Is it more tax efficient for the estate to sell a house or for the beneficiary?

L

LL????

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My wife recently sold a property that she inherited from her mum's estate for which she acted as the executor.

When issuing the contract for sale her solicitor showed the seller as the personal representative of her late mum's estate (ie my wife) as opposed to my wife specifically.

This now looks like additional taxes will need to be paid as the estate will owe CGT on the increase in value of the property and my wife will now owe CAT on the increased value of the estate also, whereas if the contract for sale had been in my wife's name she would have paid CAT on the acquisition value of the property and CGT on the subsequent increase in the property value, thus avoiding a double whammy.

My wife wasn't afforded a choice in who the seller on the contract should have been by her solicitor and we are wondering what options are open to use now to either avoid the incursion of this additional unnecessary extra tax or to seek compensation for the lack of professional advise that should have been forthcoming when the contract was being drawn up.
 
LL???? said:
My wife wasn't afforded a choice in who the seller on the contract should have been by her solicitor
Click to expand...

I am not a solicitor or a tax expert...

So the choice would have been
1) Do you sell it from the estate
or
2) Do you convey it from the estate into your wife's name and then sell it.

It's a very interesting question!

If it had been conveyed to your wife, then she was the owner and therefore the seller.

Are you sure that one is more tax efficient and that she has lost out as a result?

1) The CAT is based on the valuation at the date of death - let's say €600k
2) If the estate sold it for €700k, then the estate would pay CGT on €100k.
2A) If your wife inherited it and sold it for €700k would she not pay CGT on the €100k.
 
Was the property transferred and registered into your wife's name?

If it was then the solicitor handling the sale has erred. If not, then the "reps of deceased party name" is correct.
 
@mathepac

You are correct, but should the question not be? Should the solicitor advise the client that it is better to do it one way or the other?

I have not come across the question before, so my gut feeling is that it doesn't matter from a tax point of view and it's simpler for the estate to sell it as there would be only one set of legal fees.
 
There is no 'double whammy', either way as LPR or as beneficiary there is a gain, on which CGT must be paid. There is a slight difference in that an LPR generally cannot claim SGE, but a beneficiary can, although if an LPR gets a letter signed by a beneficiary saying they sold in trust for the beneficiary they can still claim SGE and are also saving on the legal and Tailte Eireann fees of registering the transmission of the property into their name. So all in all, from what you have posted, I would say your wife is better off overall.
 
LL???? said:
My wife wasn't afforded a choice in who the seller on the contract should have been by her solicitor and we are wondering what options are open to use now to either avoid the incursion of this additional unnecessary extra tax or to seek compensation for the lack of professional advise that should have been forthcoming when the contract was being drawn up.
Click to expand...
Your wife doesn’t really have a choice.

If the title of the property has already transferred to your wife’s name as beneficiary then it must be sold in her name. When title was transferred, there may have been a difference between the value as it was stated in the probate application and the value on the date it was transferred. If so, CGT would be payable at that stage. If she held on to the house for a while as a second property and subsequently sold it, she would be liable for CGT for a second time.

If title hasn’t been transferred, then the property is being sold in discharge of her mother’s will. Again, if there’s a difference between the value as it was stated on the probate application and the amount realised on sale, then CGT is payable on the difference.

The likelihood is that the cumulative amount of CGT is the same in either scenario. It’s just the route by which you get there is different.
 
Salvadore said:
Your wife doesn’t really have a choice.

If the title of the property has already transferred to your wife’s name as beneficiary then it must be sold in her name. When title was transferred, there may have been a difference between the value as it was stated in the probate application and the value on the date it was transferred. If so, CGT would be payable at that stage. If she held on to the house for a while as a second property and subsequently sold it, she would be liable for CGT for a second time.

If title hasn’t been transferred, then the property is being sold in discharge of her mother’s will. Again, if there’s a difference between the value as it was stated on the probate application and the amount realised on sale, then CGT is payable on the difference.

The likelihood is that the cumulative amount of CGT is the same in either scenario. It’s just the route by which you get there is different.
Click to expand...
MHoran379 said:
There is no 'double whammy', either way as LPR or as beneficiary there is a gain, on which CGT must be paid. There is a slight difference in that an LPR generally cannot claim SGE, but a beneficiary can, although if an LPR gets a letter signed by a beneficiary saying they sold in trust for the beneficiary they can still claim SGE and are also saving on the legal and Tailte Eireann fees of registering the transmission of the property into their name. So all in all, from what you have posted, I would say your wife is better off overall.
Click to expand...
Would such a letter also work if a beneficiary had a previously unused capital loss available for offset against their CGT?
 
Salvadore said:
Your wife doesn’t really have a choice.

If the title of the property has already transferred to your wife’s name as beneficiary then it must be sold in her name. When title was transferred, there may have been a difference between the value as it was stated in the probate application and the value on the date it was transferred. If so, CGT would be payable at that stage. If she held on to the house for a while as a second property and subsequently sold it, she would be liable for CGT for a second time.

If title hasn’t been transferred, then the property is being sold in discharge of her mother’s will. Again, if there’s a difference between the value as it was stated on the probate application and the amount realised on sale, then CGT is payable on the difference.

The likelihood is that the cumulative amount of CGT is the same in either scenario. It’s just the route by which you get there is different.
Click to expand...
Excluding all associated costs for simplicity if the value inherited at probate was say €480k and the property was subsequently sold for €540k
a) if the sale was contracted in my wife's name than I believe the following would have happened CAT payable on the €480k (as threshold fully used previously) of €158.4k and CGT payable of €19.8k (€540k - €480k @ 33%) giving a total tax liability of €178.2k
b) as the sale was contracted with my wife as LPR then the estate has to pay CGT of €19.8k and my wife then has to pay CAT on the increased value of €540k less the CGT paid of €19.8k coming to €171.67k giving a total tax liability of €191.47k
Option b therefore results in an increased overall tax liability of €13.27k (€191.47k - €178.2k) which could have been avoided if the solicitor had gone with option a….
 
LL???? said:
my wife then has to pay CAT on the increased value of €540k
Click to expand...

Are you sure?

I tried to get to the bottom of it in this thread, but didn't succeed.

Key Post - CAT and CGT on the inheritance of a house - valuation, dates etc.

This is a very tentative post. Don't quote it until it has been corrected or confirmed. I have never been able to get a clear answer on this and I can't find it explained clearly anywhere. So I am going to set out my understanding of it so that people can correct it. I am trying to keep...
www.askaboutmoney.com

I am surprised that there is an additional tax liability arising from the way you say it and that this is not a well-known tax planning point.

Brendan
 
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