Q. Based on the probate valuation of my late mother\u2019s estate we, her two children and executors, had a small capital acquisitions tax liability.<\/p>\n
Her house, however, sold for less than anticipated, so the net proceeds of our inheritance<\/a> ended up being less than the \u20ac335,000 parent-child inheritance tax threshold in place at the time of her death.<\/p>\n We ended up with \u20ac302,000 net each, rather than the \u20ac339,000 declared in the statement of affairs submitted to Revenue.<\/p>\n Do we still have a tax<\/a> bill? We spent about \u20ac6,000 on heating, insurance and roof repairs before probate was granted. <\/p>\n My mother also bequeathed money to two grandchildren and an in-law to be paid from the residue of her estate. The residue was insufficient, however, so we used about \u20ac20,000 from the house sale to honour her wishes. <\/p>\n A. The reader and his sibling inherited their mother\u2019s house through a specific bequest in her will.<\/p>\n \u201cBeneficiaries of a specific bequest are charged capital acquisitions tax (CAT), based on the value of the asset on the date of the grant of probate\u201d, says Deirdre Farrell, partner at Amorys Solicitors LLP.<\/p>\n If the house value on this date puts each sibling\u2019s inheritance above their parent-child tax-free threshold, they will pay CAT of 33 per cent on the amount over the threshold. <\/p>\n The threshold at the time of their mother\u2019s death was \u20ac335,000. It has increased to \u20ac400,000 since, but that is irrelevant for them.<\/p>\n [\u00a0\u2018I have been left a property with a sibling. They want to keep it, I want to sell\u2019Opens in new window<\/a>\u00a0]<\/p>\n As the siblings decided to sell the property, a second tax, capital gains tax<\/a> (CGT) comes into play.<\/p>\n CGT is assessed on the difference between the sale price of the house and its value at the date of their mother\u2019s death, less any costs of acquisition and sale. <\/p>\n Things like estate agent and legal fees, as well as any money spent on enhancing the property can be offset against CGT. <\/p>\n \u201cRoutine repairs, heating and insurance are not considered enhancements\u201d, she says.<\/p>\n \u201cTo be deductible, enhancement expenses must be capital in nature and not day-to-day costs incurred to maintain the asset in the state in which it was originally bought or acquired,\u201d says Farrell. <\/p>\n \u201cDespite the fact that in this case, on one view, capital acquisitions tax may be considered to form part of the incidental costs of acquiring the asset, it is the Revenue\u2019s long-standing view that inheritance tax<\/a> is not a deductible cost for CGT purposes,\u201d she says.<\/p>\n [\u00a0The greatest gift to leave your family? A lump sum to pay off inheritance taxOpens in new window<\/a>\u00a0]<\/p>\n \u201cIf, however, the property sold for less than its valuation at the date of his mother\u2019s death, that loss, or at least part of it, can be carried forward and offset against any future gains indefinitely,\u201d says Farrell.<\/p>\n Regarding the residue in the will being insufficient to pay the grandchildren and in-law named, such legacies abate, or decrease, in the proportion the legacies bear to the net residue available for distribution, says Farrell.<\/p>\n \u201cIf there is no residue, unless a contrary intention is stated or shown in the will, the legacies abate in full \u2013 meaning, unfortunately, those legatees will not be paid what was provided for them in the will.\u201d<\/p>\n The reader and his sibling gave money to the grandchildren and in-law from the proceeds of the house sale to honour their mother\u2019s wishes. Farrell sees no problem with this. <\/p>\n While such an approach is commendable, in this case, the legacies are treated as gifts and cannot be used to reduce the reader\u2019s tax liability, she says. <\/p>\n \u201cGoodwill is not rewarded in this case unfortunately,\u201d says Farrell.<\/p>\n [\u00a0If my sister leaves \u20ac200,000 to my child, would that impact their inheritance tax threshold?Opens in new window<\/a>\u00a0]<\/p>\n Whether recipients will have to pay capital acquisitions tax on gifts can depend on their relationship to the reader and his sibling. <\/p>\n The small gift exemption allows any person to receive up to \u20ac3,000 per calendar year from any number of individual donors tax-free \u2013 so that would be \u20ac3,000 each from the reader and his sibling.<\/p>\n Nephews and nieces have a tax-free lifetime limit of \u20ac40,000 from uncles and aunts.<\/p>\n As the total amount paid in this case was approximately \u20ac20,000, the beneficiaries may have no tax to pay. <\/p>\n The name of the reader who submitted the question is not being published to protect the identities of those involved. Please send your legal queries to Joanne Hunt, Ask the Lawyer, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to joanne.hunt@irishtimes.com<\/a> with a contact phone number. This column is a reader service and is not intended to replace professional advice<\/p>\n","protected":false},"excerpt":{"rendered":"Q. Based on the probate valuation of my late mother\u2019s estate we, her two children and executors, had…\n","protected":false},"author":2,"featured_media":912018,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[64,63,99,103492,186,41144,15868,36756,21921,184,185,4961],"class_list":["post-912017","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-au","tag-australia","tag-business","tag-capital-gains-tax-cgt","tag-finance","tag-for-you","tag-inheritance","tag-inheritance-tax","tag-money-matters","tag-personal-finance","tag-personalfinance","tag-tax"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/912017","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=912017"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/912017\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/912018"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=912017"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=912017"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=912017"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}