Taxation Property Query

A

Anne Griffin

Guest
My mother's sister deceased last year and her property was left to my mother and her brother, as there was no will made and they are next of kin. According to my mother's solicitor, there will be a Capital Gains Tax to pay on the property and savings, when the property is sold. The property will amount to around Euro 190,000. Can you confirm that there is CGT to pay on the property, as my mother does not own any other property both in Ireland or abroad and this property could be classed as her resident property. However my mother's brother is living in his current property which is his main residence, and owns no other residences.

Is there anyway they can both avoid paying the CGT, either by giving it as a gift to one of her daughters, or otherwise?

Kind regards.

Anne Griffin
 
Hi Anne

Unless your solicitor has relevant tax experience, don't rely on their advice in relation to tax. Capital Gains Tax does not arise at all on someone's death. However there may be Inheritance Tax, depending on the amounts left yo the next-of-kin. Again the only way to properly address this is by getting competent tax advice.
 
Many solicitors are competent to advise in relation to CAT and CGT. If your solicitor was not confident, they would suggest you obtain independant tax advice. I would suggest that the poster may well be mistakenly referring to CGT rather than CAT.
 
Hi Vanilla,
Many solicitors are indeed experienced and competent to give tax advice. My comment above referred only to the subset of solicitors who are not in that category.
u.
 
Hi Vanilla,
Many solicitors are indeed experienced and competent to give tax advice. My comment above referred only to the subset of solicitors who are not in that category, and was influenced by the apparent confusion between CGT and Inheritance Tax on the part of the poster.


u.
 
Ubiquitous, I totally agree with your comment regarding solicitors in relation to Tax Advice. Many are not, whilst some have some knowledge they would by no means be considered experts unless they have the relevant qualification, e.g. Institute of Tax. I have come across many solicitors who think they know and whilst yes they know that taxation exist, many have not got a clue how it actually works.

I had a case two year ago whereby the solicitor was advising the client that CAT had to be payable. My advice to the client was that it did not and explained why. The solicitors comment was that he was right and he knew it because it was his job and also commented that his wife worked in Revenue. I copied the particular bit of leglisation to him. He then apologised.

The most recent case is where a solicitor advised the clients that the tax payable (CAT) was about 1.2 million. My boss was appointed as tax consultant, not by the solicitors, in fact they took great umbridge to it. The tax payable was reduced to below €200k, all completly legitimate.

Working in Tax, I would never take advice from a solicitor on these matters unless he had the appropriate qualification.

However Anne, in relation to what your solicitor is saying, he is actually right. Your mothers sister died last year so the valuation for beneficial reciept is based on the date of death, this is when the CAT calculation would have been made and I am assuming that CAT was paid. If the property as you say, was retained for one year, then the proeprty increased in value therefore CGT is payable on the uplifted value from acquisition valuation to the sale proceeds. The alternative is that she could gift the property but if the property is sold soon afterwards the Revenue could deem that as tax avoidence, generally best to wait couple of year.

Is there anyone in the family that wishes to buy the property? If there is, the consideration price could be the market valuation as opposed to what you woudl actually get for it if you sold it on the open market. In addition to this, the stamp duty applicable is 1/2 the normal rate.

There is one particular issue and exemption in relation to the inheritance of property, if your mother lived in the property for 3 years preceeding your aunts death and continued to live in the property for 6 years after, and is age 55 or over and has no other interst in any other property, then she could inherite with no CAT.

Unless she falls under this, there is no way of avoiding the CAT however in relation to the CGT, if she started to live in the property after she inherited it, then she is exempt from CGT but you uncle is definately not.
 
I have come across many solicitors who think they know and whilst yes they know that taxation exist, many have not got a clue how it actually works.
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And yet you've only talked about two specific cases. In actual fact, solicitors have an automatic exemption from some of the AITI exams because of their training. We sit CAT, CGT and related tax exams when qualifying. Many solicitors, including myself, then go on to voluntarily do continuing legal education on tax matters to keep up to date.

In this particular case, you haven't suggested the possibility of filing a corrective affadavit with the revenue, which I would have thought would be the first course of action.
 
Filing the corrective affadavit was actually my first thought but quickly discounted it as why in this case would you file a corrective affadavit with the Revenue as the same tax rate applies. By altering the inherited amount in a case like this where there is no benefit in reducing the tax all you would be doing is opening the case up for scrutiny by the Revenue, incuring more legal costs and interest based on the increased consideration CAT amount and potentially penalties and for filing an incorrect return in the first place. The only time that this would be beneficial if the consideration amount at date of death and the alteration to this was within the limit of inheritance.

In actual fact, if an affidavit was submitted to alter to the amount that the property was being sold for now, then the tax liability would actually be higher because both Anne's aunt and uncle could not use their annual exemption for CGT.

And I did not say that all solicitors did not know but in my experience a large number of them do not and I have a lot of experience in this area. I could quote numerous examples but quite frankly I do not have time and have no inclination to do so.

In anyway, I actually quoted three example, the case where the family member lived in the property for three year. This was a case I dealth with a few year ago where the solicitor said that the elderly brother had to pay CAT until I advised further.

I am not a legal expert, I generally leave that to the solicitors but I do know tax. Since you are such an expert after taking the exams I thought that you would have spotted that the tax was actually CGT from the original posting and an affadavit would be totally inappropriate in this circumstance.

Anne, by the way, did you mother take up residency in the property at all since she inherited it?
 
As such an expert Kitkat I'm frankly amazed that you discounted the possibility of a corrective affadavit without firstly establishing what the actual situation is in relation to CAT here. You do not know what the property was valued at for the estate and therefore have no idea whether the thresholds were exceeded or not. Presumably also as such an expert, you would have experienced many cases where corrective affadavits were filed, and no penalties were incurred. As I have especially recently with spiraling property values. Nor would the filing of a corrective affadavit cost very much in legal fees, but in any case these could be offset as against the relevant tax. As I'm sure you are aware a saving of 20% would certainly be worth much more than the annual CGT exemption. And if you'll take the time to read the replies above, I'm quite aware the tax in question is CGT.

It amazes me too, when so called professionals feel so threatened that they have to take pot shots at other professionals. I myself could quote instances where I have had to correct tax computations prepared by accountants, but this does not automatically lead me to the conclusion that 'many' accountants are not as knowedgeable as they should be in tax matters.

I also note that you seem to be advising the selling of the property at below market value to a family member and passing this off as market value, although I find it hard to believe.

And finally I have read through your reply again, and still find only two examples....
 
There is no need to even ask the question here in relation to CAT, there the two parties involved are sister and brother. The limit for both parties in 2004 amounts to €91,288 - any amount above is chargable to CAT @ 20%. Even if the valuation of the property was altered by using a corrective affidavit, this would increase the amount chargeable to CAT in the first place so where is the benefit. There is absolutely no savings here whatsoever see example. As I stated, all this would be doing is increasing the legal costs, potentially increasing the tax, give rise to interest at approximately 12% p.a. and potentially putting the client into a penalty situation. Either the increased valuation is chargeable to CAT on a chargeable date as date of death or it is chargeable to CGT on sale. Both CAT and CGT are at a rate of 20%. And I can also tell you that the Revenue do scrutinise every corrective affidavit that they receive, regardless what the circumstances are. I have experienced many cases where corrective affidavits were filed and some which stacked up and some which did not. I would have no problem fling such an affidavit but only in circumstances where it is completely backed up and it was befeficial to do so.





Example

Property valuation at date of death after costs- €120,000 less exemption €91,288 – CAT €5,742

Property sold 1 year later for €190,000 – CGT chargeable on €70k less €2,240 (double CGT allowance) = €13,492

Total payable = €19,234



Property valuation at date of death after cost €190,000 less exemption €91,288 – CAT €19,742

Property sold 1 year later €190,000 – no CGT.

Total payable €19,742.





In relation to selling the property at below market value, I did not suggest this and never would, I suggested that if they wished they could sell it for “marketable value” which can often be below what they actually get. This would stack up with the Revenue, what would not is trying to sell for below marketable value which was never a suggestion of mine – I suggest you read the posts more thoroughly. It is another option open to Anne’s mother, and for them to make any decision they should be in position of all the possibilities.



In relation to my comment on the distinction between CGT and CAT, it would appear from your first posting on this subject that you suggested that Anne was quoting the wrong type of tax when in fact she was correct. Your comment read, “I would suggest that the poster may well be mistakenly referring to CGT rather than CAT.”



And it does amaze me when some so-called professionals claim to know everything about arrears that they are not fully competent in. And I do agree with you comment in relation to some accountants however I am sure that many of them would also agree that some are not fully up with tax legalisation, in fact I have often been brought in by accountants to act and many never have a problem admitting to their client that speciality tax advice should be sought. And by the way, I do not feel threatened in any way whatsoever, I don’t claim to be an expert in any areas that I am not. The end of the day, Solicitors think legal, whilst, Tax Consultants, well they think Tax. But this also does not automatically lead me to believe that some solicitors do not know tax as it is part of their job to be aware of it, Anne’s solicitor does in this case, well in relation to the property element anyway. As I have no idea in what form the savings are, I cannot comment but if Anne would like to let me know I can comment as it may not be CGT applicable to this.
 
Your example is based on an original taxable value of 120,000. But you have plucked this out of thin air. My suggestion that the first course of action should be to consider a correction affadavit still stands. Because we do not know what the original taxable value is. Therefore you have no way of knowing if indeed a rise in the value in a corrective affadavit would lead to all of the amount being charged to CAT. As I have also stated I have dealt with a number of genuine cases over the last few years in particular where corrective affadavits were filed without any penalties being applied. OF course the Revenue will scrutinise such affadavits, but that scrutiny will not automatically result in a penalty as you seem to suggest.

In the absence of hearing from the original poster, we are left in the air as to whether the tax in question is CGT or CAT. It could easily be either and of course as you will know, the valuation could either have been done at date of death or at date of grant, more likely in fact to be date of grant if there is CAT payable.And as grants often take a year to obtain, then the tax could indeed be CAT.

Is there anyone in the family that wishes to buy the property? If there is, the consideration price could be the market valuation as opposed to what you woudl actually get for it if you sold it on the open market.
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I have read it again, seems very clear to me.

The end of the day, Solicitors think legal, whilst, Tax Consultants, well they think Tax.
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As I said before, solicitors are trained in certain taxes also, have to pass exams in them, deal with them every day of the week.
 
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Vanilla said:
As I said before, solicitors are trained in certain taxes also, have to pass exams in them, deal with them every day of the week.
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Which taxes are all solicitors conversant in? I presume it's likely to be Capital Acquisitions Taxes (Gift Tax and Inheritance Tax), Capital Gains Tax and Stamp Duty?
 
Yes, that's right. We also do training in VAT, Income tax and Corporation tax, but I would consider this training to be basic. In relation to VAT, however most solicitors would have a very good knowledge of VAT on property transactions. Having said that, some solicitors will opt out of dealing with any tax matter if they do not feel qualified to deal with it- I don't know what training in tax was given before I qualified.
 
Thanks Vanilla - just curious. Judging by some of the posts on AAM some solicitors don't seem to be on top of this stuff. I'm not solicitor baiting here but just going by what has been posted.
 
Judging by some of the posts on AAM some solicitors don't seem to be on top of this stuff
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Yes, but remember that these posts are unsubstantiated. Sometimes a message can be lost in translation too. And of course, not all solicitors get it right all of the time. Just like every walk of life.
 
There is no way that a corrective affidavit can alter the tax payable in any way based on the beneficiaries being a brother and sister, the total limit for CAT still remain around €91k. If the beneficiaries were maybe children or a number of brothers and sisters than there possibly is a case by not where there is only two siblings.

My figure of €120k was just for example purposes, regardless what figure you put in, the tax calculation remain the same. And I agree, the date of grant (I am assuming by this that you mean the Letters or Grant of Administration) could in fact be the date for valuation but this still does not change the fact that the 20% rate is applicable regardless. But you are now just being picky as your first posting stated that the Tax was in fact CAT when you too are not in full possession of all the facts. After all, we can only go on what the person states in their posting. At the end of the date, the property is being sold as stated for €190,000, the exemption can only be in the region of €91k therefore 20% is payable on the excess regardless whether it be deemed to be CAT or CGT. As I stated before a corrective affidavit would only go towards incurring more costs - legal, potential interest and penalties (I never said automatic I said potentially in both my posts). The Revenue Commissioners are under strict guidelines to collect interest and penalties wherever possible, this is fact not fiction. I am not saying that they do, obviously this is largely dependant on the case put forward but it is becoming more and more common. I for one would not consider putting any client into this position where there is no benefit whatsoever.

I still yet have to meet a solicitor who is fully coherent with tax legislation particularly one who knows all the different tax avenues that can be taken to reduce tax liabilities. I have never said that they don’t know anything about tax as it is part of their jobs to be familiar with it and in general they are but it is not their overall profession, Tax Consultants purely concentrate on Tax matters. I have full respect for solicitors well at least the ones who don’t claim to be Tax experts. At least Tax Consultants don’t claim to be legal experts.

And once again, I did say that the property could be sold for marketable value not below. My statement is clear on that. I would never suggest a sale below marketable value.
 
Amazing. Without knowing the original valuation, the taxable value ( less all debts liabilities, possible consideration, costs) you are so certain that a corrective affadavit could not reduce the tax bill. I find that alarming too in that you are closing off the avenue that could save these taxpayers the most money without even examining it as the first option. I can see that you are absolutely convinced that you are right.

Again I think it is sad to see a so-called professional making a blanket disparaging remark about another profession. I see no point in analysing your post further as this thread is going nowhere.
 
Vanilla said:
In relation to VAT, however most solicitors would have a very good knowledge of VAT on property transactions.
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I am an accountant and am not trying to have a go at you Vanilla

And I know this is anecdotal, but I have had four cases, in the past 1 1/2 months, (4 out of 4) where the solicitor has charged the incorrect amount of stamp duty due to getting the VAT element of the property purchase wrong

One of whom was not even aware that the stamp duty should be charged on the VAT exclusive price

That said I know of a couple solicitors that I deal with on a regular basis who I wouldn't even doubt their technical abilities

stuart@buyingtolet.ie
 
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