In Dominic Coyle’s article, “Selling shares to avoid capital gains tax after you die is mistaken” in the Tuesday, July 6 edition of The Irish Times, he responds to an estate planning query as follows: “when your father dies, any shares (or other assets) he owns will form part of the estate and they will be valued at whatever they are worth at that point. What he paid for them will be irrelevant at that point...to the estate and to anyone inheriting.” Am I wrong in thinking that while that is true of shares and property, it is not true of all other assets, as he parenthetically suggests, since unit-linked funds and ETFs, which are taxed on a gross roll-up basis, are subject to a 41% exit tax on the death of the owner, which is deducted from his or her estate before any additional capital acquisitions tax that may apply is imposed on the beneficiaries?
So, for example, if someone were to leave an investment property (or shares of stock) for which they paid €250,000, but which had since doubled in value to €500,000 to their child, then—assuming that they inherited nothing else—the child would owe capital acquisitions tax of (€500,000 – €335,000) x 33% = €54,450, and would receive a net inheritance of €500,000 – €54,450 = €445,550.
But if someone were to leave their child ETF shares for which they paid €250,000 less than eight years ago, so that no deemed disposal tax had been paid, but which had since doubled in value to €500,000, then the estate would owe exit tax of (€500,000 – €250,000) x 41% = €102,500, and—again, if they inherited nothing else—the child would receive a gross inheritance of €500,000 – €102,500 = €397,500, on which they would then owe capital acquisitions tax of (€397,500 – €335,000) x 33% = €20,625, and so would receive a net inheritance of €397,500 – €20,625 = €376,875, or €68,675 less than in the first case.
However, some online sources appear to suggest that exit tax paid on UCITS ETFs can be offset as a credit against any capital acquisitions tax that may be owed by the beneficiary or beneficiaries of an estate, so that in the second case above, where the exit tax is greater than the CAT, there would effectively be no additional CAT owed after the exit tax had been paid by the estate, and the child would receive a higher net inheritance of €397,500, albeit still €48,050 less than in the first case.
Can anyone confirm—by way of reference to relevant documentation from Revenue—whether this is correct? Revenue’s recent guidance on ETF taxation has been confusing (to me at least), and the tax and duty manual on exchange-traded funds in the Tax Professionals section of their website is “currently unavailable as it is being updated.”
So, for example, if someone were to leave an investment property (or shares of stock) for which they paid €250,000, but which had since doubled in value to €500,000 to their child, then—assuming that they inherited nothing else—the child would owe capital acquisitions tax of (€500,000 – €335,000) x 33% = €54,450, and would receive a net inheritance of €500,000 – €54,450 = €445,550.
But if someone were to leave their child ETF shares for which they paid €250,000 less than eight years ago, so that no deemed disposal tax had been paid, but which had since doubled in value to €500,000, then the estate would owe exit tax of (€500,000 – €250,000) x 41% = €102,500, and—again, if they inherited nothing else—the child would receive a gross inheritance of €500,000 – €102,500 = €397,500, on which they would then owe capital acquisitions tax of (€397,500 – €335,000) x 33% = €20,625, and so would receive a net inheritance of €397,500 – €20,625 = €376,875, or €68,675 less than in the first case.
However, some online sources appear to suggest that exit tax paid on UCITS ETFs can be offset as a credit against any capital acquisitions tax that may be owed by the beneficiary or beneficiaries of an estate, so that in the second case above, where the exit tax is greater than the CAT, there would effectively be no additional CAT owed after the exit tax had been paid by the estate, and the child would receive a higher net inheritance of €397,500, albeit still €48,050 less than in the first case.
Can anyone confirm—by way of reference to relevant documentation from Revenue—whether this is correct? Revenue’s recent guidance on ETF taxation has been confusing (to me at least), and the tax and duty manual on exchange-traded funds in the Tax Professionals section of their website is “currently unavailable as it is being updated.”