"I have to sell the house to pay the CAT."

[Brendan Burgess]

A friend of mine asked me about a question for a friend of theirs.

He has inherited a house worth around €400k from his uncle.
So he has a CAT bill of around €120k

He has his own house near where he works.
But he would like to keep his uncle's house and maybe retire to it in about 10 years.

But he does not have the money to pay the CAT.

I am getting more information, but in the meantime...
1) Are there any facilities for deferring the payment of CAT?
2) Would Revenue be open to an arrangement for deferred payment?
3) If he makes a return, but doesn't pay it, what interest is charged?

I am going to look at remortgaging his own home to pay the CAT or possibly remortgaging the uncle's property. But I want to get an idea of the CAT story first.

Brendan

 

[Gordon Gekko]

Hi Brendan,

A payment plan is possible. The interest rate is 8% per annum.

A mortgage would clearly be far cheaper.

Does he have any cash or liquid assets to pay a chunk of the tax? Is it definitely worth €400k? Could it arguably be worth less?

 

[noproblem]

Is it possible to sell the house for a far lower figure than the €400k to someone he knows then arrange to buy it back again for ? I'm not advocating dishonesty, just trying to solve it in another way.

 

[T McGibney]

Is it possible to sell the house for a far lower figure than the €400k to someone he knows then arrange to buy it back again for ?

Revenue would simply disallow any tax saving arising from such an arrangement by citing anti-tax avoidance legislation. In such situations, the burden of proof lies with the taxpayer to show that it's not an artificial tax avoidance transaction and this can be hard to prove.

 

[andyrobs]

Agreed – the only option is a mortgage as the 8 per cent per annum interest rate on instalments offered by the Government is exhorbitant.


And don’t forget he must file a return with the Irish revenue by 31 October assuming the valuation date (normally when probate is granted) is before 31 August and pay the CAT due. If its late there is a 5% penalty rising to 10% after two months with daily interest added.


Never quite sure who invented the CAT rules and the three groups. Why not give everyone the same lifetime tax free allowance irrespective of who you inherit from? Are 65 year old children inheriting from their parents necessarily any more deserving of paying less tax than a 65 year old inheriting from their childless uncle? And unlike the UK and most other countries you have to pay the CAT due in the same tax year even if you can’t or don’t want to sell the property.


And yet the dwelling house relief scheme which allowed people to pass on second homes worth millions tax free to their children has only just been abolished.


The whole system and its complexity just seems designed to make solicitors/lawyers and accountants very rich!

 

[Thirsty]

Can the inherited property be rented? If you can show a regular rental income you'll have a better shot at getting a buy to let mtge.

 

[Gordon Gekko]

Or try and avail of rent-a-room relief?

A sensational option for someone in need of a few bob and with room to spare in their home.

 

[srase]

Section 54 of the CAT act allows certain CAT liabilities to be paid by monthly installments over 5 years. As set out in previous posts, statutory interest would apply. The rate is high and a bank loan may be cheaper if this is possible.

 

[cremeegg]

Another suggestion from the dubious, but not I think illegal, end of the spectrum.

Get a relative to start a court case challenging the will. CAT only becomes due when the case is settled, could drag out for a few years, effectively an interest free loan, after any legal fees of course.

 

[torblednam]

Another suggestion from the dubious, but not I think illegal, end of the spectrum.

Get a relative to start a court case challenging the will. CAT only becomes due when the case is settled, could drag out for a few years, effectively an interest free loan, after any legal fees of course.

Hmmm, you're proposing affecting the Valuation Date, but as the name suggests that would involve also changing the value at which the ultimate CAT liability is calculated - in a rising market that could result in a higher liability...

 

[GabbyTheKing]

I have heard this is something a few have done before when getting homes from family in Dublin and trying to reduce the value as it was going to benefit by PPR Relief going forward. Mind you if you are going to sell it there is no point in doing this but if you are not consider the following.

Make a bit of a mess in the house. Leave a few old papers thrown around, rubbish, beer cans etc on the floor, put up a bit of Graffiti on the walls, pull out fittings that are no longer needed, throw the mattress off the bed and make sure no bed is made, screw out a few sockets and leave a few wires in plain view, take out alot of the light bulbs, get some dirt and stink out the toilet, let the grass grow high, peel out any soon to be gone wallpaper, put a bit of water on the wall all prior to getting in two nice agents in to Value the property for inheritance rather than sale at a fixed fee say €250 each and make sure they take a few pictures. All the above are very cosmetic and easily restored but make a house look awful. I guarantee if you have the heart to do it the Value will come down by 25-30% odd and a coat of pain and a few hours work and a strong stomach will restore it back to normal. Its very feasible especially if you plan on redecorating it anyway there is alot more you could do if that was the plan. Let the agents know the BER is an X Rating and the house was trashed by youths/addicts etc. Tell them you think it might have to be rewired. Tell them to watch their step etc etc.

That could be a 33k saving at a cost of 1k odd.

If the idea is a sale it won't be of any net benefit as you will be selling the house for x anyway and if you don't have to pay CAT you will have to pay CGT, however if the plan is to keep it and some day live in it as a PPR or rent it long term then why not. Nobody has to be dishonest and the valuations are 100%

 

[Gordon Gekko]

One could also try the Homer Simpson approach...

Use white chalk to draw the outline of two dead bodies on the floor a la a US crime scene.

Then use red paint to write "We'll be back" on the wall...

 

[dub_nerd]

Most of the houses I've viewed that are asking top dollar in today's market are in that sort of condition.