Liable for CAT means not for CGT where gain is due to increase in house value

[Prosper]

There seems to be so much confusion regarding CGT & CAT that I'm nervous about adding to it. My self and my two siblings (joint executors and beneficiaries) went the personal probate route. House sold and contracts signed before probate was granted. So the EA's house valuation entered on the CA24 was their value for the house at date of death. However, the house sold for considerably more than the date of death value, hence there is a CAT liability for each of us.
My understanding is that because we are paying CAT based on the actual sold price of the house, we therefore have no CGT liability as the gain resulting from the difference in house value between date of death and date sold has already been covered by the CAT liability.

 

[jpd]

The uplift in the value of the house is a problem for the estate not the beneficiaries of the estate. The estate is liable for CGT on the increase or they could submit an amended CA24

The beneficiaries have a CAT liability but they can offset the CGT paid against that

At least that is my interpretation of the law

 

[Prosper]

The uplift in the value of the house is a problem for the estate not the beneficiaries of the estate.

Is this not semantics? The executors/beneficiaries are responsible for both CGT and CAT.

The increase in the value of the house from date of death to date we signed contracts means that the three of us each have crossed the CAT threshold. We intend to pay the CAT before end 2017 (it's not due until end October 2018). We are not going to pay any CGT as this would be paying twice in my opinion.

 

[jpd]

I think in theory - the estate pays the CGT and the CAT is then reduced by the CGT paid by the estate. As the CGT rate and the CAT rates are the same it is as if the CGT is not paid but the returns filed are different. I'm sure if you talk to the Revenue they will advise on the best way to file the returns.

 

[jpd]

And whilst the executors and the beneficiaries are the same people, the estate is a separate entity for tax purposes - usually it will have a PPS number of it's own and which could/would be different from your parent's PPS

 

[john luc]

I dealt with a will that had 1 beneficiary and the total value of the estate was covered by the CAT A allowance so no CAT was due however the house rose in value and so the estate had to first pay CGT on the increase of the house that was part of the inheritance

 

[Prosper]

I dealt with a will that had 1 beneficiary and the total value of the estate was covered by the CAT A allowance so no CAT was due however the house rose in value and so the estate had to first pay CGT on the increase of the house that was part of the inheritance

I decided not to deal with CAT now as I had indicated I would in my original post but to pay the CGT first (as I realised late in the day that it was due on 15th Dec whereas the CAT wasn't due until end Oct next year). The value of the house at date of Probate is significantly more than the value I put on the CA24 (date of death value) and so this brings us over the CAT threshold. However, the CGT paid will reduce each beneficiaries CAT. Still, the total of CGT + CAT is a painful amount and could have been reduced if the date of death value the EA had put on the house had been higher. It was months into the process before I had a good feel for the property market and could clearly see that the EA's valuation was well below what it should/could have been but I didn't understand at the time the implications of that for tax. My advice to anyone in a similar situation is to get a feel for the market before you get an Estate Agent to do a date of death valuation. It's possible that some EA's give a low valuation to make themselves look good when the house is sold.

 

[Joe_90]

I think you could be confusing same event relief with CGT being offset against CAT.

The estate is responsible for the CGT. The beneficiaries are responsible for CAT on the funds that they receive.

We tell all executors to make sure the property is properly valued for probate purposes as most people think keeping it low will help.

If you think that the auctioneer valuation was incorrect then you have the option to make a claim against them as you paid for a professional service and you did not get a proper service.

If there are 3 beneficiaries the house may be worth more than €1m a rise of €150k is 18 months would be about right!

 

[Prosper]

I think you could be confusing same event relief with CGT being offset against CAT.

I don't mind what it's called if the meaning is the same. The Estate paid the CGT but it's each beneficiary is responsible for paying their own CAT. However, I assume they each can deduct their 1/3 share of CGT paid from their CAT liability?

The estate is responsible for the CGT. The beneficiaries are responsible for CAT on the funds that they receive.

As above - I do understand that.

If you think that the auctioneer valuation was incorrect then you have the option to make a claim against them as you paid for a professional service and you did not get a proper service.

I wouldn't go down that road as it's a subjective area and I'm not really that bothered by it. Just want to make people aware, in the current market, to be more informed and involved when they are getting their date of death valuation.

If there are 3 beneficiaries the house may be worth more than €1m a rise of €150k is 18 months would be about right!

Are you saying here that the annual rate of increase is 10% ? What do the number of beneficiaries have to do with it? - or am I misunderstanding the point you're trying to make?

 

[torblednam]

I don't mind what it's called if the meaning is the same. The Estate paid the CGT but it's each beneficiary is responsible for paying their own CAT. However, I assume they each can deduct their 1/3 share of CGT paid from their CAT liability?

As above - I do understand that.

To be honest, I don't think you do understand.

The relief from CAT for CGT paid on the same event doesn't apply to the situation you're describing.

CGT arises on the estate, on the disposal of the property, based on the gain realised on disposal.

Having disposed of the property and paid its CGT liability, the estate then has money in it.

It's this money that is distributed to the beneficiaries, and their CAT liability arises on the receipt by them of a benefit in the form of money.

It's irrelevant that the money being received was the proceeds of a sale of an asset on which CGT was paid, as there are two distinct and separate events here. A sale of a property and subsequent to that the distribution of an estate.

I wouldn't go down that road as it's a subjective area and I'm not really that bothered by it. Just want to make people aware, in the current market, to be more informed and involved when they are getting their date of death valuation.

Are you saying here that the annual rate of increase is 10% ? What do the number of beneficiaries have to do with it? - or am I misunderstanding the point you're trying to make?

I presume the reference by Joe to number of beneficiaries is as a result of your earlier comment about the difference between CA24 valuation and sale proceeds being sufficient to push the beneficiaries beyond the CAT threshold. His point (I presume) is that valuation isn't an exact science and therefore a 15% differential across a period of 18 months in a generally rising market, is well within the range of what could be considered reasonable or normal...

 

[Prosper]

Having disposed of the property and paid its CGT liability, the estate then has money in it.

It's this money that is distributed to the beneficiaries, and their CAT liability arises on the receipt by them of a benefit in the form of money.

Thanks, I think I have it now.
On CA24: House Value = 700,000 + Gross Assets of 130,000 less Total Debts of 10,000 = Total Net Value of Estate = 820,000 (/3 = 273k so no CAT due as the threshold is 280k per person )
House sells for 800,000. Gain is 100,000 less EA's & Solr Fees gives total capital gain to estate = 75,000. Therefore CGT paid = 24,750

Now let's treat the 3 beneficiaries as one unit. So, due to appreciation in house value from date of death to date of sale the Total Net Value of Estate = 920,000 (individual threshold of 280k x 3 = 840k means 80k subject to CAT). 80,000 x 33% = 26,400. Deduct CGT already paid leaves Net CAT due of 1,650 (/3 = 550 to be paid by each beneficiary).

Therefore Total CGT + CAT = 26,400

What I was going to do last week (before I realised CGT had to paid by 15th Dec) was to pay the CAT now (Estate Value 920k less EA & Solr Fees of 25k = 895k less combined threshold of 840k = 55k x 33% = 18.15k) and not pay any CGT and say to Revenue that we don't have a CGT liability as we already paid CAT based on the Sold Value of the house and hence it would be double taxation.
So as a group we'd save 8,250 this way. However, if they refused to allow us to deduct the costs of selling the house (25k) from the Estate Value when calculating CAT then there'd be no saving (920k - 840k = 80k x 33% = 26.4k)

 

[PMU]

Thanks for that PMU - I agree fully. BTW would you have a look at a thread I started called Liable for CAT means not liable for CGT where the gain is due................. especially at my last post in it - I'd like you're views on it please.

I think it would be prudent to follow the advice already provided by jpd and others in their response to your post..

You have to separate out your role as an executor and as a beneficiary. The CGT is paid by the estate as it is disposing of a chargeable asset, and is calculated on difference between the value of the asset at the date of death and the value at disposal, less allowable costs. As the executor you pay this tax from the proceeds of the estate. Then as an executor you distribute the remaining proceeds of the estate to the beneficiaries, as provided for in the will.

Your job as an executor is done at that stage. According to your post you are also a beneficiary, but that is neither here nor there. You distribute the inheritance and perhaps point out to the beneficiaries that they may have to pay CAT.

Now the beneficiaries must calculate the amount of CAT to be paid. If the inheritance plus the value of gifts already received exceeds the relevant group lifetime threshold the beneficiary must pay CAT. The fact that the estate paid GCT on the increase in value of the house is irrelevant and the beneficiary need even not be aware of this. The beneficiary didn't pay it and in any event it's not an allowable deduction. So the beneficiary pays CAT if the inheritance brings him/her over the threshold and makes a return to Revenue on the IT38 form.

Revenue covers the above on their web site at https://www.revenue.ie/en/gains-gifts-and-inheritance/index.aspx.

You can't treat the beneficiaries as one unit. Each beneficiary has an individual lifetime CAT group threshold. Each beneficiary gets his/her share of the estate, as provided for in the will, and pays CAT, if appropriate. Whatever happened when the estate was administered is irrelevant to the beneficiary.

 

[Prosper]

You have to separate out your role as an executor and as a beneficiary. The CGT is paid by the estate as it is disposing of a chargeable asset, and is calculated on difference between the value of the asset at the date of death and the value at disposal, less allowable costs. As the executor you pay this tax from the proceeds of the estate. Then as an executor you distribute the remaining proceeds of the estate to the beneficiaries, as provided for in the will.

All done. The only allowable costs I deducted were those directly related to the sale of the house (EA + Solr fees).

Now the beneficiaries must calculate the amount of CAT to be paid. If the inheritance plus the value of gifts already received exceeds the relevant group lifetime threshold the beneficiary must pay CAT. The fact that the estate paid GCT on the increase in value of the house is irrelevant and the beneficiary need even not be aware of this. The beneficiary didn't pay it and in any event it's not an allowable deduction.

I have informed the other beneficiaries that it's their responsibility to pay their CAT. However, I believe that each of us are entitled to claim a credit against CAT for the CGT paid. This Revenue page appears to back this up. https://www.revenue.ie/en/gains-gif...nst-cat/credit-for-capital-gains-tax-cgt.aspx
I think that your response to this will be that the CGT paid was done so by the Estate and so is not an allowable credit for each beneficiaries CAT. From my point of view this is a double tax on the same event.

 

[torblednam]

You can view it whatever way you like.

The reality is it's no different than if my dad, who is alive, sold an investment property tomorrow - resulting in a CGT liability for him - and then gave me the proceeds. That's not double taxation on the same event.

 

[Prosper]

The reality is it's no different than if my dad, who is alive, sold an investment property tomorrow - resulting in a CGT liability for him - and then gave me the proceeds. That's not double taxation on the same event.

The beneficiaries have a CAT liability but they can offset the CGT paid against that

There seems to be different views among the people who have contributed to this thread. jpd's view quoted above concurs with my interpretation of what's on the Revenue website. I'll wait for Revenue to contact each of us about CAT before sending in any return. Thanks for all the posts - much appreciated.

 

[john luc]

post up here there response

 

[torblednam]

There seems to be different views among the people who have contributed to this thread. jpd's view quoted above concurs with my interpretation of what's on the Revenue website. I'll wait for Revenue to contact each of us about CAT before sending in any return. Thanks for all the posts - much appreciated.

I think you'll find that if jpd comes back to the thread he/she will realise they didn't think their post through fully. What Joe 90 and I have told you is correct and we both have plenty of experience in this area.

It is not a question of interpretation. There is a relief from CAT for CGT paid arising on the same event. In this case there are 2 events. No amount of wishful thinking (or wishful interpretation) on your part alters that fact.

 

[Prosper]

There is a relief from CAT for CGT paid arising on the same event. In this case there are 2 events. No amount of wishful thinking (or wishful interpretation) on your part alters that fact.

Ok thanks - I'll go with that as the correct interpretation. I was reading the Revenue website (excerpt shown below) and interpreting it differently (and obviously mistakenly). I now trust that you're view is, that the property giving rise to the CGT and CAT is the same property but not the same event. I'll submit a CA26 and try to reduce the CAT liability that way (e.g. value of furniture, car, jewellery, crystal etc).

Credit for Capital Gains Tax (CGT)
If CGT and CAT are due on the same event and on the same property you may be entitled to a tax credit. This can happen when:

• You receive gifts of property, stocks or shares
• A property is appointed from a will or settlement

Thanks for sticking with this thread. There's confusion out there about CGT & CAT and I think this thread will help.

 

[torblednam]

Ok thanks - I'll go with that as the correct interpretation. I was reading the Revenue website (excerpt shown below) and interpreting it differently (and obviously mistakenly). I now trust that you're view is, that the property giving rise to the CGT and CAT is the same property but not the same event. I'll submit a CA26 and try to reduce the CAT liability that way (e.g. value of furniture, car, jewellery, crystal etc).

Credit for Capital Gains Tax (CGT)
If CGT and CAT are due on the same event and on the same property you may be entitled to a tax credit. This can happen when:

• You receive gifts of property, stocks or shares
• A property is appointed from a will or settlement

Thanks for sticking with this thread. There's confusion out there about CGT & CAT and I think this thread will help.

From the excerpt you have quoted, bullet point 1 cannot apply as this isn't a gift (and in any event it would be a gift of money, not a property).

Bullet point 2 also doesn't apply, as there is no appointment of the property under the will; the will directs that the property be sold.

I'm not being facetious, but if there's confusion it's due to people confusing themselves rather than with there being anything inherently confusing about this relief.

 

[Prosper]

From the excerpt you have quoted, bullet point 1 cannot apply as this isn't a gift (and in any event it would be a gift of money, not a property).

If a gift is given within 2 years prior to the death then it's considered an inheritance - I read this on the Revenue site - although it has no relevance in our case, but it might for others out there.

Bullet point 2 also doesn't apply, as there is no appointment of the property under the will; the will directs that the property be sold.

The will didn't direct that the property be sold. However, I understand that there is some Revenue benefit if the Will stipulates that the house is to be sold but I'm not sure what that benefit is.