax return by a certain date in that year (something special about November being a cut off for the next year)

Then CGT on the gain on actual sale. In this case 3 years later.

If it's only payable on sale, in the 3rd year, than a low valuation is beneficial as you wouldn't have to get the money to pay CAT in year 1.

No. If you re-read the facts, you’ll see the key point around the aunt’s wishes. The Estate sold the property and the beneficiaries got the proceeds.

 

[Bronte]

No. If you re-read the facts, you’ll see the key point around the aunt’s wishes. The Estate sold the property and the beneficiaries got the proceeds.

You mean this:

sell my property ............... to divide the net proceeds thereof after legal and estate agents fees

It's because they do not inherit on death, but on sale (after costs) . Whereas if they'd inherited directly it would be as I said?

 

[Gordon Gekko]

You mean this:

sell my property ............... to divide the net proceeds thereof after legal and estate agents fees

It's because they do not inherit on death, but on sale (after costs) . Whereas if they'd inherited directly it would be as I said?

Yes, it’s because the ‘valuation date’ is when they got the cash.

 

[Bronte]

Yes, it’s because the ‘valuation date’ is when they got the cash.

So you can avoid tax for a long time. In this case 3 years. As an executor I didn't have this issue on my parents estate as we were way below the thresholds, plus property didn't increase when the sale took some years (family issues and agreed delay).

But it is interesting as regards valuation date. Because if you've a low valuation then your CAT in that year would be low and if the following year you sold high you'd pay the same tax anyway but you'd have the time to get it together - I'm assuming for some it would be expensive to pay a lot in the year of valuation as is the case in the OP except for the special wording of the will. Some people might not have the money. Until the property was sold. Above it's 66K. for 2 people to get if they inherited in the will directly.