The discussion you raised last week involved the phrase ‘inheritance or gift date,’ and you pointed out that the prevalent inheritance tax at the time applies. However, when looking at inheritance, is the appropriate date when the benefactor passes away, or when probate is granted?
Regrettably, it’s not as straightforward as selecting one of the dates you’ve provided. It’s a tad bit more nuanced.
The Irish tax law concerning inheritance hasn’t significantly evolved in the past few years. In 2012, the last shift in the tax applied to any inheritance beyond the tax-free limit happened; this increase, the fourth in just over a four-year period, coincided with the government’s struggle to mitigate the fiscal consequences of Ireland’s financial crisis.
The tax rate increased from 30 per cent to 33 per cent. At the start of the millennium, the rate was as low as 20 per cent, then it crept up to 22 per cent in November 2008, further soared to 25 per cent just before five months lapsed, and hit the 30 per cent mark in 2011.
Simultaneously, the limits for tax-free inheritance were decreasing. Prior to the financial crash, these limits were gradually increasing, with category A threshold — inheritance from a parent —even taking a leap by around €21,000 to €542,544 in 2008, when the economic collapse began to hit public finances. At that time, the threshold for category B (inheritances from close blood relatives) was a tenth of the category A threshold, and all other inheritances took up merely 5% of the category A figure.
However, this correlation disintegrated when those thresholds rapidly descended in the next three and a half years. By December 2012, the category A value plummeted to just €225,000, while category B stood at €30,150 and category C at €15,075. Since then, those thresholds have rebounded to €335,000, €32,500, and €16,250, respectively. Yet, the category A value still hasn’t budged for half a decade, and the other two haven’t shifted nearly eight years.
So, in recent memory, the precise moment of inheritance probably won’t affect the applied tax rate.
The timing for the tax payment and the final worth of the inheritance can often fluctuate. These fluctuations are largely due to the appraisal date, which can alter in response to varying inheritance circumstances.
The concept of the valuation date is elucidated by the Revenue Commissioners, describing it as the point when the market value of the inheritance is determined.
This is specifically mentioned in Section 30 (4) of the Capital Acquisitions Tac Consolidated Act 2003. It states the earliest of these dates as the valuation date:
(a) When a personal representative, trustee, successor or any other entitled person retains the subject matter of the inheritance for the beneficiary’s benefit.
(b) Duly maintaining the inherited subject or
(c) The date when the inherited subject is delivered, paid for, satisfied or discharged to the successor for his/her benefit or to any person on behalf of the successor’s.
More examples for a better understanding can be found in Revenue’s Tax and Duty Manual. For instance, consider a person, John. He has left multiple legacies in his will, along with provisions for the residue – the balance after all other legacies or bequests have been settled. Due to each legacy having its own unique characteristics, the valuation date can vary for each.
Suppose, there’s a specific legacy of jewellery – like a ring – passed onto an individual who already has it. Here, the valuation date is the date of John’s demise. This applies to jointly held items that transfer via survivorship, consequently not being part of probate purposes.
Additionally, let’s say, another beneficiary is left with €5,000 to be paid via bank account assets. Here, the valuation date turned out to be the grant of probate date unless the beneficiary received the money earlier. In the latter scenario, the actual date of receipt is considered as the valuation date.
In conclusion, the remaining assets of John’s estate are allocated to a third party. The granting of probate determines the valuation date, as the remaining estate’s value cannot be ascertained until all debts, expenses, and liabilities have been evaluated completely.
The valuation date is essentially established when the asset’s value can be determined and the beneficiary can utilize it. There may be circumstances where it is impossible to put an exact value on an asset until it is sold, resulting in a delay in the valuation date.
With regards to property that needs to be sold, the valuation date wouldn’t be postponed just because the property is yet to be sold. This would have been previously established during the procedure through a formal market valuation obtained by the executor or personal representative.
There could also be a need to reassess and postpone the valuation date if the will is contested, which would defer any benefit date.
The payment of tax and filing of return is contingent on the valuation date. If it comes before the end of August within a year, the tax due must be paid and a return filed by the end of October of that year. However, if the valuation date falls in the final four months of the year, the deadline for payment and filing is October 31st of the succeeding year.