The 2010 Finance Act introduced a fixed pay and file date for all gifts and inheritances with a “valuation date” after 14th June 2010. As a result, the Capital Acquisitions Tax year runs from 1st September to 31st August in the following year.
C.A.T. arising on gifts/inheritances, where the “valuation date” falls within the twelve month period ending on 31st August in a particular tax year, must be paid and filed with Revenue by the 31st October of that year.
What do we mean by “Valuation Date”?
The “valuation date” is the date on which the property making up the gift or inheritance is valued. The “valuation date” for a gift is the date the individual receives the gift but determining the “valuation date” for an inheritance is far more complex.
Section 30(4) Capital Acquisitions Tax Consolidation Act 2003 defines the valuation date as the earliest of the following:
1. the date on which the Executor is entitled to retain the inheritance for the benefit of the beneficiary or
2. the date on which the inheritance is retained for the beneficiary or
3. the date of delivery to the beneficiary i.e. the date on which the inheritance is paid over or transferred to the beneficiary.
In many estate cases, the date of the grant of probate or grant of administration is generally taken to be the “valuation date.”
The situation can be more complicated in the following situations:
• where the asset passes automatically on the death of an individual by operation of the law (e.g. where joint property passes by survivorship) or
• where there are several valuation dates for different bequests. For example some assets may be distributed before the grant of probate which would mean the “valuation date” is the date of transfer or payment and other inheritances, such as the reside, would be valued after the date of grant.
The main problems for Tax Practitioners and Accountants are as follows:
• The very short time frame between a valuation date in, say, August and the pay and file date of 31st October in the same calendar year. In situations where the valuation date is the grant of probate it may not be possible for the Executors to extract sufficient cash before the deadline date.
• The value of the assets can fluctuate greatly between the date of death and the valuation date. This is especially relevant to property and share values so particular attention should be given to the correct valuation of these assets.
• In the event of a date of death valuation, a beneficiary may not have sufficient information to establish whether or not there is a liability to C.A.T. until after the pay and file deadline.
A date of death valuation arises in the event of a beneficiary having an immediate entitlement to an inheritance. This could arise if a remainder interest is taken on the death of a life tenant or if there is an inheritance of a joint tenant by survivorship.
An IT38 Return should be filed if:
(a) the beneficiary has a CAT liability or
(b) the benefit exceeds 80% of the Tax Threshold Amount.
IT38s must be filed by 31st October along with any CAT due.
An IT38 in paper form can only be filed if the individual is not claiming any reliefs or exemptions other than the small gift exemption of €3,000.
Where other reliefs or exemptions are being claimed then it is essential that the Return is filed electronically through the Revenue Online System in which case the pay and file deadline will be 13th November 2014.
Group A – €225,000 – Generally from parents to children
Group B – €30,150 – In general from brothers, sisters, aunts, uncles, etc.
Group C – €15,075 – Gifts/inheritances from other people deemed to be “strangers in blood.”
Are there any penalties for late filing?
If you are up to two months late filing your Tax Return there will be a 5% surcharge of the amount of tax payable up to a maximum of €12,695.00.
If you file your Return after that a 10% surcharge will be levied up to a maximum amount of €63,485.00.
What about interest?
Interest of 0.0219% per day or part of a day will be applied to all late payments of Capital Acquisitions Tax.
Tax Practitioners should ensure that their clients are aware of the various pay and file deadlines and reporting requirements otherwise they could be facing significant interest and penalties.