The Gazette 1993

GAZETTE

Probate Tax - The Implications for Practitioners

by Richard Grogan*

normal house to exclude the possibility of relief being claimed in respect of any item of unusually large value. The writer disagrees with this contention. If the Act had used the word "A" instead of "the ", their view would be correct. The Act as passed leads the writer to believe that whatever the normal contents of a dwelling house are, an , exemption should be granted; as in some circumstances the exemption could be extremely large, this may ultimately be a matter for the courts to adjudicate on. Any property left to a trust, whether a | discretionary trust or otherwise is liable to probate tax However, property given by will for public or charitable purposes is exempt l6 . of the estate are deductible as is any consideration for a benefit paid prior to the death of the deceased together with reasonable funeral expenses, though administration expenses or expenses incurred after the death of a deceased are not 17 . There are a number of exemptions from tax, principally any sponsored superannuation scheme under section 235 9 Income Tax Act, 1967, a Trust Scheme under section 235 or | section 235A Income Tax, 1967, under a scheme for the provision of superannuation or retirement benefit all of which are not included in valuing an estate for probate tax purposes IH . As is evident from the attached example, considerable savings can be arranged where a disponer prior to his death organised his estate so as to minimise the assets which would come within the meaning of assets over which ; a power of appointment was exercisable I after death. A. Dies testate on August 20, 1993 leaving a spouse and two children. The deceased leaves the home to his children and the residue to his wife. In arriving at the taxable value of an estate for probate tax purposes, all debts

The Finance Act, 1993 introduced a new probate tax which in line with recent legislation is a self-assessment tax. The person primarily liable for the payment of the tax is the personal representative of the deceased The effect is that we as practitioners shall become the collectors of the tax on behalf of the Revenue. The tax is charged at the rate of 2% on the estate of a deceased dying after June 17, 1993 if the estate exceeds £10,000.00. The Revenue estimate 75% of all estates will pay some probate tax with 25% of all estates paying in excess of £1,000 2 . The tax becomes -due and payable from the valuation date, which will normally be the date of death \ The personal representative must pay the probate tax within nine months of the valuation date. If the tax is not paid within that period interest is chargeable at the rate of 1.25% per month from the expiration of the period of nine months 4 . In addition, the tax must be paid at the time of delivering the Inland Revenue Affidavit. 5 A person applying for Letters of Administration or Probate to an estate must discharge the probate tax before I the Revenue will process the Inland Revenue Affidavit unless there are insufficient liquid assets to meet any ! tax. 6 Where a taxpayer wishes to pay the tax by surrendering government j stock under the provisions of section 45 of the Capital Acquisitions Tax Act, j same will be accepted by the Revenue | to discharge the probate tax. 7 | The new probate tax applies "to the estate of the deceased"." The estates of the deceased is defined by reference to ! the Succession Act, 1965. The j Succession Act excludes property to which the interest of the deceased ! ceased on his death. Accordingly, all

Richard Grogan.

joint property, whether real of personal is exempt from probate tax. 9 Therefore, all joint bank accounts or shares in companies held jointly with another and life insurance policies with nominated beneficiaries would all be exempt from the new tax. The residence of a deceased is totally excluded from probate tax if the deceas- ed dies leaving a spouse or a dependant child or dependant relative 10 . There is no requirement for a spouse to take any share in the dwelling house. The exemption applies only to one residence with up to one acre of land which was for the use and enjoyment of the deceased with the dwelling house ". There are two further major exemptions: the first is that it is the market value of the dwelling house which is excluded from the probate j tax 12 . Accordingly, if the exemption is allowable and there is a mortgage or other debt it is an allowable deduction in ascertaining the value of the estate liable to probate tax The Finance Act, 1993 14 excludes I furniture and household effects being j the normal contents of the dwelling I house. The Revenue in recent | statements have indicated they take this to mean the normal contents of a

355