This is a scary time for tax consultants who begin to focus on the forthcoming tax filing deadline on 31st October. While the income tax deadline receives the most attention, this is also the deadline for declaring gifts and inheritances.
With this in mind, here are 5 common tax-traps that cause problems for recipients of a gift or inheritance.
1. DO NOT MISS THE ACTUAL FILING DEADLINE WHICH IS THE 31st OCTOBER
There are no treats if you miss the actual deadline 31st October.
The filing deadline for gift tax and inheritance tax returns is 31 October, i.e. Halloween. Unlike the income tax filing deadline - which is annually extended to the second week of November so that Revenue personnel can play "trick or treat" - there is no soft "extension” beyond 31st October 2016 for returns filed online.
2. BE SURE THAT A RETURN AND PAYMENT IS ACTUALLY DUE
Make sure that an inheritance tax return and payment is actually due.
A return must be filed for gifts or inheritances for which the "valuation date" arises between 1st September 2015 and 31st August 2016.
We recently met beneficiaries who made payments of tax nine years before the liabilities were actually due. Apart from the cash-flow disadvantage, they had overpaid. Since Revenue is legally entitled to retain payments (whether correct or not) after four years, they could not recover the excess payments made. No action could be taken against the advisers as the statute of limitations had expired.
For inheritances, the valuation date is normally the earliest of:-
the date the inheritance is retained for the benefit of the beneficiary (which may be the date that the Grant of Probate issues from the Probate Office);
the date it is actually retained for the benefit of the beneficiary (for example the date a painting is given to a beneficiary for safe-keeping before the Grant is extracted), or
the date the inheritance is transferred or paid over to the beneficiary.
Advice should always be taken from an AITI taxation expert (not an accountant or lawyer) especially when dealing with complicated estates or estates with a long administration period.
3. A RETURN MUST BE FILED WHEN CLAIMING A RELIEF, EXEMPTION OR TAX CREDIT
A return must be filed online where reliefs, exemptions or credits are being claimed.
Beneficiaries of farmland and business assets often mistakenly believe that no return is required if there is no liability to tax. Returns must be filed even where no liability arises due to the availability of, for example, relief on business property, agricultural assets or residential property.
Failing to file a return can complicate tax claims that would otherwise be straight-forward.
4. NO LIABILITY & NOT RELYING ON ANY RELIEF? YOU MAY STILL HAVE TO FILE A RETURN
Knowing when there is an obligation to file a return is difficult.
A return must be filed if the total value of gifts or inheritances taken from a "class of persons" since 5 December 1991 exceeds a certain threshold. The classes are divided into groups for tax purposes as outlined in the table below.
A return must be filed if the total amount received from individuals within that group exceeds 80% of the "group threshold".
5. FAILING TO BE AWARE OF STEPS THAT CAN BE TAKEN EVEN WHERE A WILL IS BADLY DRAFTED
Certain steps can be taken to minimise tax even where a will has been badly drafted.
We have assisted families and their legal advisers in dealing with estates with no will, where assets potentially pass to the wrong persons, estates where a will is badly drafted or has errors.
Although Irish law does not allow for the varying of a will, certain steps can be taken to ensure the tax-efficient transfers of assets to beneficiaries. Obviously, dealing with these situations can give rise to conflict within families.
The best advice is to engage early on these issues as options become limited the longer an estate is in administration.
For information or expert tax advice on estate planning, inheritance tax, drafting a will, creating a trust, dealing with the administration of an estate, or related issues contact us at:-