My father passed away last year and, among other things, left me some shares. I have since sold some of these and am now trying to sort out the related tax issues.<\/p>\n
That has thrown up an anomaly which is further complicated by the different opinions I am getting from various qualified accountants. <\/p>\n
When it comes to working out my capital gain, I am being told two very contradictory things. Some accountants to whom I have spoken say that I need to take the price the shares were trading at on the day my father died to work out my capital gains tax (CGT)<\/a> liability.<\/p>\n This seems unfair because, when we were sorting out capital acquisitions tax (CAT)<\/a>, the relevant valuation date was the date of probate.<\/p>\n The shares rose in value between the time my father died and when probate was sorted so, on that basis, I feel I am being taxed twice on the same gain, once under CAT and now under CGT.<\/p>\n However, I have also received advice from other accountants that CGT will be paid on the disposal of shares, where the gain will be calculated from the date of probate rather than date of death.<\/p>\n That seems more fair in that I am being taxed once up to grant of probate for CAT and then taxed from that point on for the purpose of CGT, and not twice for that interim period.<\/p>\n My real problem is that I cannot get a definitive answer on this point. Would you have any knowledge of this possible double taxation? <\/p>\n CB<\/p>\n You know you\u2019re in trouble when accountants are that far apart in their interpretation of tax liability. And, to be fair, from a layman\u2019s perspective, I can see why. Logic would seem to suggest that your gain should only kick in from the point at which you already paid tax.<\/p>\n If an asset \u2013 the shares in this case \u2013 had fallen in value between your father\u2019s death and probate, you would have benefited from a lower inheritance tax bill at probate<\/p>\n Given that this has accountants scratching their heads for a definitive answer, I went straight to Revenue, because it would clearly be well beyond me.<\/p>\n The issue seems to be down to one of the idiosyncrasies of the Irish tax system. Put simply, you have two taxes that operate from different starting points.<\/p>\n CAT, better known as inheritance<\/a> tax, measures the tax liability of any beneficiary on the basis of what is known as the valuation date for the relevant asset.<\/p>\n That in itself can throw up complexities as, depending on the asset, the recipient and the circumstances, a valuation fate can vary. We\u2019re not going to get into that here because you are comfortable that for you, in relation to these shares, the valuation date was the date on which probate was granted.<\/p>\n [\u00a0Normal capital gains tax rules are set aside if spouses transfer shares to each otherOpens in new window<\/a>\u00a0]<\/p>\n That\u2019s a logical finding, because valuation dates tend to focus on when the beneficiary has control of an asset and, in the case of these shares, you had no direct control over them until they were distributed to you after probate had been granted. You could not sell them, for instance, up to that point, even though they had been left to you.<\/p>\n Because the valuation date was determined to be the date of probate, it is the price of the shares on that day that determines whether you have a liability to inheritance tax.<\/p>\n As it happens, I gather that you would have paid tax at 33 per cent, because you would have been over the tax-exempt threshold. That makes sense.<\/p>\n The trouble is that when you get to capital gains tax (CGT), its dynamics run entirely differently.<\/p>\n As a general rule, you assess a capital gain by deducting the price at which you buy an asset from the price at which you sell. You can then deduct from that gain any costs directly incurred in the acquisition or sale of the asset.<\/p>\n Another key feature of capital gains is that any gain in the value of an asset dies with the owner. So, if your father had sold these shares before he died, he would have been assessed for capital gains. As he didn\u2019t, the capital gains clock stops with his death.<\/p>\n But, as you have discovered, that presents an issue for the beneficiary because, although they have no control over the asset, the clock on capital gains starts ticking for them as soon as the father dies. Ownership passes even though access is delayed.<\/p>\n Now, if an asset \u2013 the shares in this case \u2013 had fallen in value between your father\u2019s death and probate, you would have benefited from a lower inheritance tax bill at probate and, even better, a recovery window for the shares to return to the price they were at when your father died before you had any tax issue.<\/p>\n [\u00a0What capital gains tax will my wife pay on shares she inherits from me?Opens in new window<\/a>\u00a0]<\/p>\n But that was not what happened here. You don\u2019t give precise figures but, for the sake of illustration, let\u2019s assume we are talking about 5,000 shares in Company X that were worth \u20ac6 a piece when your father died, which had risen to \u20ac7.50 when probate was granted and to \u20ac9 by the time you sold some of them earlier this year.<\/p>\n These inherited shares were worth \u20ac7,500 more when your inheritance tax bill was set than they had been when your father died, and \u20ac15,000 more by the time you sold some of them.<\/p>\n On the basis of your \u20ac15,000 gain, minus your \u20ac1,270 CGT tax exemption on gains in any year, you are facing a bill for \u20ac4,530.90 \u2013 (\u20ac13,730 @ 33 per cent). Had your gain been dated from when you actually got the shares, the bill would have been \u20ac2,055.90.<\/p>\n Given that you have already paid 33 per cent CAT on the initial \u20ac7,500 gain from your father\u2019s death to probate, your overall tax on this gain is \u20ac6,586.80 when, logically, you might expect it to be \u20ac4,530.90.<\/p>\n The bad news for you is that Revenue is quite definitive in its view.<\/p>\n You must pay the CGT owing by December 15th this year and file a return relating to this gain by the end of October next year<\/p>\n As is the wont of tax officials the world over, their initial response borrowed heavily from the relevant legislation \u2013 in this case, section 573 of the Taxes Consolidation Act 1997, which covers the consequences of the death of a person for capital gains tax purposes. Section 5 of the same Act provides the critical definition of \u201clegatee\u201d which, in this case, is you. <\/p>\n