In your response last week, you mentioned “date of gift or inheritance” and that the rate of tax in place at time of inheritance is the one applicable. With regard to inheritance, is the applicable date the date of death of disposer or the date of grant of probate?
Mr S.F.
It would be great if the answer could be simple yes or no along the either/or lines you set out but, unfortunately, things can get a little more complicated than that.
Taxation on inheritance has not changed much in Ireland over recent years. The last time the actual rate of tax on anything received over your tax-exempt threshold was adjusted was back in 2012 when it rose for the fourth time in just over four years as the government of the day struggled to cope with the fiscal impact of the financial crash in Ireland.
That brought that rate up to 33 per cent from 30 per cent. It had been as low as 20 per cent earlier in the millennium before rising to 22 per cent in November 2008 and 25 per cent just under five months later and the 30 per cent figure in 2011.
At the same time, the tax-free thresholds were falling. They had risen consistently in advance of the crash, with the category A threshold — the amount you could receive from a parent — even jumping by €21,000-odd to €542,544 in 2008 before reality hit the State finances. At that time, the category B threshold for inheritances (and gifts) from close blood relatives was 10 per cent of the category A figure, with the threshold for all other inheritances just 5 per cent of the category A figure.
But that link was broken as those figures fell quickly over the following three and a half years. By December 2012, the category A figure was just €225,000 but category B standing at €30,150 and category C at €15,075. Those thresholds have since recovered to €335,000, €32,500 and €16,250 but the category A figure is unchanged over the past five years and the other two have remained the same for almost eight years.
So at least in recent times, whenever the inheritance is deemed to be taken, it is unlikely to make any odds on the rate of tax paid.
What can vary though is the timing of when the tax needs to be paid and the actual value of the inheritance. This is down to something called the valuation date and that can change according to the circumstances of the inheritance.
The Revenue Commissioners explain that this is the date when the market value of the inheritance can be established.
Section 30 (4) of the Capital Acquisitions Tac Consolidated Act 2003 sets it down as “the earliest date of the following:
(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.”
In their Tax and Duty Manual, Revenue provides examples that may give more clarity. It takes the example of a person, John, who has left a number of legacies in their will as well as provisions for the residue — what is left after particular legacies or bequests have been paid — and notes that “due to the differing characteristics of each legacy, the valuation date is not the same in each case”.
First, there is a specific bequest of a piece of jewellery to a person who has already received the item — say a ring. In this instance, the valuation date is the date of John’s death. The same is true for items that are held jointly and pass under survivorship — ie they are not part of the estate and for probate purposes.
Second, there is an amount of €5,000 left to another beneficiary which is to come from assets held in a bank account. In this case, the valuation date will be the date of the grant of probate — unless the beneficiary is given the money earlier. If so, the actual date they receive it becomes the valuation date.
Finally, the residue of John’s estate is given to a third person. In this instance, the valuation date is the date of the grant of probate as you cannot know how much remains in the residue until all debts, costs and liabilities of John’s estate have been established.
Essentially, the date is the point at which the value of the asset can be ascertained and the recipient can benefit from it. There might be cases where an asset is impossible to accurately value until it is sold in which case the valuation date will be put back.
However, if you are looking at something as basic as a property which is to be sold as part of the process, the valuation date will not be put back just because the home has not sold. It will have been determined earlier in the process by a formal market valuation received by the executor or personal representative.
A valuation date might also have to be reassessed and put back if the will itself was challenged, delaying any date of benefit.
In terms of dates, if the valuation date falls before the end of August in a given year, you need to pay any tax due and file a return by the end of October of the same year. If the valuation date falls in the last four months of the year, the pay and file deadline is October 31st of the following year.
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 with a contact phone number. This column is a reader service and is not intended to replace professional advice
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