CGT on inherited house

mrhappy42

About six months ago my wifes father passed away. The estate was given a value and this was lodged with the revenue. We are not talking millions here.

Since then the house was put up for sale and sold above the initial value put on the house during the evaluation of the estate.

The issue is that the difference between initial value and final sale is about 20%.

The goverment now want her to pay on the exposure to CGT for the administration period ie in the case of the house the increase in value since transfer to the estate.

The average house price increase in the first seven months of 2005 is 4.6% http://www.finfacts.com/biz10/irelandhouseprices.htm which is the period in question. So the initial evaluation was clearly way off.

Anyone seen this before? What have people done? Any advice?

M

Kinetic^

You take the proceeds, say 120,000.

Then you take the valuation, say 100,000.

Then the difference is what you pay CGT on.

So 20,000 less your annual exemption of 1,270, gives you 18,730.

20% of the above gives us a tax liability of 3,746.

Thats the basics right there, if you need anymore help or have some questions, jusk ask here or PM me.

ck1

You stated that the initial valuation was clearly way off. If this was the case you could lodge a further affidavit stating that the initial valuation was incorrect and the Revenue would consider it. Of course this would have to be supported and would need to stand up. It would raise the question as to why the property was initially under valued in the first place and if this was a deliberate act, the Revenue would not look kindly on it. It is very common that estates are undervalued on death, generally to reduce any liabilities for CAT (Revenue are fully aware of this and don’t like it) but where a property is being sold and also is within the exemption limit of the person inheriting, the property should be properly valued for sale purposes.

mrhappy42

The inheritance is well below the 466k cutoff so no low evaluation on purpose.
I dont know why it was valued below the price...some other people who PM'd me indicated that some valuers undervalue as a matter of course.

So you recon the best strategy is to resubmit.

ck1

The Revenue are not unreasonable. If the property was mistakenly undervalued and genieunly undervalued and the paperworks backs this up, they will alter it. Potentially they could impose a penalty for incorrect submission but generally I have only ever seen this were the issue involved was deliberate.

Many estate agents undervalue to get interest in the property. In your case, for valuation purposes, this was not necessary at all and the agent should have taken this into account. Did you obtain a valuation based on the fact that you were selling without him knowing the valuation was for the purpose of the estate??

terry63

I hope this thread can continue to be used!

My problem is similar to MrHappy's except that as Executor I applied for Probate in 2005 for a property I MYSELF estimated as €120,000. Didn't know that getting a professional valuation might have been better! No problem with Probate accepting it however. Having just sold the property for €126,000, my Solicitor tells me that CGT might apply due to the €6,000 difference. Questions:-

Is the Solicitor right?

If so, is my calc right - Gain €6,000 less Legal and Auctioneer's fees €5,026 = Net Gain €984. Tax €195?

Who is responsible for payment, the Executor or the 6 Beneficiaries?

If Executor - is it correct that I can't claim an exemption?

If the Benefs - each is responsible for 1/6th of the tax and in any case their personal exemptions will more than wipe out the debt?

Corrective Affidavit
Is it submitted to Probate, Revenue or both?
Does CAT Clearance have to be obtained again?

Thank you,

Terry

mrhappy42

The executor removes the 195 before the estate is divided among the 6 beneficiaries. i.e beneficiaries only get divided after all costs to the estate. The tax is cost to the estate not the executor. The estate can be seen as a legal entity if that makes it easier to understand.

Does the estate have any other costs before you wind it up that could cover the 984 :-)

You can try an corrective evaluation. But for the 195 I think you should just pay it.

We ended up saying to the revenue the house market had only increased on average 10% (for arguments sake) and we payed tax on that. In your case the increase is less than the increase on average (14% this year I think).

terry63

Hi there and thanks for replying. Seems like you have solved your problem okay, so that's good.

You've given me the info I needed most, i.e. that the Estate is responsible for the tax. Your advice is sound too. The amount is so small particularly when divided 6 ways that it's not worth the hassle of trying to do anything about it,

thanks for your help,

T