Inheriting shares: how do I sort out the value for tax purposes?

My father owns shares in three American companies he intends to pass on to me. The value has risen from an initial $10,000 to $60,000 today. I will be liable for the full amount when he dies as other assets will take me over the tax-free threshold.

Assuming the tax rate is due on the full $60,000 and given how share prices and exchange rates can fluctuate, I am wondering on what date the value should be used for calculating the taxable amount and exchange rate. Is it on the day my father dies or the day I receive the shares from the executor?

Mr M.S.

Irish people owning shares in American companies is nowhere near as rare as people might think. The hundreds of thousands of Irish people working for US multinationals, especially in the technology and pharma sectors, are regularly eligible for share schemes of one sort or another.

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Whether that’s the case here is neither here nor there but you are correct to be concerned about how they will be valued when they eventually transfer to you.

Assuming your father holds on to the shares he has until he dies, capital gains tax will not be an issue for him. But given the nature of the investment – shares in three individual companies – the timing of their passing to you has the potential for significant tax issues. Not only have you to worry about share price volatility but you also have a foreign exchange issue to distort things.

The key issue here is the valuation date that Revenue uses to value the inheritance coming to you. And, as I have mentioned before, part of the confusion about the concept of valuation dates is that it can change depending on the type of inheritance. The key here is when you can reasonably be said to have access to the asset.

If your father gave you the shares as a gift while he was still alive, the valuation date would clearly be the date on which the transfer was made because you would have control at that point and the right to made decisions, including selling the shares.

Things get a bit trickier with inheritances, because the very formal legal process involved means there can be a delay in you getting access to the shares.

Section 30 (4) of the Capital Acquisitions Tax Consolidated Act 2003 sets down three separate possibilities. It states that the valuation will be the “earliest of:

(a) the earliest date on which a personal representative or trustee or the successor or any other person is entitled to retain the subject matter of the inheritance for the benefit of the successor or of any person in right of the successor or on that successor’s behalf,

(b) the date on which the subject matter of the inheritance is so retained, or

(c) the date of delivery, payment or other satisfaction or discharge of the subject matter of the inheritance to the successor or for that successor’s benefit or to or for the benefit of any person in right of the successor or on that successor’s behalf.”

Arcane terminology

Legislation needs to be precise, hence the very legal language and arcane terminology, but it certainly doesn’t do much for transparency for the ordinary reader.

Where you have to wait for probate for the distribution to you of assets from your father’s estate then that is the valuation date. And for most people this is the case

The Revenue’s tax and duty manual tries to clarify through the use of an example. Adapting that to your scenario, it suggests that if you were to get a specific physical bequest – say a piece of art – and you actually had possession of it at the time your father died, his date of death would be the valuation date.

[ Three ways to minimise inheritance tax ]

[ Surge in house prices pushes more people into inheritance tax net, new figures show ]

If you were getting a specific cash legacy and got access to some of it in advance of probate, the date you received the cash would be the valuation date.

But where you have to wait for probate for the distribution to you of assets from your father’s estate then that is the valuation date. And for most people this is the case. They don’t get control of the asset until probate has been granted and so Revenue considers the date of probate to be the valuation date. The same would be true of any benefit to you from the residue of the estate – the amount left after specific bequests have been made.

In your position where you know you’ll be paying inheritance tax (capital acquisitions tax) on this anyway, it at least takes one of the uncertainties out of the equation. You’ll need to file an IT38 form and pay that tax by the end of October if you get probate before the end of August in a given year, according to the Revenue’s website. If probate comes through in the last four months of the year, the deadline will be the following October 31st.

Interestingly, the legislation says that the Revenue Commissioners may give an “accountable person” (that’s you, the person liable for tax) written confirmation of the date they, the Revenue, consider to be the valuation date although you would have the right to appeal this. I think, ultimately, it is fair to say the valuation date for you on receipt of the shares from your father is likely to be the date probate is granted.

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