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Question

My father died two years ago and left all of his assets to my mother. A market valuation of the properties was done at the time and my mother had no tax liability. However, if my mother sells some of the properties, does she pay capital gains tax on the original price the property was bought for or the recent probate valuation? Moreover my mother has now made a will and has left all of the assets to her children; after her time even with the current €280,000 threshold there will be a tax liability. My question is this; if the children decide to sell the properties or some of them, which valuation do they go by? The original price the property was bought (one property was bought for £5,000 and is now worth €300,000) or the first probate valuation or the second probate valuation, for capital gains tax purpose and for CAT tax purposes.

Answer

Query 1: Mother’s inheritance from father

Based on the assumption that your father and mother were married prior to your father’s passing two years ago; the spousal exemption would have applied to your mother’s inheritance from your father. This means your mother would not have been subject to Capital Acquisitions Tax (CAT) on her inheritance of the assets.

For Capital Gains Tax (CGT) purposes, tax law deemed that your mother acquired the assets from your father on the date of death and at the market value of the assets at the date of death. The market value at the date of death will be the base cost for future disposals. A liability to CGT arises when the proceeds (less incidental costs of sale) is greater than the market value on date of death. CGT is levied on this gain at a current rate of 33 per cent.

Query 2: Children’s future inheritance from mother

As the children will inherit all of your mother’s assets upon her passing, in general, CAT (current rate 33 per cent) will be levied on the market value of the assets at the date of grant of probate (less any liabilities, costs, expenses and consideration) less the relevant Group threshold. The CAT Group A Threshold of €280,000 is a lifetime limit and applies to reduce the total aggregate gifts and inheritances received from a Group A threshold disponer (ie previous gifts received by you from your parents, since December 5th 1991, will be computed along with any subsequent gifts/inheritances). The new Group A threshold of €280,000 applies to gifts and inheritances taken on or after October 14th, 2015.

Query 3: Children’s future disposal of inherited assets from mother

As mentioned above, a liability to CGT arises when the proceeds (less incidental costs of sale) is greater than the original purchase price (plus purchase costs). CGT is levied on this gain at a current rate of 33%. The original purchase price of the assets in your scenario, under tax legislation, will be deemed to be the market value of the assets at the date of your mother’s death.

Ciara McEntee is a tax consultant with Baker Tilly Ryan Glennon.