Valuation date and the value of benefits
Taxable value of a gift or inheritance
You pay Capital Acquisitions Tax (CAT) on the taxable value of a gift or inheritance. The taxable value is the market value of the gift or inheritance less:
- allowable liabilities, costs or expenses
- any consideration paid in money or money’s worth.
Only liabilities, costs or expenses which you have actually paid are allowable in calculating the taxable value of your gift or inheritance.
While administering an estate, the personal representative must pay certain expenses and liabilities before distributing the residue to the beneficiaries. These may include:
- funeral expenses
- outstanding pre-death taxes of the disponer
- other pre-death liabilities of the disponer, for example, a bank overdraft or mortgage
- costs of administration of the estate
- legal costs
- Income Tax and Capital Gains Tax liability that arises during the administration of the estate.
An inheritance of the residue, or a share of the residue, is normally the net amount after payment of any of the above. Where liabilities have already been paid by the personal representative, they may not also be deducted by beneficiaries.
Note
Funeral expenses cannot be claimed on the IT38 return where these expenses have already been paid as part of administering the estate.
In the case of a gift, allowable deductions are generally:
Consideration
Consideration paid is an allowable deduction when calculating the taxable value of a gift or inheritance, where, at the disponer’s direction:
- you pay consideration of money, or money’s worth, to the disponer or to another person
- you discharge a liability of the disponer
- or
- you pay an annuity to the disponer or to another person.
Consideration paid on receipt of a taxable gift or inheritance is always an amount less than the full market value of the asset.
- Example 1
John directs by will that his son, David, should inherit his dwelling-house. It is valued at €600,000 with a mortgage of €120,000 and subject to the payment of €60,000 to his daughter, Mary. The payment of €60,000 would be regarded as consideration for the inheritance.
David's taxable value
| Description | Calculation |
|---|
| Market value |
€600,000 |
| Less: |
|
| Liability (Mortgage) |
€120,000 |
| |
€480,000 |
| Less: |
|
| Consideration (Mary) |
€ 60,000 |
| Taxable value |
€420,000 |
| |
|
- Example 2
Matthew owns a property worth €400,000 which is subject to a mortgage of €150,000. He makes a gift of the property to his son, George, subject to George paying consideration of €30,000 to each of his brothers, Alan and Niall. George is to take over payment of the mortgage. He is also to pay the legal costs of the transaction, which were €7,500.
George's taxable value
| Description | Calculation | Amount |
|---|
| Market Value |
|
€400,000 |
| Less: |
|
|
| Liability (Mortage) |
€150,000 |
|
| Costs |
€ 7,500 |
€157,500 |
| |
|
€242,500 |
| Less: |
|
|
| Consideration (Alan and Niall) |
|
€ 60,000 |
| Taxable value |
|
€182,500 |
Where the disponer directs that the consideration is payable to another person, the consideration is deemed to have come from the disponer. In this case, Alan and Niall are receiving €30,000 each from their father.
Liabilities, costs or expenses not deductible
Certain liabilities, costs, or expenses are not deductible. These include:
- debts incurred where you can claim reimbursement
- debts payable at an uncertain date in the future
- certain debts relating to foreign property where only Irish property is taxable
- and
- debts relating to exempt property.
- Example 3
In his will, Patrick directs that his daughter, Marian, is to inherit his dwelling house subject to her paying consideration of €40,000 to his son, Jack. The house is valued at €400,000 and has a mortgage of €50,000. He also directs Marian to pay €30,000 to his niece, Helen, when she marries. Helen is currently 16 years of age. The contingency that Marian may have to pay Helen €30,000 is ignored initially as it is not known at this time if Helen will marry.
Marian’s taxable value
| Description | Calculation |
|---|
| Market value |
€400,000 |
| Less: |
|
| Liability (Mortgage) |
€ 50,000 |
| |
€350,000 |
| Less: |
|
| Consideration (Jack) |
€ 40,000 |
| Taxable value |
€310,000
|
If Helen marries ten years later, Marian’s CAT liability will be recalculated, and a refund will be due.
Marian's recalculated taxable value
| Description | Calculation | Amount |
|---|
| Market Value |
|
€400,000 |
| Less: |
|
|
| Liability (Mortgage) |
|
€ 50,000 |
| |
|
€350,000 |
| Less: |
|
|
| Consideration (Jack) |
€ 40,000 |
|
| Consideration (Helen) |
€ 30,000 |
€ 70,000 |
| Taxable value |
|
€280,000 |
Deductions for services rendered
If you make a deduction for services rendered on behalf of the disponer, you must provide evidence of a legally enforceable agreement for the sums claimed. These services may include looking after the disponer while ill, doing their shopping, helping with church visits or claims for wages.
Next: Limited interest