How to calculate inheritance tax due?

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2blacklines

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Hi folks,

Bit of a weird one here. My grandmother passed away and left her house to my mother and her sister. They came to an agreement that she would buy her sister out for a valuation over the probate valuation (the probate value was already inflated, she just took advantage but that's another story), and she also incurred legal fees and stamp duty costs relating to the purchase of 50% of the property. The title of the property transferred directly from the estate into her name. There was also some small cash inherited but for the purposes of this I am ignoring that... This property is in a foreign country so the sisters CAT liability etc is irrelevant.

As I see it from the Revenue site there are 2 ways of calculating the CAT due

Method 1: View only the inherited half
Property value: €750k
Inherited half i.e. taxable value: €375k
Relief: €335k
Net taxable value: €40k so tax due €13,200

Method 2: Consider the consideration paid to her sister as well as it was an "instrument for transfer"
Property value: €750k
less consideration paid for full property €400k
Taxable value €350k
Relief: €335k
Net taxable value: €5k so tax due €1,500

The reason I think this is that revenue appear to picture this scenario as you have "inherited more than you should have":

Inheritances

What happens when you inherit a property and whether you pay Stamp Duty or not
www.revenue.ie www.revenue.ie

If this is a valid method, are legal costs and stamp duty deductible also?

I believe method #1 is correct but obviously #2 is more beneficial for my mother. I'd appreciate any views/advice.
 
What exactly did the will say - if it said half the property went to each, then the purchase was a transaction between your mother and her sister
 
My mother is the only one resident in Ireland for tax purposes. Does it make a difference? There was no tax paid on the estate in the other country.

The will said half to each, so I guess that confirms method #1!
 
2blacklines said:
My mother is the only one resident in Ireland for tax purposes. Does it make a difference?
Click to expand...

It does.

I was initially going to reply to your original post to say method #1 probably applied, but your reference to the fact that the property was abroad and that your aunt's CAT liability was irrelevant raised the possibility that if your gran was US domiciled and the property was US based, your mother (who I assumed was Irish resident) would have been outside the scope of Irish CAT and that was the reason for checking on this. Source:

Double Taxation Relief (US)

This page explains the Double Taxation Relief (US) for Capital Acquisitions Tax (CAT)
www.revenue.ie www.revenue.ie

I presume this does not apply here.

Also, if estates taxes were paid abroad, there was the possibility for bilateral or unilateral relief to offset your mum's CAT liability and so these points would have to be checked before anyone could comment on the calculated tax due above.

2blacklines said:
she also incurred legal fees and stamp duty costs relating to the purchase of 50% of the property
Click to expand...

If your mum is going to retain the property as a rental / second property, then she can include these costs as part of her acquisition costs if she ever sells the property in the future, realises a gain, and if at that time she is liable to CGT in Ireland.
 
Thanks - the property is in the UK, did not incur any inheritance tax on the estate so my interpretation is that she must pay in full here. Thanks for the help!
 
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