# Inheritance Tax help needed!!!



## DrPhilG

I'm a bit confused here.  I've read some websites and tried to find an answer but I'm getting different answers.  I have just been told that I’m to inherit a 40 acre farm and about €10 or €15k in cash.  From what I can gather, I will lose 22% of that land and cash value in tax as the inheritance comes from an uncle?  The tax free allowance is only about€50k I think?

That seems scandalous!
First question is, is that figure correct?

Secondly, any ideas what the value is likely to be of a 40 acre farm in Donegal?  I’ve had a rough guess at about €375k but not at all sure.  My father sold a similar farm about 2 years ago and got €750k but with the recession etc, it’s unlikely to be worth that much.  My dad got €18k an acre, which even at the height of the land values was unusually high.  I’d guess it’s worth about €10k now.

So by my calculations, if the land is worth €400k plus €15k cash = €415k.  Minus €50k tax exempt, leaves €365k and 22% of that is €80,300???  Breaks my heart that the Government will eat so much of my inheritance but I have yet more questions.

Most importantly, when do I have to pay the tax bill?  I’m currently skint so the chances of me having €80k anytime soon are incredibly slim.  How long do I have to pay?  How can the Government demand €80k from someone who is broke?  Surely that would mean I’d be forced to sell now to pay the bill and end up losing out because the values are low at the minute.

My plan was to hold on the the land for a few years til it is worth more and then sell it, I can easily lease it now to a neighbour for about €8k a year.

And finally, are there any sensible ideas on how to minimise the hit from the tax man?  (Legally of course, I’m not looking to break the rules), but are there any loopholes or tricks etc I can take advantage of?


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## mathepac

Your relief on gift / inheritance tax is about 52K  after indexation for 2008, assuming no other gifts from your late uncle. Do you qualify as a farmer? If you do you may be entitled to CAT 5 inheritance tax relief of up to 90% of the value of agricultural land, less expenses - see Reveneue site here - http://www.revenue.ie/en/tax/cat/leaflets/cat5.html#section2

After all allowances / reductions you are liable to tax at 20% on the balance and it is due when the grant of the inheritance is taken up.


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## Vanilla

Importantly to qualify as a 'farmer' for the CAT relief, the test is whether 80% of your assets ( including what you are to inherit) are agricultural. 

Other possibility of 'favourite nephew' relief. Talk to a tax adviser about this if the inheritance is due shortly. If this is at some point in the future ( ie disponer is still alive) then not much point in doing too much worrying about it as thresholds/reliefs may have changed by then.


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## DrPhilG

So even if I'm not a farmer, but 80% of my assets are agricultural I would qualify for relief?

My only real assets are my house, which isn't really mine, it's PTSBs!  I am essentially bloody poor so this inheritance would certainly make up the bulk of my assets.

Also, when you say the balance is due when the bulk of the tax is due at the taking up of the inheritance, that means once the land is transferred into my name I would owe the full amount???  I thought I read somewhere that if the inheritance is land, you can pay in 5 yearly amounts?

Mind you, I will definitely check out the agricultural relief thing.


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## DrPhilG

Many thanks to Vanilla and Mathepac.

I'm pretty sure that I qualify as a farmer. My outstanding mortgage is likely more than the current market value of the house and my car is in my fiance's name. Therefore my only asset is my credit union savings, (about €15).

That would mean that my entire net assets, assuming that the land is valued at around €400,000, would be €415,000. That means that the land inherited would make up about 97% of my net assets! If that's the case, then I am officially a farmer and only 10% of the land value is taxable, €40,000.

With the tax free amount at €52,000 I would not have to pay any tax at all! I hope I've understood and calculated this right, but hopefully someone can explain to me if I haven't.

I'll certainly be happy if this means I will be able to tear up a €70 grand tax bill!

One other thing, I just read this article...
[broken link removed]

According to that you have to be resident in Ireland for 3 years before the date of the inheritance. However it is an article from 2001 so I'm hoping that this is incorrect now. The only mention of residency requirements in the revenue site's article is;


> In the case of a gift or inheritance the relief is withdrawn unless the individual in receipt of the benefit is resident in the State for all of the three tax years immediately following the tax year in which the Valuation Date falls.


 
In other words you cannot dodge the tax and then clear off out of the country or sell the land for a quick buck. But it states that you must be resident for 3 years AFTER the inheritance, not before. The Citizen's Advice website backs this up;


> The relief will be withdrawn:
> 
> If the beneficiary is not resident for all of the three tax years *following* the tax year in which the valuation date falls.
> If the property is sold within six years and not replaced by another agricultural property with one year
> If the property is compulsorily purchased within six years and not replaced within six years.


Also, I am not working in Ireland, I work and pay tax in the north. I don't think that would matter as I am eligible for mortgage interest relief.


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## DrPhilG

So to summarise, any opinions on the following...


Do I need to have been resident in the country for 3 years? I have been here for just over 2 but lived here all my life until the age of about 22, then lived in the north for 5 years before moving back.
Does the fact that I am a tax payer in the UK, not Ireland have any impact?
And 1 final thing, my brother is in the same position as he is inheriting the other half of my uncle's land.  He is a lot wealthier than me so I'm not sure if he will qualify as 80% agricultural assets.  

My query is, if his house if in his and his wife's name, does that mean that only half of the house qualifys as "his" assets?
Many thanks to those who have advised so far, I'll give the revenue and accountant a call next week to confirm everything, but at least now I have an idea what to ask!


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## DrPhilG

HAPPY DAYS!

I have checked with the revenue office, and it looks like I will have to pay little or no tax.

I will definitely qualify as a farmer because my assets apart from the inheritance are so low.
There are no pre-inheritance residency criteria, only post inheritance.
It doesn't matter that I work in the UK.
I won't be able to sell the land for 6 years under the regulations of the Agricultural relief but I wasn't planning to anyway as the land prices are so low at present.

Don't suppose anyone knows roughly how much farm land is per acre these days?


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## Vanilla

Don't take the word of an official in the Revenue as gospel- although they are very helpful they cannot give definitive advice based on a conversation over the phone. Get your own tax adviser- this is extremely important given the amount you can potentially save.

As for how much farmland is- that really depends on the quality, the location and whether there is quota/entitlements with it. A local valuer/auctioneer would advise.


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## DrPhilG

Vanilla said:


> Don't take the word of an official in the Revenue as gospel- although they are very helpful they cannot give definitive advice based on a conversation over the phone. Get your own tax adviser- this is extremely important given the amount you can potentially save.
> 
> As for how much farmland is- that really depends on the quality, the location and whether there is quota/entitlements with it. A local valuer/auctioneer would advise.


 
Yeah I know it will have to be checked over by an accountant, I just called the revenue people to confirm that there are no isses over pre-inheritance residency or working in the UK.

The land is to be valued by an estate agent anyway in order to calculate the tax so I suppose I'll know soon enough but based on my guess-timations on the value of the land I'd say that Agricultural relief is going to save me at least €70k!

Anyone know how long it takes for things like this to be processed? I'm getting married in the summer and some cash would certainly be welcome! Apparently the cash inheritance is closer to €25k, not €15 as I first thought.


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## mathepac

The executor is the only one who might be able to give you an estimate on the time-scales.

IME, "simple" inheritances take 6 to 12 months for finalisation; with more complex cases, pick a number. 

It may be possible to get an interim payment of the cash portion of the inheritance paid out by the executor; it might also be possible to raise a loan on foot of a solicitor's letter detailing time-scales and the quantum of the inheritance.


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## DrPhilG

mathepac said:


> The executor is the only one who might be able to give you an estimate on the time-scales.


 
Well my father, brother and myself *are* the executors!  Not entirely sure what that entails mind you.

At least with the inheritance looming, the Credit Union are unlikely to say no to pretty much anything I demand!


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## briancbyrne

even though you may qualify as a farmer do you not have to do the green cert before turning 35 to qualify as such?


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## Vanilla

briancbyrne said:


> even though you may qualify as a farmer do you not have to do the green cert before turning 35 to qualify as such?


 

No, this is in relation to the Young Trained Farmer relief from stamp duty and nothing to do with an inheritance.


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## DrPhilG

Sorry to drag this issue up again after so long but I have another question.

The land in question is valued at approximately €450 - €500k. I have also recently learned that the cash amount to be inherited is actually €50k! I have checked with an accountant and confirmed that I will qualify for the agricultural relief.

My question now is, does agricultural relief only give me relief on the value of the land, or the entire inheritance, (land & cash)? I had worked it out as such;
Land - €500k
Cash - €50k
Total - €550k

Agricultural relief takes away €495k of the total (90%) leaving €55k. The tax free allowance is just over €50k meaning that I would only have to pay tax on about €5k.

But the accountant isn't so sure, he thinks the agricultural relief only takes away 90% of the land's value, not the cash, so therefore...

Agricultural relief only takes away 90% of the land's value which is €450k, leaving €50k of the land value and the full €50k cash. Take away the tax free allowance then and I'd still be faced with paying 22% of the remaining €50k, so I'd have a tax bill of €11k.

Hope this makes sense, and can anyone shed any light on the question of whether agricultural relief relieves the farm land only or the entire inheritance?

*EDIT, I think I have the answer from the revenue's site...*
*



			The relief operates by reducing the market value of 'agricultural property' by 90%
		
Click to expand...

* 
That suggests that only the property is relieved, not the cash.  Oh well, at least I'll have €50k in the bank to pay the bill with!


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## Henrieta

Dr Phil

The accountant is right, your non agricultural assets do not reduce by 90%.

Please note that Revenue are currently auditing a large number of these cases and it is important you satisfy the residency requirements post inheritance for the 3 years.

In relation to your house, prior to Finance Act 2007 you were not allowed deduct your borrowings when valuing same.  However since 1st February 2007 this rule has been amended (luckily for you!).

For other posters Finance (No. 2) Act 2008 introduced that agricultural land in another Member State of the EU can be relieved under Agricultural relief.


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## DrPhilG

Henrieta said:


> One bit of other bad news that I don't think has already been pointed out to you is that your house needs to be valued at its gross value (ie) its current valuation with no deduction taken for the liabilities owing on it. You will need to factor this in to see if you still qualify as a farmer (80% test)
> 
> Sorry to be the bearer of bad news.


 
Sorry to disagree, but as far as I know that only applies to investment properties, i.e. a second house.  My own house, (principal residence) does not count in total, only the equity in the house.  I know this because my brother is in the position where he still owns another house which he rents out.  His assets are calculated as the equity in his present house, (divided by 2 as it is in joint ownership with his wife), and the second property is counted as it's full value, regardless of the amount still owed in mortgage.  He will be cutting it fine to see if he qualifies for relief.

PS, even if it did, I would still qualify for agricultural relief as my house is not worth much.


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## DrPhilG

Henrieta said:


> Please note that Revenue are currently auditing a large number of these cases and it is important you satisfy the residency requirements post inheritance for the 3 years.


 
By qualifying for agricultural relief, I have to stay resident for 3 years and cannot sell the land for 6 years.  I will be here for the forseeable future and don't intend to seel the land for at least that length of time so I'm OK on that front.


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## DrPhilG

PS, kind of unrelated question.

I just asked the solicitor handling the account to send a letter to my credit union stating the current state of the situation.  The CU are lending me the money to pay off my wedding etc based on the fact that this whole inheritance is pending.

How long should this take?  I don't want to go chasing the solicitor too quick but I have an idea from his reputation and the dealings I've had with him so far that he is a useless chap and may take weeks for this letter to be sent.

What is a reasonable time for him to do this so I know when I have to start complaining?


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## Henrieta

Your brother should consider transferring some of his assets into his wife's name for a certain period of time to ensure he meets the provision of the farmer test.  If he undervalues some of his non agricultural farm assets to meet the farmer test Revenue would have a very strong case to claw back the CAT unpaid by him so he needs to be very careful.   However they cannot do anything to him if the assets are in his wife's name.  However he would need to consider legal and admin costs of doing so.  

BTW sorry about giving you incorrect info above, I only noticed after the post that Revenue had amended this part of the legislation in Finance Act 2007.


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## DrPhilG

Henrieta said:


> Your brother should consider transferring some of his assets into his wife's name for a certain period of time to ensure he meets the provision of the farmer test. If he undervalues some of his non agricultural farm assets to meet the farmer test Revenue would have a very strong case to claw back the CAT unpaid by him so he needs to be very careful. However they cannot do anything to him if the assets are in his wife's name. However he would need to consider legal and admin costs of doing so.
> 
> BTW sorry about giving you incorrect info above, I only noticed after the post that Revenue had amended this part of the legislation in Finance Act 2007.


 
No problem about the info, I see you corrected yourself!

Is it legal for my brother to do that?  He can easily transfer the house into her name, but would that not be seen as tax evasion?  Is the valuation of assets taken at the time of my Uncle's death or could he transfer now and save the tax bill?  Whatever the costs of transferring, I'm sure they're not as much as a €100k tax bill!

PS, no idea on the time frame for a solicitor's letter?  I will be transferring most of the credit union money into sterling so the longer this takes, the more money it will cost me because of the currently improving sterling rate!


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## Henrieta

The valuation date is the important date in this instance.  Therefore if your brother is considered a farmer at this date there is the opportunity for "tax planning".  This would involve transferring his non agricultural assets to his wife in advance of the valuation date.  These transfers to a spouse are exempt from all taxes.  If he goes ahead and does that he should be careful not to put an arrangement in place for the return of the non agricultural assets from his wife as this may be regarded as "tax avoidance" and a clawback of CAT could be triggered via S811 TCA 97.

The important thing would be for him to transfer the non agricultural assets to his wife unconditionally and at some point down the line put them back in joint names.


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## DrPhilG

It's not sure whether he would qualify as a farmer at this point, that all depends on the valuations on his 2 houses.  Obviously if he transferred the investment property into his wife's name now, it would greatly reduce his "non agricultural" assets, but he didn't think that this would be legal because it would be tax avoidance.


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## Henrieta

I would regard it as tax planning but in fairness if he is uncomfortable about it, it is his decision to make.  He should maybe consider speaking to a solicitor/tax consultant who specialises in inheritance issues?


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## Bar101

You might want to take another look at the use of "favourite nephew" status (as mentioned by mathepac at the start of this thread). Given you have been in the UK it would be a stretch to use it for you but it could easily be applicable to your Brother. It would essentially give your Brother the same inheritance thresholds as a son which are much much higher than that of nephew. Take a look at Section 10 and 11 in [broken link removed] . Then consult your adviser.


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## DrPhilG

Bar101 said:


> You might want to take another look at the use of "favourite nephew" status (as mentioned by mathepac at the start of this thread). Given you have been in the UK it would be a stretch to use it for you but it could easily be applicable to your Brother. It would essentially give your Brother the same inheritance thresholds as a son which are much much higher than that of nephew. Take a look at Section 10 and 11 in [broken link removed] . Then consult your adviser.


 
For the favourite nephew thing, do you not need to be able to show that you worked a considerable amount on the farm?  My brother did not, so I think this would be a lost cause.


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## Bar101

With a small business - which this is -  "considerable" is defined as only about 15 hours per week. This would not preclude your Brother having another full-time job (many small farmers do) or running his own farm as well. It might also include time spent on paperwork, form filling etc. Additional evidence would include use of the land by your Brother to store his own cattle/sheep etc. However this is definitely a case where it is worth consulting an expert. It will be money well spent.


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## DrPhilG

Bar101 said:


> With a small business - which this is - "considerable" is defined as only about 15 hours per week. This would not preclude your Brother having another full-time job (many small farmers do) or running his own farm as well. It might also include time spent on paperwork, form filling etc. Additional evidence would include use of the land by your Brother to store his own cattle/sheep etc. However this is definitely a case where it is worth consulting an expert. It will be money well spent.


 
Yeah, but my brother is not a farmer, and did not help my uncle with the farm in any way.  He did all his own paper work etc and my brother did not have any dealings in any way with the farm.


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