Figuring out the valuation date on an inherited family home?

I am executor for my late father’s will. I have applied for probate but not yet had my appointment.

With the exception of one item, he left the residue of his estate to his children “in equal shares”, with the proviso that “if any of those children predecease me leaving children, I direct that the share to which that child would have been entitled to have passed to the children of that child in equal shares”. The estate is effectively his home and the contents of some bank accounts.

One of his children did die before him. It is clear that his children will all be under the €335k limit whatever the house sells for but, for the two grandchildren (my late sister’s children) it is also clear that they will be over their €32,500 threshold.

We got a valuation of the house at the date of death. We will likely be in the process of selling on the date of probate but won’t have completed so will not know the final selling price.

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My question is twofold. First of all what is the valuation date for all our inheritances – the date of probate or the date of house sale? And second – if it is the date of probate and we later sell for less than that amount will the two grandchildren have to pay CAT (Capital Acquisitions Tax) on the basis of the larger probate value?

I do understand that if date of probate is the valuation date and we sell for more than the probate value then we all have a capital gain to report. For the grandchildren that’s immaterial as they’ll be paying 33 per cent on the difference one way or another – in fact it somewhat advantageous because they can reduce it a bit with their annual CGT (Capital Gains Tax) exemption. But for me and my siblings we’ll have a capital gain to deal with which may end up costing money.

So the challenge is to identify a value that doesn’t expose the grandchildren to a tax that is ultimately unfair while at the same doesn’t expose the children to a capital gain on a portion of their inheritance.

Mr D.O’S

Your father seems to have left a carefully worded will which is definitely an advantage for you as executor. By instinct, we all shy away from the thought of our children dying before us but it can have unexpected implications. Your father (or his solicitor) has had the foresight to recognise this and make sure it was addressed in the will.

Specifically, rather than remain moot on the issue of what happens in the even of one of his children dying, he has explicitly directed that any inheritance due to that child passes to any children the child may have. If he had not done so, the inheritance due to your sister would have simply passed to her estate under section 98 of the Succession Act that determines that an inheritance due to a deceased child does not die with them – as would be the case in the event of the death of other beneficiaries – but passes to that deceased child’s estate.

The key thing to note is that, even though section 98 is triggered by a dead child having children of their own, the inheritance does not go directly to those children but to the dead parent’s estate. Most likely, that would then see the benefit go to the dead child’s spouse or partner. Wills most commonly leave a person’s estate to their surviving partner in the first instance, not lest on grounds of tax efficiency and simplicity.

In your father’s case, however, he wanted the benefit to go to his grandchildren where one of his own children died.

But that does not necessarily mean that these grandchildren will be hit with a less advantageous tax position. It depends on their age.

Schedule 2, part 1 (1)(a)(i) of the Capital Acquisitions Tax Consolidated Act (CATCA) 2003 states that the Group A threshold will apply where the “donee or successor is on that day the child, or minor child of a deceased child, of the disponer”.

So, if your dead sister’s two children are under the age of 18, they will be entitled to the same Group A threshold tax exemption of €335,000 as you and the rest of your siblings in relation to your father’s will. Of course, if they received an inheritance on the death of their mother, it would be aggregated with what they receive from their grandfather for the purpose of seeing if they remain under the €335,000 limit.

And, in all your cases, if your benefit under this will or otherwise puts you over the 80 per cent mark of that threshold – i.e. the total any of you has received under Group A at any point in your lives exceeds €268,000 – you will need to notify the Revenue Commissioners even though no tax is owing.

If your dead sister’s children are 18 or older, then, yes, they will fall into the Group B threshold for anything they receive from their grandfather, with the far more modest €32,500 tax exemption to which you refer in your query.

In terms of valuation date, this can be very tricky. As the Revenue Commissioners themselves note in the Tax and Duty Manual: “The valuation date is not a fixed date and must be determined in accordance with the circumstances surrounding the transfer of a benefit. While ascertaining the valuation date of a gift is generally relatively straightforward, the valuation date of an inheritance can be more complex.”

In general, in relation to the residue of an estate, they say the valuation date is the date of the grant of probate as that is the time the scale of the residue can be determined once any “debts, costs and liabilities” have been established.

However, in a case like this where you won’t really know what the scale of the residue is – and therefore what each child/grandchild is due – until the property is sold, it is arguable that the date of probate is not relevant.

A note from Dublin-based tax adviser, O’Hanlon Tax, on the subject of valuation dates notes: “The position might be different if the sale is required to enable the personal representative to complete his/her work in administering the estate. For example, if the asset to be sold is part of the residue and the value of the residue cannot be established until the property is sold, then the valuation date cannot arise until the sale, as the residue cannot be retained until the value of the residue can be ascertained.”

That clearly suggests that the valuation date in this specific set of circumstances is the date on which the property is sold. I suspect if there were undue delay in any sale, Revenue would certainly default to a market valuation at the date of probate – rather than at the date of death in this case – so it is important not to dither on that front.

I don’t think it is likely to be relevant here hut if the eventual sale price was lower than any valuation date assessment – say because of a delay in selling the property – the tax due is on the basis of the valuation date assessment.

The answer would be different if the property was changing hands in different circumstances – such as, for instance, survivorship or the extinction of a life interest. For instance, in the case of the one item left by your father outside the residue, it is likely that the valuation date on that item is the date of death. The valuation date for the contents of your father’s bank accounts will be the date of probate.

If you fancy looking up the actual legislation, valuation dates are covered by section 30 of the CATCA 2003 but be warned it is a tangle of legalese in which individual words have been subject to court rulings.

Finally, where there is a gap between the relevant capital acquisitions tax valuation and any eventual market valuation, the beneficiaries would be liable for capital gains tax on the difference (allowing for the CGT exemption on the first €1,270 of any gain).

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice