Query re: advance tax payment on inheritance

[Nutso]

My friend in the UK has asked me a question regarding an Irish will.

Her father-in-law has come into an inheritance via his deceased wife from his sister-in-law in the form of a part share in a house that is to be sold. The house has not been sold yet and may take longer than expected due to the current crisis.

I'm assuming he's a category C recipient with a limit of 16,250? Are there any extra allowances due because it passed via his wife who pre-deceased him?

She said that he has been asked for a payment of tax up front from Irish Revenue in the sum of approximately €8k. Is it normal that someone would be asked to pay their inheritance tax in advance? This gentleman lives in the UK. I know that he has Irish roots but I'm not sure if he was born in Ireland. Would that have any bearing on anything?

 

[Vanessa]

He isnt being asked to pay inheritance tax in advance. The tax is due once he gets the inheritance and must be paid by a certain date or penalties will be incurred. We had a similar case but due to the value of the property at that time the threshold was not exceeded. However when the property was subsequently sold during the recent boom with each of four owners (all siblings) Capital Gains tax was incurred and had to be paid.
The inheritance of the property which I presume was due to his wife from her sister throws a different light on it as there may be some scope there for tax relief. As always get professional advice. If he deals with the Irish Revenue there will be no liability to Her Majestys Revenue as they have a joint agreement to cover such situations. He may need to provide proof though of the source of the funds

 

[Nutso]

Thanks Vanessa - I understand now. I had assumed that he wouldn't have to pay until he received the inheritance but what you are saying is that he has received it even though he does not have anything to show for it yet.

 

[Gordon Gekko]

Thanks Vanessa - I understand now. I had assumed that he wouldn't have to pay until he received the inheritance but what you are saying is that he has received it even though he does not have anything to show for it yet.

But applying that logic if he held on to the property, he’d never have to pay tax. If someone doesn’t have the cash to pay an inheritance tax liability, Revenue will allow if to be deferred, subject to interest at around 8%.

 

[Vanessa]

Thanks Vanessa - I understand now. I had assumed that he wouldn't have to pay until he received the inheritance but what you are saying is that he has received it even though he does not have anything to show for it yet.

Yes. The property cant be sold until it is in the new owners name. Revenue dont have a great "bedside manner" on money owed and as Gordon points out the penalties can be heavy. For a lot of people raising funds to pay tax takes the good out of an inheritance (depending of course on amount inherited) and inheriting property in a falling markets can lead to problems especially where there are a number of shareholders

 

[Nutso]

The property is currently valued at 200k. If this value was to fall due to the current crisis and it sold for less would there be any hope of the tax liability being reduced?

 

[Nutso]

But applying that logic if he held on to the property, he’d never have to pay tax. If someone doesn’t have the cash to pay an inheritance tax liability, Revenue will allow if to be deferred, subject to interest at around 8%.

Thanks Gordon that makes sense. I'm assuming there is no extra allowance passed to him via his deceased wife?

 

[Vanessa]

The property is currently valued at 200k. If this value was to fall due to the current crisis and it sold for less would there be any hope of the tax liability being reduced?

The inheritance tax due will be based on the value of the property on the date of death of the donor. (I am open to correction on this but I am working on what happened in our family) Its not difficult to get that value. You could get an auctioneer to give you an estimate on what the property would have roughly made at that time. You could always work it out yourself if you get the average price for similar properties at that time. This would be acceptable to Revenue as long as you can show how you came up with the figure and dont be chancing your arm on dubious figures.

Now you may be getting a little confused about this because having taken possession of the property, paid the appropriate inheritance tax you might think that is the end of the matter but no.
If you sell the property there may be a Capital Gains Tax liability. This will be based on the difference in price from the value used for inheritance tax purposes
and the price you now sell for. If there is a profit there will be a tax liability on the profit. There are allowances that could reduce this figure such as cost of improvements made, legal costs and auctioneer cost etc. If it was your main place of residence for a number of years you could reduce or indeed eliminate any liability. It all sounds complicated but it straightforward enough. A good accountant could help save you a lot at a reasonable enough fee. Also if sold at a loss it may be possible to use the loss figure against tax liability on other activity

 

[Baby boomer]

The OP said that the beneficiary lives in the UK. Assuming ordinary residence and domicile in the UK, is he liable for Irish CAT? If so, is this liability based on the location of the property, or the location of the property's owner?

So, for example, take the following scenarios:

A) UK resident inherits UK house from UK resident.

B) UK resident inherits UK house from Irish resident

C) UK resident inherits Irish house from Irish resident

D) UK resident inherits Irish house from UK resident

E) Irish resident inherits UK house from UK resident

F) Irish resident inherits UK house from Irish resident

G) Irish resident inherits Irish house from UK resident.

H) Irish resident inherits Irish house from Irish resident.

Which of A, B, C, D, E and F generate a liability to Irish CAT and/or UK inheritance tax?

Obviously, A will generate a UK liability only and H will be Irish liability only. And E to H will definitely generate an Irish liability.

Apart from that, can anyone fill in the blanks?

 

[Gordon Gekko]

Irish property is always subject to CAT.

My understanding is that the date of death is the ‘valuation date’ (i.e. tax point) in circumstances where someone inherits something immediately (e.g. a joint tenant inheriting a profit).

If I inherit something like an investment property from a deceased uncle, my understanding is that the ‘valuation date’ is the date on which probate is granted.

i.e. it’s the date of the grant of probate most of the time

 

[Vanessa]

Irish property is always subject to CAT.

My understanding is that the date of death is the ‘valuation date’ (i.e. tax point) in circumstances where someone inherits something immediately (e.g. a joint tenant inheriting a profit).

If I inherit something like an investment property from a deceased uncle, my understanding is that the ‘valuation date’ is the date on which probate is granted.

i.e. it’s the date of the grant of probate most of the time

I am certainly open to correction re "valuation date". We can all give a rough idea of what is needed here but overall I think it can be straightforward once professional advice is sought

 

[MOB]

I'm assuming he's a category C recipient with a limit of 16,250? Are there any extra allowances due because it passed via his wife who pre-deceased him?

Yes; He steps into the shoes of his deceased wife and takes her category (which appears to be B in this case).

In the wording of the statute:
Where any donee or successor is, at the date of the gift or at the date of the inheritance, the surviving spouse of a deceased person who, at the time of that deceased spouse's death, was of nearer relationship than such donee or successor to the disponer, then such donee or successor is, in the computation of the tax payable on such taxable gift or taxable inheritance, deemed to bear to the disponer the relationship of that deceased person.

 

[Nutso]

The OP said that the beneficiary lives in the UK. Assuming ordinary residence and domicile in the UK, is he liable for Irish CAT? If so, is this liability based on the location of the property, or the location of the property's owner?

So, for example, take the following scenarios:

A) UK resident inherits UK house from UK resident.

B) UK resident inherits UK house from Irish resident

C) UK resident inherits Irish house from Irish resident

D) UK resident inherits Irish house from UK resident

E) Irish resident inherits UK house from UK resident

F) Irish resident inherits UK house from Irish resident

G) Irish resident inherits Irish house from UK resident.

H) Irish resident inherits Irish house from Irish resident.

Which of A, B, C, D, E and F generate a liability to Irish CAT and/or UK inheritance tax?

Obviously, A will generate a UK liability only and H will be Irish liability only. And E to H will definitely generate an Irish liability.

Apart from that, can anyone fill in the blanks?

I'm almost certain that it's C) of these options.

 

[Nutso]

Yes; He steps into the shoes of his deceased wife and takes her category (which appears to be B in this case).

In the wording of the statute:
Where any donee or successor is, at the date of the gift or at the date of the inheritance, the surviving spouse of a deceased person who, at the time of that deceased spouse's death, was of nearer relationship than such donee or successor to the disponer, then such donee or successor is, in the computation of the tax payable on such taxable gift or taxable inheritance, deemed to bear to the disponer the relationship of that deceased person.

Hi MOB,
Many thanks so much for answering that query. They got back to the solicitor today and they have agreed that he should be in category B. I'm very glad I asked the question!

 

[Nutso]

I have one further query to the above if anyone can help:

The person who died was actually an aunt of the deceased wife, rather than a sister as I understood, however the solicitor has still agreed that her husband is category B for inheritance purposes.

The son of this man (the deceased person who left the inheritance was a grandaunt to this person) was also left an inheritance in the case that his mum predeceased the grandaunt.

Does the grandnephew now get considered as a nephew (category B) as opposed to a grandnephew (category C) due to the fact that it passed through his mum, or would he always be category C as a grandnephew.

Thanks in advance