Estate sells house during administration, is there a possibility of double tax for beneficiaries?

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dubguy

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Apologies if this has been dealt with before. Assume a simple will with a single property going to a single beneficiary who is already over their CAT threshold. The estate has a valuation for the property at date of death of 100k. They sell it during administration for 150k. My understanding is that this creates a CGT liability to the estate of 50k, @ 33% = 16,500. The estate then distributes the remaining 133, 500 to the beneficiary. Assuming the beneficiary is already over threshold, they now face a CAT liability of 33% of this amount, 44,055, leaving 89,445.

This is in contrast to a situation where the estate passes the house itself over to the beneficiary, who then sells it for 150k. The beneficiary will face a CAT bill of 33% on 100k (33,000) and a CGT bill of 33% on the gain of 50,000 (16,500), leaving an amount of 100,500.

Based on those workings, you can see that the difference in tax is due to a double taxing of the net gain amount being passed to the beneficiary in the case of the estate selling the house - i.e. the gain of 50k leaves a tax paid amount of 33,500 which is being passed to the beneficiary but which they are again paying CAT tax of 33% on.

My question is - is there an allowance for this type of situation? Can the beneficiary claim an offset against their CAT liability of the CGT tax already paid by the estate when they sold the house?

Related to the general point - if the beneficiaries can't claim a relief for any CGT tax paid by the estate, why would the estate ever sell an asset before passing it on to the beneficiaries?
 
dubguy said:
This is in contrast to a situation where the estate passes the house itself over to the beneficiary, who then sells it for 150k. The beneficiary will face a CAT bill of 33% on 100k (33,000) and a CGT bill of 33% on the gain of 50,000 (16,500), leaving an amount of 100,500.
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Are you sure about this? If the estate passes the house to the beneficiary when it's worth €150k, I assume that the estate will have disposed of the house and so the estate will still be liable to CGT on the gain. Having said that, I did hear about some complex arrangement of passing the house to multiple beneficiaries to avoid the double tax hit, but I am not sure how it works.

But your overall point is correct. There is a double tax hit here. The best way to avoid it is to make sure that the value at the date of death fully reflects the value so that the gain is not artificially high. Also, the property should be sold as quickly as possible after the death so that the gain is lower.

Brendan
 
Unless the beneficiary is occupying the property it's the value at the date of the grant of probate that sets the value.

If there is only one beneficiary then the executors should transfer the property at that date. If they choose to sell the property themselves and it goes up in value then they have to deal with the consequences, the beneficiary should call on them to transfer the property.
 
That kind of gets to the nub of one side of the question - if the date of valuation is the date of gop then the gain is extinguished with the death and there is no possibility of a double hit as the estate would never pay any cgt.

But there definitely does seem to be a situation where the estate is liable for cgt if they sell the house during the administration. Is that correct? Am i correct in thinking that in an administration where there are a lot of beneficiaries it would be more normal for the executors to sell the house so as to have cash available for disbursement? In which case this must be happening quite a lot? If there is a potential double tax hit you'd think it would get more prominence in the various self help guides etc.
 
Just to add some results of my research so far. Re date of valuation, it appears that for a house that is being passed to a non occupier or spouse, in a typical "residue of my estate" type will, the date of valuation is indeed the date of grant of probate ([broken link removed]). But this is purely for CAT purposes and appears to be mainly of interest in relation to when CAT is due (as it helps with the situation where a person dies in August and the CAT could be due that Oct). This is confusing though, as my understanding of the CA24 submission is that you need to put down the valuation at date of death (and certainly that is what people usually ask for when they get a probate house valuation, the value at the date of death - right?) Here is a quote from the Revenue guide for the CA24 - Please furnish the gross market value at the date of death of immoveable assets, i.e. houses, apartments, lands etc.

It appears also that CGT is always based on the date of death valuation (which is probably why the CA24 asks for that valuation date).

But that seems to leave in limbo the time between death and grant of probate. If the estate sells the house on the day of GOP, then presumably that becomes an acceptable value for CAT. But any difference between that and the date of death valuation on the CA24 now becomes liable to CGT, payable by the estate. This general concept is discussed here (http://www.ohanlontax.ie/downloads/CGTforEstatesinaRisingPropertyMarket.pdf) but it doesn't get to the point of saying if the CGT paid by the estate can be offset against the CAT paid by the beneficiaries.

It generally looks like the way to approach this is to go Sale Agreed on any properties prior to submission of the CA24 and put that value down - this ensures that any capital gain is attributable to the deceased. That assumes (and it would appear to be a correct assumption) that the revenue isn't going to try and establish a notional value at date of death different from the submitted CA24 Sale Agreed value.

If that isn't done and an estate agent valuation is used on the CA24, then any subsequent sale by the executors would appear to raise a potential CGT liability on the estate, which comes back to my main question - can this be offset against the CAT due by the beneficiaries or is that gain effectively taxed twice.
 
OK I think I have it. Generally, the revenue does allow CGT to be offset against CAT arising from the same event. However they don't see the sale of assets during the administration of an estate as being the same event as the CAT on the inheritance. Here is their note (from http://www.revenue.ie/en/tax/cat/guide/credit.html) -


Capital Gains Tax arising on the disposal of assets in the course of administration of an estate does not arise on the actual inheritance, which is the event that gives rise to Capital Acquisitions Tax. Therefore, a credit for Capital Gains Tax is not given. The amount of Capital Gains tax paid may however be deducted as a liability in arriving at the taxable value of the inheritance.

That seems pretty definitive then, you do end up getting hit twice for any gains taken during the administration. Actually it is not quite twice as you can deduct the CGT paid from the inheritance, but it is still a fairly substantial hit. So make sure your CA24 value is as close to sales value as possible or if possible pass the whole house over to the beneficiary (in which case they sort out their own CGT if they ever sell it).
 
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