15 Upper Ormond Quay, Dublin 7T: 353 1 6040280

E: info@ohanlontax.ie W: www.ohanlontax.ie

Index to Documents

1. OHT Slides

2. Revenue Manual re Letter of No Audit

3. Revenue CAT Strategy 2018 – 2020 Flyer

4. OHT Covid-19 Flyer

5. OHT Taxation of Estates Flyer

6. Q&A

1

Exposure to Taxes

Depends on domicile and residence

Personal representative are body of persons

Income tax – look at per reps

CGT – look at deceased

Irish resident and domiciled = worldwide

Not domiciled but resident – Irish & remitted

Not domiciled or resident – Irish source income & specified gains

Pre-death Income Chargeable Persons

Non PAYE taxpayers

Running a business or income sources not taxed via PAYE

All directors

Each 31 October

Pay preliminary tax current year

File income tax return previous year

Pay balance of income tax previous year

Tax return and payments may be due

Surcharge / penalty if late

Pre-death Income PAYE

All income coded via PAYE

Employer files payroll submission

Notifies date of death on submission

Full year’s tax credits and 20% band available

Unused tax credits and 20% band applied

Generally refund for mid year death

Asset of Estate

If income tax return not filed check CGT

Surcharge for late filing of CG1

2

Check Payroll taxes

Check VAT position

Deceased’s tax advisor can assist

Revenue may have records

Check if death has tax or accounting impact

E.g. date of a partner in 2 person partnership

E.g. cessation of trade for sole trader

Pre-death Trade

Revenue may require year of death tax return

IRA or year of death return show income

Not showing in pre death income tax returns

Will open enquiry back into historic years

Example: Pat - Irish domicile of origin

Moved to the UK & worked until retirement

Retired to Ireland

Moved back to family in UK – ill health

Died after 8 months

Year Of Death Tax Return

Date of disposal – S. 542 TCA 97

Date of contract

CGT payment dates

15 December (Jan to Nov)

31 January (December)

Filing deadline

Following 31 October

Surcharge for late filing

Terminal Loss Relief

Pre-death CGT

3

Tax Data in Inland Revenue Affidavit

Source of information and somewhat untapped resource

Focusing on the IRA to a greater extent

Frequency of Revenue queries expected to increase when IRAs are filed online

Large foreign cash deposits

Real property other than principal residence

Large shareholdings

Post Death Taxes

Moloney v AIB

S 10(3) Succession Act

Estate held as trustee for beneficary

Revenue still entitled to assess the per rep

Post death income

20% income tax

Up to date administration ends

Date residue ascertained

Trade of Estate

Personal representatives activity = trade?

Pattullo’s Trustees v CIR

Farmer and cattle dealer died

Completed winter feed contracts

Also bought additional fee and cattle

Held trading

CIR v Donaldson’sTrustees

Farmer died

Per reps cared for cattle – less than 1 yr

Held not trading

4

Trade – Spouse Succeeds

Surviving spouse takes over trade

Elect to be continuing business

Must take absolutely

Cannot be trading with partners

No cessation & commencement rules

Apportion trade to pre and post death periods

Assets deceased held rebased for CGT

Personal representative disposes of capital asset

• Land or Shares

• Foreign Currency

Sale in the course of administration - CGT

Distribution in specie to “legatee” – no CGT

Cost of administration – wholly & exclusively

Use of losses – cannot distribute

Post Death CGT

CAT & CGT

Both arise on post death pre valuation date increase

Double tax

Set off if CGT and CAT on same event

Gifts

Distribution from Trust

Not available on sale in course of admin

CGT can be deducted if disposal pre valn date

5

Time Limits for Assessments

S. 959AA TCA 97

Grant issues in year of death - 3 years

Grant issues after year of death - 2 years

Can assess what deceased liable for at death

Corrective Affidavit

Extends by 2 years

4 year rule – from date return filed

Can go back 5 years

If full & true return filed

Time Limits for Assessments

Adam died on 20 March 2019

Grant of probate on 01 October 2019

Death and grant in same tax year

Revenue assessment by end 2022

Back to 2014

If full & true return was not filed

Revenue assessment by end 2022

Can go back earlier than 2014

Time Limits for Assessments

Barry died on 21 August 2017

Grant issued in 12 March 2018

Administration completed in 2018

2020 Revenue investigation

Offshore account 2008 to 2013

Closed in 2013

Revenue can raise assessments up to 2020

Can go back to 2008

Material error in IRA resets clock

6

Disclaimer or Appropriation

Disclaimer

No tax for disclaiming beneficiary

Assets assessed on receiving beneficiary

Appropriation

CAT - receiving same value

Receiving beneficiaries take as legatees if Will power – no CGT

Statutory power – need to agree treatment

Closing the File

CAT Clearances

Non-resident

Bank Deposits (Form IT8)

CGT return

Nil Notice of Assessment

Letter of no Audit

TALC review

Income tax – no set procedure

Notify Revenue of distribution

Closing the File - Legal Fees

VAT on Legal Fees

Irish B2B or B2C – VAT

EU B2B - VAT in client’s country

EU B2C – Irish VAT

Non EU – no VAT (unless Irish services)

Irish Services – relating to land

41.0.1

[41.0.1] Self Assessment - Processing/Screening of:Returns of Companies in Liquidation and Death Cases

Capital Gains Tax Returns of Non-ResidentsReturns on which an Expression of Doubt has been made

Related material:

Leaflet IT 41: What to do about tax when someone dies

Leaflet Res.2: Coming to live in Ireland

1. Introduction

Under Self Assessment, tax returns are processed and assessments are made on a non-judgmental basis. Under the Audit Programmes, Revenue can review cases and make any required amendments to assessments at any time up to the end of the sixth year after the end of the chargeable period in question. The six-year time limit, does not of course apply in cases of fraud or neglect.

These procedures for processing, screening and auditing of returns work satisfactorily in relation to the general body of taxpayers.

There are certain categories of cases however where there could be difficulties (funds distributed etc.) in applying the audit procedures long after a return has been submitted. These include:

Companies in liquidation

Deceased Persons (Death Cases)

Solicitors acting for non-residents in relation to capital gains tax

Chargeable persons who have “expressed a doubt” on their returns about the treatment of a particular item.

This instruction sets out guidelines, which are to be followed in these types of cases.

2. Procedures for dealing with Companies in Liquidation and Death Cases

The following material is either exempt from or not required to be published under the Freedom of Information Act 1997.

[…]

Assessments, where required, are to be made in the normal way, in accordance with returns received - subject to any necessary "repair" of basic errors.

1

41.0.1

Following the processing of the returns, they are to be referred without delay to the appropriate Audit area. The Audit Area must screen all such cases to establish whether or not an audit (full or verification) is necessary.

The normal criteria for selecting cases for audit should be applied to these cases. Apart from looking at the Schedule of Assets in death cases, they should not be subjected to any procedure, which would make them more (or less) likely to be selected for audit, compared with normal screening procedures.

Any matters, which are significant and require attention, are to be taken up immediately with the Liquidator, Personal Representative or Agent as appropriate. Districts should avoid getting involved in lengthy correspondence etc. If consensus is not readily obtainable, assessments should be amended as necessary. The Liquidator/Personal Representative will have a right of appeal against the amended assessment.

Where it is not intended to carry out an audit, a letter on the following lines should be issued to the Liquidator, Personal Representative or Agent, as appropriate:

“On the basis of the information contained in the return for the Accounting Period/Year of Assessment ___________________ it is not intended to carry out an audit.

This position is subject to the proviso that, if any information comes to light that would indicate that the return submitted was materially incorrect, any necessary assessment/amendment may be made in accordance with Section 954(3) Taxes Consolidation Act 1997”.

Where it is intended to carry out an audit, notice should be given in writing in accordance with existing procedures. This should be done without delay.

3. Procedures for dealing with Non-Resident Capital Gains Tax Returns

As in liquidation cases, assessments should be made in accordance with returns submitted.

The returns should, without delay, be screened in accordance with existing procedures.

As this screening will normally be the only occasion on which the return will be examined, any matters arising from the screening (e.g. doubtful valuation, etc.), which are likely to have a material effect on liability, should be taken up with the Solicitor or Agent. If necessary, the assistance of the Valuation Office etc. should be sought in accordance with existing procedures.

Lengthy correspondence should be avoided. If consensus is not readily obtainable, any necessary amendment to assessments should be made. The Solicitor/Agent will have a right of appeal against the assessment.

2

41.0.1

Where it is not intended to carry out an audit, a letter on the same lines as that contained in paragraph 2.4 (above) should be sent to the Solicitor/Agent.

4. Procedures for dealing with 'Expressions of Doubt' - All Taxpayers - See also Tax Instruction 41.0.9.

An “Expression of Doubt” should be considered, without delay, after the return is processed. An expression of doubt should not, of itself, result in a case being considered for full audit. Remember, we have publicly stated that use of the expression of doubt facility will not result in a case being more likely to be selected for audit.

[When normal audit screening takes place such cases will be identified for audit if the facts warrant it.]

Where the expression of doubt could have a material effect not only on the taxpayer's liability for the year in question but also for future years, it should be resolved promptly. Requests from taxpayers/agents for a response to an expression of doubt should also be dealt with promptly.

The method of resolving the expression of doubt will vary depending on the nature of the problem: -

- Cases within the scope of specialist areas should be referred there for attention, after processing.

- In general cases, purely technical questions can be dealt with in the processing area.

- Expressions of doubt on questions of fact (e.g. whether an item is a repair) should not become the subject of protracted correspondence. An early examination of the item or procedure should be arranged where appropriate with Audit staff.

The assistance of the relevant branch in either Corporate Business and International Division or Income and Capital Taxes Division, should also be obtained, where necessary. Taxpayers/agents should not, however, be referred directly to these Divisions. If Districts require Divisional assistance, with taxpayers’/agents’ expressions of doubt, they should prepare a submission outlining the problem, giving their views and the views of the taxpayer/agent. Such submissions should be made through the District Manager.

Where you are not satisfied with the view taken by the taxpayer, he or she should be advised. If consensus on the correct treatment can be readily reached, the assessment should be amended as necessary.

If consensus cannot readily be reached, lengthy correspondence should be avoided. Instead, the inspector concerned should, if satisfied that the view taken by the taxpayer is incorrect and there is significant liability or a

3

41.0.1

fundamental point of principle involved, amend the assessment as necessary. The taxpayer will have the right to appeal against the amended assessment.

4

Capital Acquisitions Tax

Strategy 2018 – 2020

SPECIFIC ACTIONS

SERVICE TO SUPPORT COMPLIANCE

• Increase customer awareness of Gift Tax and

Inheritance Tax obligations

• Increase levels of e-filing and e-paying of CAT

through improved e-services

CONFRONT NON-COMPLIANCE

• Maximise the effectiveness of risk focused

compliance interventions on Gift Tax and

Inheritance Tax

• Increase whole case management around CAT

taxable events

CAPABILITY

• Deepen the focus on wealth management and tax

planning risks

• Leverage Revenue’s training programmes to

expand capability on CAT

LEGISLATION, DATA AND TECHNOLOGY

• Consider legislative proposals to increase CAT

compliance

• Further develop risk profiling and data analytics,

maximising the use of data available to Revenue,

to identify CAT risks

Tax Snapshot

Capital Acquisitions Tax (CAT) applies to gifts and

inheritances of assets situated in Ireland. CAT also

applies to gifts and inheritances of assets

situated outside Ireland if the person giving or

receiving the asset is a resident of Ireland for tax

purposes. Tax-free lifetime thresholds apply

depending on the relationship between the person

giving and receiving the benefit. There are a number of

exemptions and reliefs available, providing that specific

criteria are met. The current rate of tax is 33%.

€419m CAT was collected in 2016.

Administration

CAT is a self-assessed tax and the administration is

built around a tax period (1 September to 31 August), a

pay and file date (31 October) and a late filing

surcharge. When a beneficiary reaches 80% of the

relevant tax-free threshold, a CAT Return is required. A

number of other elements include - the valuation date,

the market value, e-filing and payment by instalment.

Non-compliance is targeted through non filer, debt

management, and compliance intervention

programmes.

Strategic Move

This 3 year strategy aims to improve the management

of CAT by improving service to support compliance and

deepening our risk based approach to confronting non-

compliance. We aim to collect the right amount of tax

at the right time, provide excellent service, have

effective engagement with key stakeholders and

sanction non-compliance and evasion.

Success

This strategy will be implemented through a redefined

focus on CAT and related compliance risks. Success

will be measured through minimised debt, timely filing

and payment, achievement of service standards and

effective sanctioning of non-compliance.

You can find more information on Capital Acquisitions Tax at www.revenue.ie

Capital Acquisitions Tax

Business Plan 2018

SERVICE TO SUPPORT COMPLIANCE

1.

Minimise contacts with compliant customers

2.

Maximise e-filing of all CAT returns

CONFRONT NON COMPLIANCE

3.

Minimise CAT debt

4.

Prioritise our risk focus on major CAT Reliefs and high wealth (incl. wealth transfer and Trusts)

5.

Deepen the risk based approach to Gift Tax and Inheritance Tax compliance

CAPABILITY

6.

Continue to expand Revenue capability on CAT

LEGISLATION, DATA AND TECHNOLOGY

7.

Develop legislative proposals to improve CAT administration and compliance

8.

Progress CAT ICT developments including improvements to ROS IT 38 form

9.

Liaise with the Courts Service on eProbate matters

Filing Tax Returns & Paying Tax Revenue advise that taxpayers should continue to file tax returns even if payment of the resulting liabilities is not possible. If key personnel who compute tax returns are unavailable due to the virus a return can be submitted on a ‘best estimate’ basis. Revenue Debt Management The following measures are in place to assist SMEs who are experiencing tax payment difficulties:

All debt enforcement activity is suspended until further notice.

The charging of interest on late payments is suspended for January/February VAT & March/April VAT and February, March & April PAYE (Employers) liabilities.

Businesses, other than SMEs, who are experiencing difficulties in paying their tax liabilities should contact the District or Collector-General’s office through MyEnquiries.

OHT: Revenue & COVID - 19

OHT Guide

Revenue & COVID-19

Revenue’s Operations Revenue advise that correspondence continues to be dealt with as normal. However Revenue are encouraging customers, and agents, to use My Enquiries rather than telephone or post. Revenue telephone helplines are closed with the exception of the National Employer Helpline (01 7383638) which will continue to support employers with queries on the Temporary COVID-19 Wage Subsidy Scheme and the ROS Technical Helpdesk (01 7383699). Tax Refunds Revenue are prioritising repayments and refunds, such as VAT & PSWT refunds, to taxpayers. Any checks required will be carried out via My Enquiries or by telephone. Professional Services Withholding Tax (PSWT) To accelerate interim refunds of Professional Services Withholding Tax (PSWT) Revenue will accept refund claims via MyEnquiries if legible copies of the original F45 and F50 documents are attached. Taxpayers should label the claim as “Enquiry relating to 'Professional Services Withholding Tax - PSWT Interim refund IT” (or 'PSWT Interim refund CT'). All original F45 forms should be retained. Where the relevant F45 form cannot be issued due solely to Covid-19 a written statement issued by the accountable person setting out the following information will be accepted in place of an F45 form:

the name and address of the accountable person

Tax Reference Number of the accountable person

the name and address of the specified person

the Tax Reference Number of the specified person

amount of the tax deducted from relevant payment

the amount of the relevant payment, and

the date on which the payment is made

Covid-19 Temporary Wage Subsidy Scheme A Covid-19 Temporary Wage Subsidy Scheme is available to enable employers to keep employees on payroll throughout the COVID-19 pandemic. The scheme is provided for in the Emergency Measures in the Public Interest (Covid-19) Act 2020 (the Act) and it is expected to last for 12 weeks from 26 March 2020. The Revenue FAQs are available here. To qualify for the Scheme, employers must:-

be unable to pay normal wages and outgoings due to significant disruption arising from Covid-19

be able to demonstrate, to the satisfaction of Revenue, that the business has been adversely affected by the pandemic, and

retain their employees on the payroll. The employer's business will be regarded as adversely affected if Revenue can be satisfied that as a result of COVID-19 there is at least a 25% reduction in turnover or customer orders between 14 March 2020 and 30 June 2020. Employers pay the relevant subsidy to each employee and include it the payroll submission, and they will be reimbursed by Revenue within a few days. Employers can make a top up payment to supplement the subsidy. Tapering is applied to ensure that the employee does not end up with a payment that exceeds the pre-Covid payment. No income tax, USC or PRSI will arise on the subsidy. Employer’s PRSI will be reduced from 11.05% to 0.5% on any 'top-up' payment from the employer. The current level of payments is set out below. From 04 May 2020, the level of subsidy payment available will change.

Employer Provided Accommodation Revenue accept that no benefit-in-kind charge will arise during the Covid-19 crisis on the provision of temporary accommodation to an employee if: the accommodation made available is temporary in

nature, and the reason it is provided is to mitigate against the risk

of the transmission of Covid-19. The examples given include the provision of accommodation where an employee returns from an overseas trip requiring self-isolation, or where there is concern of transmission to frontline staff in a household. Payment of Taxi Fares Where an employer pays for a taxi to or from work due to health and safety concerns, BIK will not apply for the duration of the COVID-19 period only. Equipment A BIK will not arise where employers provide equipment such as laptops, printers, and office furniture in order for employees to set up a working space in their homes. Flat Rate Expenses- €3.20 An employer can pay €3.20 per workday tax free when: there is a formal agreement requiring an employee to

work from home, or government public health objectives recommendations (i.e. Covid-19).

the employee is required to perform essential duties of the employment at home, and

the employee works for substantial periods at home. Expenses Over €3.20 Per Workday If the employee’s costs are higher than €3.20 per workday any payment that is in excess of €3.20 per workday must be taxed. Records should be retained of any payments made. Capital Gains Tax (CGT) & LPT Revenue indicate that if an employee uses part of the home for eWorking it will not affect the Principal Private Residence Relief position, and will not reduce LPT. Residence Rules - Force Majeure Where an individual is prevented from leaving Ireland on the intended day of departure due to extraordinary occurrences which could not reasonably have been foreseen and avoided, the individual will not be regarded as being present in the State for tax residency purposes. Revenue accept that where a departure from Ireland is prevented due to Covid-19, this is a ‘force majeure’ event.

Covid-19 Temporary Wage Subsidy

Pre Covid-19 weekly pay after tax

Level of Subsidy Payment

Up to €586 70% of the weekly average take home pay, up to a maximum of €410

From €586 to €960

70% of the weekly average take home pay, up to a maximum of €350.

Above €960 per week

Not entitled up to 16 April 2020. Can avail of subsidy of up to €350 after that date if the level of pay has fallen below €960 per week, and been reduced by at least 20%.

© O’Hanlon Tax Limited 2020

Caveat: These notes are intended as a general guide to tax issues arising in the context of the Covid-19 pandemic. OHT has endeavoured to provide an accurate commentary but recommends that formal tax advice be obtained before any steps are taken that may have a tax effect.

O’Hanlon Tax Limited 6 City Gate, Lower Bridge St., Dublin 8

T: 01 6040280 F: 01 6040281 E: info@ohanlontax.ie W: www.ohanlontax.ie

Personal representatives cannot pass a capital loss on to the beneficiary of an estate (unlike trustees who can pass an unused loss on to the beneficiary of a trust). If it is clear that there will be a capital loss on the disposal of an estate asset, and if the personal representative will not be in a position to use that loss to shelter estate gains, then consideration may be given to appointing the asset to a beneficiary, who can then go on to dispose of the asset after he receives it so that the loss accrues to him personally, and can be carried forward against future gains of that beneficiary. Capital Acquisitions Tax (“CAT”) CAT generally arises where a gift or inheritance is taken by or from a person living in Ireland. There is provision for a tax free threshold below which no tax is paid, and the level of tax free threshold depends on the relationship between the person giving the benefit and the person receiving it. For example where a parent leaves an inheritance to a child the tax free threshold is currently €335,000. By contrast where a parent receives a gift from a child the tax free threshold will generally only be €32,500.

The tax free threshold rules are cumulative, so all gifts or inheritance received since 05 December 1991 which are subject to the same group threshold will be added together, and CAT will be payable on the excess over the threshold.

Example If a child takes an inheritance of €500,000 from his parents, and there was a prior group (a) benefit of €50,000 (taxable value) bringing the available threshold down from €335,000 to €285,000, CAT will be charged on €215,000 (the difference between the benefit and the available threshold) at a rate of 33%. Therefore, €70,950 should be paid to Revenue as CAT arising on the benefit. CAT is triggered when a person becomes entitled to receive the asset in possession. Therefore if an asset is passed into a discretionary trust no CAT arises until the benefit is distributed to the beneficiary. Therefore a discretionary trust can be used to delay payment of CAT. Post FA10 personal representatives will not have a secondary liability for the beneficiaries’ CAT, unless a beneficiary is non-resident. Discretionary Trust Tax Assets passing through an estate may be transferred to a discretionary trust, deferring CAT until a beneficiary receives a benefit.

Pre-death Taxes Executors take over responsibility for ensuring that the pre-death taxes of the deceased (such as income tax, CGT) are paid and any tax due can be funded from estate assets. Any income arising in the period from 01 January in the year of death to the date of death is pre-death income, and if the deceased was filing income tax returns, the estate should file a return for the year of death. Any income arising after the date of death is income of the estate (rather than the deceased) and a second income tax return may be required from the estate in the year of death in relation to this post death income. Post-death Income Tax Personal representatives should ensure that income tax is paid in respect of any income arising to the estate during the administration period, and a Nil Notice of Assessment should be obtained for the estate for any tax year in which income arose. When income is distributed to beneficiaries they can claim a deduction for any income tax paid by the executors, so a separate income distribution schedule should be provided showing gross income arising, tax paid, and net income distributed. An R185 form should be provided to the beneficiary when the income is paid out. Post-death Capital Gains Tax Capital gains tax is a tax on the rise in the capital value of assets. No CGT arises where assets are passed to a beneficiary under a Will or on an intestacy. It should be noted that if assets in an estate rise in value while held by the personal representatives of the estate, then the personal representatives will pay CGT if they dispose of the assets as part of the administration of the estate. If assets fall in value between the date of death and the date of disposal by a personal representative there will be a loss on the disposal and no CGT will be payable. A capital loss can be set against a capital gain arising in the same year, and can be carried forward against future gains but cannot be set back against prior year gains by a personal representative. It follows that personal representatives should consider the timing of disposals if some assets which are to be sold will give rise to a loss and some will give rise to a gain.

OHT Guide

Taxation of Estates

Discretionary trust tax is the price paid for the flexibility of a discretionary trust and the deferral of CAT. There is a once off charge of 6% on the capital held by a discretionary trust. However this charge will not arise on a will trust until all the principal objects of the trust (generally the children of the person setting up the trust but can also be the spouse of the person setting up the trust) are over the age of 21. If the trust is distributed within 5 years then part of the initial charge may be refunded, reducing the effective charge to 3%. Once the initial charge arises there is a further annual charge of 1% of the capital value of the fund. Income arising to a discretionary trust is subject to an income tax surcharge of 20%, if it is not distributed within 18 months of the end of the period in which it arose. Stamp Duty Stamp duty is a tax on deeds transferring assets. There is no stamp duty charge on the transfer of assets to beneficiaries or into a trust set up by a Will as part of the administration of the Will. However if the trustees or beneficiaries buy assets then the normal stamp duty rules apply. In their “Additional Guidance Notes on e-Stamping” Revenue indicate that a liability to stamp duty does not arise, and a stamp duty return is not required to be delivered, in respect of a Deed of Assent where property is vested in the person fully entitled to the property under the Deceased’s will or on intestacy. A liability to stamp duty can arise in respect of a Deed of Assent where the effect of the instrument is to vest the property in a person other than as provided for under the deceased’s will or intestacy. Where a stamp duty liability arises in respect of a Deed of Assent, a return is required, and the personal representative should be included as the vendor using the PPS number of the deceased (of the estate if a separate PPS number has been allocated for the purposes of the administration). Final Distribution If there are non-resident beneficiaries Revenue allow the personal representatives to close off any post-distribution liability for CAT by sending a “one month letter” to Revenue notifying them that the estate is to be distributed.

If Revenue want to review the CAT position in detail they should notify the personal representative who should retain the funds without distributing until the Revenue are satisfied. If no response is received from Revenue to the “one month letter” they will deal with the beneficiary rather than with the personal representatives in the event that they carry out a future audit. Where assets are to be distributed it may be advisable to seek a “distribution” letter (for taxes other than CAT) confirming that Revenue are satisfied that the deceased’s pre-death tax affairs are in order, and that the estate taxes have been accounted for, and that the personal representative can distribute. The personal representatives should also ensure that CGT is paid on any disposals made by the estate, and should secure a Nil Notice of Assessment and Letter of No Audit. In addition personal representatives may wish to seek an indemnity on distribution confirming that if Revenue do seek further tax post distribution the beneficiaries will indemnify them. PPS Numbers for Estates If tax returns are due, Revenue will require a Form TR1 to be filed so that the personal representatives will be allocated a new PPS number in their representative capacity. This PPS number can be used for CGT, income tax and DTT. If tax advice is required on any point raised in this article an email can be sent to info@ohanlontax.ie.

© O’Hanlon Tax Limited 2020

O’Hanlon Tax Limited 15 Upper Ormond Quay, Dublin 7

T: 01 6040280 F: 01 8044100 E: info@ohanlontax.ie W: www.ohanlontax.ie

Caveat: These notes are intended as a general guide. OHT has endeavoured to provide an accurate commentary but the notes cannot cover all circumstances. OHT strongly recommends that formal tax advice be obtained before any steps are taken that may have a tax effect.

Q&A Stephenson Seminar Friday, 24 April 2020 1.

Q: If a Will states that the valuation date is the date of death are taxpayers bound by that? [Edel Mc Dermott Ambrose O’Sullivan & Co - edel@aosco.ie]

A: The valuation date triggers the obligation to pay CAT and file a return and S.

30 provides that it is generally the earliest of three possible dates:-

1. The date on which an executor is entitled to retain the subject matter of an inheritance for the benefit of the beneficiaries

2. The date on which the inheritance is retained for the beneficiary, or

3. The date of delivery of the benefit to the beneficiary.

The point of retainer is the point at which the net residue can be ascertained and the level of benefit to be received by each beneficiary can be determined. In most cases, Revenue will take the view that this is the position at the date of Grant. It should be noted that if assets pass automatically by operation of law on a death (e.g. survivorship) the valuation date will be the date of death. A statement in the Will that the valuation date is a particular date will not displace the legislation. For example if there is litigation against the Estate (such as a S. 117 claim), then that will push back the valuation date, regardless of what is said in the Will.

2. Q: Could you give a brief overview of Disclaimers for consideration and if they

are an efficient tax option instead of a Deed of Family Arrangement? [Anne Clancy - aclancysolicitor@gmail.com]

A: Revenue have a note on disclaimers in the CAT manual.

https://www.revenue.ie/en/tax-professionals/tdm/capital-acquisitions-tax/cat-part06.pdf

They note that a disclaimer is not of itself a disposition for CAT purposes and a person who disclaims a benefit (simply refuses to accept it) no longer has a liability to CAT in respect of that disclaimed benefit. A disclaimer in favour of a named person is treated as an acquisition and a subsequent disposal and there is, therefore, a double charge to CAT. The manual also confirms that a person can disclaim for consideration. Any consideration is a benefit moving from the original disponer to the person disclaiming (i.e. a substituted gift or inheritance). If a disclaimer will have the effect that the benefit passes to the person who the family wish to benefit it will generally be the most tax efficient option so OHT would recommend looking at the effectiveness of a disclaimer in priority to a Deed of Family Arrangement.

3. Q: There is difficulty getting a letter of clearance in relation to pre-death taxes in

the last six months. The CA24 is generally sent to Mayo Revenue, Michael Davitt House, Castlebar requesting a letter of clearance/No audit. It can take

up to 2 months to get a reply and it can come from Revenue in Dublin, Cork or Kilkenny. In addition, the letter re no audit will only issue after sending Revenue a copy of the Grant. Each letter to Revenue involves a wait of at least 21 days for a reply. The delay in obtaining the letter re no audit has held up the completion of a few estates long after all other matters have been attended to. [Anne Clancy - aclancysolicitor@gmail.com]

A: The Revenue are engaged in a process of reviewing the issue of Letters of

No Audit in non-resident and death cases. Because of the ongoing review, they have taken down the section of the Manual that deals with Letters of No Audit. The OHT pack for the seminar includes a copy of the extract from the last Manual on the point.

The review has been undertaken over a period of about 2 years and has not yet been finalised. The ITI, Law Society and Revenue are liaising on this matter via TALC. My understanding is that the process is ongoing and the final approach has not yet been agreed. OHT will generally send a computation and a copy of the sale contract to Revenue. Revenue may come back looking for proof of the date of death value in which case we send in the CA24. In terms of timing it varies from district to district and with Revenue’s workflow. We find that if the Notice of Assessment and Letter of No Audit issue together it takes 5-6 weeks. If the Notice of Assessment issues before the Letter of No Audit it can take a further 4-8 weeks. The clearance letters are issued by the audit section of the relevant district and the audit section wish to review the assets of the Estate as set out in the CA24 before making a final decision on whether to audit. The Probate Office send a copy of the CA24 to Revenue when the Grant issues, so initially we resisted sending in a second copy of the CA24, but found that it facilitated the issue of the Letter of No Audit if we sent the CA24 to the relevant district, so we now do that routinely where requested. I anticipate that with the eCA24 coming online, the Revenue Commissioners will have more widespread access to the information in the CA24 and will cease to request it from advisors. If you are finding that the Letters of No Audit are creating difficulties in practice, I would recommend that you refer the matter to the Law Society Taxation Committee and ask them to raise the issue via TALC.

4. Q: If the Probate is just needed just to sell property which is the only asset in the

estate – are the administration costs then deductible? [Anna Beresford FDC - annaberesford@fdc.ie]

A: When looking at the question of whether the cost of extraction of the Grant is

allowable for CGT purposes, Revenue generally look at the purpose of the extraction of the Grant, rather than the number of assets in the Estate. The reason for this is that S. 552(1)(e) states as follows:-

“and any expenditure wholly and exclusively incurred by the person in establishing, preserving or defending the person's title to, or to a right over, the asset,”

The “wholly and exclusively” test is quite narrow. My view is that if the Grant of Probate is taken out to administer the Estate (e.g. there are debts paid or assets gathered in), then it is not wholly and exclusively incurred for the purpose of selling the property. However if you have a situation where the Grant is taken out solely to sell a property (e.g. if the title to a property is vested in a prior owner’s name and a de bonus non grant has to be extracted to the prior owner’s estate in order to show title for the personal representative of the more recent owner to sell it), then the expenditure is incurred wholly and exclusively to show title to the asset and therefore should be allowed.

5. Q: A Will leaves a house as a specific bequest to a beneficiary. The beneficiary

lived in the house pre and post death. Can they disclaim or will they be deemed to have taken benefit? [Anna Beresford FDC - annaberesford@fdc.ie]

A: A beneficiary cannot be compelled to accept an inheritance and if he

disclaims, the property will pass on to the next beneficiary in line. A disclaimer is the release of a right before it comes into possession so timing is important. A beneficiary cannot disclaim a benefit after accepting it and therefore, the question of disclaimer should be considered as early as possible after the death. Whether a beneficiary has accepted the house by remaining living in it is a question of fact. If the beneficiary does not wish the house and is making plans to move out and does not deal with the house as his own asset in the interim (e.g. by paying expenses) then the beneficiary will not have accepted it. If the beneficiary is treating the house as his own in all but name it will have been accepted. It can assist to clarify the capacity in which a house is occupied if a caretakers agreement is drawn up.

6. Q: A residuary beneficiary disclaims their 50% interest in the residue for

consideration of 100k. Residue [worth 250k] is made up of a house worth 200k and cash of 50k. Is there stamp duty on the disclaimer because of the property or no stamp duty given the fact that it is a disclaimer of a share in the residue? [Anna Beresford FDC - annaberesford@fdc.ie]

A: If the residuary beneficiary who holds an interest in the residue as tenant in

common (50%) disclaims the interest (value of 50% of residue, €125,000) in return for consideration of €100,000, then the beneficiary is refusing the take the asset from the Estate and any Deed of Disclaimer should not be a stampable document as it does not operate as a conveyance on sale.

7.

Q: What are your views on “staging costs” incurred pre the sale of property being allowable as a deduction on the CGT liability arising on the sale by Per Reps, in addition to the usual deductions for legal and auctioneers fees. This would be in the context of a sale for c €.2.5m with staging costs of c.€ 35k,000 comprising cleaning and painting house, tidying up gardens, replacing some carpets curtains etc. [Michael Mullaney Mullaneys Solicitors LLP - Michael@mullaneys.ie]

A: In my view Revenue would not allow the staging costs for CGT, based on the wording of the legislation as S. 552 TCA 97 is quite restrictive in dealing with the expenses that can be deducted. The Manual notes that

“The type of expenditure which is allowable as a deduction from the consideration in computing a chargeable gain on the disposal of an asset is as follows —

• the cost of acquisition of the asset or its value given wholly and exclusively by the taxpayer or on his/her behalf, together with any incidental costs of the acquisition. Where the asset was created by the person making the disposal the expenditure incurred in creating it is allowable;

• expenditure which adds to the value of the asset and which is reflected in the state or nature of the asset at the time of disposal, and expenditure to establish, preserve or defend legal title;

• costs incidental to the disposal.

To qualify as incidental costs of acquisition or disposal, the expenditure must be wholly and exclusively incurred on the acquisition or disposal and must be within the following categories —

• fees, commission or remuneration for the professional services of a surveyor or valuer, auctioneer, accountant, agent or legal advisor,

• costs of transfer or conveyance (including stamp duty), and • costs of advertising and, in the case of a disposal, costs reasonably

incurred in making any valuation or apportionment”

8. Q: When does a solicitor charge VAT to a non resident LPR re Probate / admin

costs. [William O’Connor P. O’Connor & Son – WOCONNOR@POCONSOL.IE]

A: Where an invoice is raised to a personal representative in Ireland or the EU in

respect of probate fees, then VAT is charged because the place of supply of the services is Ireland. Where probate fees are raised to a personal representative who is outside the EU, no Irish VAT arises as the supply is to a non-EU customer. However if the services provided relate to land in Ireland, then there is a special place of supply rule which renders the services subject to Irish VAT. Therefore, if a fee is raised for conveyancing services to a non-EU personal representative, VAT should be charged on that invoice.

9.

Q: Do you have a precedent advice letter to the LPR / client setting out the initial tax considerations regarding the estate for a PAYE v a chargeable person. Is there a yes – no chart available. [William O’Connor P. O’Connor & Son – WOCONNOR@POCONSOL.IE]

A: OHT does not have a standard precedent in relation to the PAYE versus

chargeable person point. For a deceased taxed wholly via PAYE the employer deals with the payroll returns and if there are unused credits or part of the 20% band is unused a

tax refund should be due. The personal representative needs to check with Revenue if a refund is due and gather it in. For a chargeable person, the best thing is likely to be to get a copy of the last income tax return or Notice of Assessment to see what sources of income were arising. If the deceased had a tax advisor or an accountant they can provide this. Alternatively, a review of the information going into the IRA may show the sources of income (rent, dividends, interest, a trade of business etc). The personal representative can also check with Revenue what tax heads the deceased was registered for and this will give some guide on what tax returns need to be prepared and filed for the deceased.

10.

Q: I have an estate in which the deceased was entitled to an NHS pension from UK. The decd only applied for the pension in the weeks prior to death, which resulted in many years of payment not previously received together with an initial lump sum. The decd was Irish and domicile in Ireland having returned to Ireland 20 years before his death with no intention to returning to the UK.

i. The decd was on disability allowance in Ireland. His NHS pension entitlement was based on years of service while working in the UK in the 80’s and 90’s.

ii. The NHS has withheld tax at source and there may in fact be a refund due on foot of same.

Any recommendation of a UK tax advisor who might look at this on behalf of the LPR? [William O’Connor P. O’Connor & Son – WOCONNOR@POCONSOL.IE]

A: Typically if there is a double taxation agreement in place a pension is taxed

only in the jurisdiction which the pensioner is a resident of. An extract from Article 17 of the Ireland UK DTA dealing with pensions is set out below.

ARTICLE 17 Ireland UK DTA ”Subject to the provisions of paragraphs (1) and (2) of Article 18, pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting State and any annuity paid to such a resident shall be taxable only in that State.”

This is not a matter of UK tax law, but relates to the DTA so an Irish advisor (solicitor’s firm or OHT) could send a letter to the NHS asking them to refund the tax deducted on the basis that the pension was only taxable in Ireland. They may want to clear this with HMRC.

11.

Q: What is the CAT Valuation date where there are not enough monies to go round to pay legacies? [Oliver Ryan-Purcell - oliver@orplaw.ie]

A: The valuation date triggers the obligation to pay CAT and file a return and it is

governed by S. 30 CATCA 03 (see answer to query above). The valuation date is generally the date of retainer, which is the point when it can be established who is likely to get what from the estate. In practice, this will be the point on which the net residue of the Estate is ascertained, but for convenience Revenue generally use the rule of thumb that the date on which

the Grant of Probate or Administration issues will be the valuation date (as that is a very specific and easily established date and generally occurs in or around the time the net residue of the Estate is ascertained). If there is not enough money to pay legacies the benefit abate and the point in time where the assets and liabilities of the estate are clear, and the amount of money that is available for the legatees can be calculated should be the valuation date should arise. My experience in practice is that Revenue will accept that the date of Grant is the valuation date where benefits have to be abated. If there is a good reason why the liabilities cannot be ascertained until a later date Revenue may accept the date of ascertainment of the liabilities as the valuation date.

12.

Q: We have recently received letters of clearance from the Revenue which states

‘According to my records I can now confirm that no Income Tax or Capital Gains Tax liability is outstanding for the late ……in respect of the year ended 31/12/19’ The letter then contains the usual proviso about any information and then adds ‘ I am now treating the beneficiaries as succeeding to the assets from the date of death’. Previously the letters just confirmed there was no outstanding liabilities to It or CGT outstanding up to date of death.

Could you comment on this change of wording and what is the significance of saying the beneficiaries are now succeeding to the assets from date of death. [Michael D. White & Co. - ruth@mdwhite.ie]

A: There may not be a serious significance to the change in wording of the CGT

clearance letters. It may arise from the fact that Revenue are currently reviewing the operation of Letters of No Audit in death cases. We find that the wording of the letter of no audit and clearance letters can vary from district to district.

The reference to the beneficiary succeeding to the assets from the date of death could relate to one of 2 tax heads as follows:-

• CGT – If this relates to CGT, then it is a simple restatement of the

provision in the legislation (S. 573 TCA 97) which indicates that a legatee who takes an assets distributed in specie is treated as having received it at the date of death of the deceased (when the personal representative was treated as receiving it).

• Income tax - the clause could be included in a letter if the Revenue have accepted that the income of the estate should be assessed on the beneficiaries as if it arose to them from the date of death. Typically Revenue will allow this approach to be taken by concession (rather than requiring an income tax return to be filed by the executors of the Estate), where the income is straighforward and the beneficiaries are all Irish resident.

13. Q: Given our obligations where we have non-resident beneficiaries, can be costs

of preparing/filing their CAT returns be included as deductions in arriving at their CAT liabilities? [Aisling Lupton – aislupton@gmail.com]

A: OHT would not routinely deduct the costs of preparing a CAT return, on the

basis that Revenue do not normally allow costs of compliance.

The legislation dealing with deductions for CAT purposes is S. 28 CATCA 03 and this provides that liabilities, costs and expenses that are properly payable out of a benefit can be deducted from the market value. Stephenson Burns Solicitors indicated that they would routinely deduct the costs of preparing the CAT return and that this was not queried by Revenue. I will check the position with Revenue and revert to you.

14.

Q: A farmer dies and the farm is held by the proposed purchaser as caretaker until sold. No rental was received on the lands but executor paid insurance premiums on the land until sold. No CGT on farmlands as sold for probate value. Farm entitlements were leased (so as not to be lost to the National Reserve) until sold by the LPR at a gain over the Probate value. Can the LPR deduct (i) a proportional element of administration costs on the farm against the gain on the sale of entitlements (effectively creating a CGT loss on the farm sold at probate value to be utilised against the gain on sale of entitlements), (ii) deduct a proportional element of administration costs on the entitlements against the gain and (iii) claim the insurance premium as a deduction against the income earned on the letting of the entitlements? [Aisling Lupton – aislupton@gmail.com]

A: Where a CGT loss is made on one asset in the course of administration and a

gain is made on the disposal of another, then the loss can be set off against the gain, provided it arises in the same year. It can also be carried forward. It should be noted that a loss cannot be carried back by an executor.

Where an asset such as land is sold at a price that equals the market value at the date of death per the IRA, then there is generally a small loss realised, arising from the costs of disposal such as legal fees or auctioneers fees. Because the costs that can be deducted from a CGT perspective are quite restricted by the terms of S. 552, (see query above) my view is that the costs of any insurance premiums on the land would not be allowed for CGT purposes (although they would be an allowable cost of administration for CAT purposes). In summary, my view is that a loss that is generated on the farm could be set off against a gain on the entitlements, but that costs such as insurance would not give rise to a loss. In my view, the costs of the insurance premium will not be allowed for income tax against rent on letting the entitlements. Rent is deals with in S. 97 TCA 97 and the deductions allowed are the expenses laid out to generate the rent (such a legal advice on a lease or the cost of interest on a loan taken out to purchase the property). In my view the Revenue would regard the insurance of the property as an expense of the personal representative’s obligation to

secure the property, and not as a cost of generating the rent on the entitlements.

15.

Q: How does one apply for a Certificate of discharge from CAT (Form C.A.12) which is required to support a S49 application in an Estate? [Maria Wylie – mariawyliesolicitors@gmail.com]

A: We send the Form CA 12 to Revenue via MyEnquiries with a brief letter

setting out the background facts. This process may change with eProbate.

16. Q: Testator leaves 50% of the residue to Mary and the other 50% to be divided

between Mary's 4 siblings in 4 equal shares (all nieces of the Testator). Mary wishes to disclaim her 50% share of the residue and as there is no gift over this 50% falls into a partial and it appears Mary becomes entitled again to a one fifth share of the half share of the residue under Intestacy. How does she disclaim? [Maria Wylie – mariawyliesolicitors@gmail.com]

A: Mary can disclaim her half share under the Will but accept the one fifth share

of same under intestacy. If she decides to disclaim both the two disclaimers can be done in one Deed.

There is no tax reason why the disclaimers would have to be done prior to the extraction of the Grant. Stephenson Solicitors advised that they have been involved in cases in which Revenue indicated that the disclaimer should be pre-Grant but that there is no legal requirement to this effect.

17.

Q: Dwellinghouse left to Son for life and then to four grandchildren. The life tenant had died and the dwellinghouse is being sold. Is the CAT payable by the Grandchildren on date of death of the son (life tenant) or when property sold. [Siobhan O’Dwyer Solicitor, Tallans Solicitors – nora@tallans.ie]

A: If the grandchildren received a remainder interest the valuation date would

generally be the date of death of the life tenant (the son). However the terms of the Will should be reviewed.

For example if the Will provides that on the death of the life tenant the assets should be sold and the net sales proceeds distributed between named beneficiaries the valuation date would be the date of sale as the value of the benefit cannot be ascertained until the sales price and costs are clear.

18.

Q: If Revenue come back with a tax issue after they have issued a clearance letter, and the Estate has been distributed, where will the personal representatives get instructions , or get any money to pay outstanding taxes? What can Revenue do if the personal representatives have acted correctly. [John Murphy John A Sinnott Solicitors - jmurphy@johnasinnottsolicitors.ie]

A: In practice OHT has never seen Revenue come back after they issue a

clearance letter and would feel that it is unlikely that Revenue would revert unless there is information not available to Revenue when the clearance letter issued, which emerges later and affects the tax position substantially.

However we have seen Revenue prepared to issue proceedings to recover CGT from a personal representative personally, after all the assets have been distributed, on the basis that a gain arose in the course of administration (notwithstanding that the personal representative had acted in good faith and relied on a professional advisor who had advised incorrectly on the tax position).

The personal representatives do not need instructions to act in their role as personal representatives.

Post distribution the only way for the personal representatives to get money to pay tax is to recover from the beneficiaries – the receipt signed by a beneficiary can drafted to include an indemnity.

19.

Q: I would be very much obliged if you could confirm how best to ensure that all pre death taxes have been paid. [John Murphy John A Sinnott Solicitors - jmurphy@johnasinnottsolicitors.ie]

A: Pre-death income tax checklist

• Request the personal representative to confirm what income sources the deceased had receiving at the date of death (income subject to PAYE (employee/pensioner) or Form 11 taxpayer (self employed or non PAYE income such as rent)

PAYE

• check with Per Rep/payroll records if tax refund issued following month of death

Form 11 taxpayer:-

• request a copy of the last return & tax computation if available and • based on that see if another return is required (include crosscheck

against CA24); • check whether deceased was in the process of selling any property

or other asset or had disposed of any asset in the 12 months up to the date of death on which CGT is outstanding

• check whether deceased disposed of any asset in the in the 12 months up to the date of death at a loss (no CGT but there may be terminal loss relief)

• seek clearance from Revenue (sending them a copy of the CA24 if required)

20.

Q: In relation to post death taxes I took from your lecture that we should not distribute the Estate until we get clearance from Revenue. I appreciate that it will be easier to have knowledge of the post death taxes as we will know from the assets of the Estate whether there is for example rental income from properties or whether the Per Rep has sold any property giving rise to a CGT liability.

Do we write to the Revenue District for the deceased and ask them for a letter of no audit as we would do in the case of a non-resident beneficiary before we distribute.

If the personal representative is not satisfied that the tax position is totally clear cut we would recommend writing to Revenue to advise that the estate is being distributed and asking Revenue to revert if there are any outstanding tax issues for the deceased (PPS No xxxx) or the estate (PPS No xxxx).

Lastly is the only instance when we as Solicitors could become secondarily liable for o/s taxes of the deceased or the Estate, when we are dealing with a non-resident beneficiary. [Joan Fagan Coonan Cawley -fagan@coonancawley.ie]

A: The personal representative is liable for outstanding pre-death taxes and

those arising in the course of administration. He is secondarily liable for the CAT of a non-resident beneficiary. The solicitor acting in an estate is secondarily liable for the CAT of a non-resident beneficiary if there is no Irish resident personal representative. He may also be liable to income tax or CGT as agent of a client who is a non-resident vendor.

21.

Q: I had understood that the valuation date would normally be determined by the date of the Grant and that a delay in a sale or in dealing with an asset of the estate would not usually be grounds to put back the valuation date. What is the impact of an interim distribution for the valuation date? [Jim Downing Lawlor O'Reilly & Co. - Jim@lawlororeilly.com]

A: As note above the valuation date is dealt with in S. 30 CATCA 03 and is

generally the point of retainer or delivery of the benefit.

The point of retainer is the point at which the net residue can be ascertained and the level of benefit to be received by each beneficiary can be determined. In most cases, Revenue will take the view that this is the position at the date of Grant. It should be noted that if assets pass automatically by operation of law on a death (e.g. survivorship) the valuation date will be the date of death. There is an argument that an interim distribution should not be made before the net residue is ascertained as the personal representative cannot determine who is entitled to what until that point and should not distribute until the entitlements are clear. It followed that if the valuation date had not yet arisen for some reason then in making an interim distribution might accelerate the valuation date. In most cases the valuation date will have arisen at the date of Grant and a later interim distribution would have no effect on that valuation date.

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