In this blog we are looking at the various ways in which the distribution of the benefits from an Estate can be varied from the terms of the Will.
We look at the tax treatment of three scenarios.
Scenario 1
A mother leaves her estate to her children Anne and Martin.
- House in the estate value at date of death (D.O.D.) 300k current value 330k
- Holiday home value 100k
- Bank 70k
- No other assets in the estate.
Anne wants to take the house, she agrees to pay Martin €150k for his share. (6 months after D.O.D.)
Their solicitor is instructed to draw up a Deed of Family Arrangement to facilitate this.
C.A.T.
Anne – House €150k plus holiday home €50k plus Bank €35k = €235
Assume no prior benefits threshold €335k – C.A.T. nil
Martin – House (proceeds) €150k plus holiday home €50k plus Bank €35k = €235
Assume no prior benefits threshold €335k – C.A.T. nil
Note that, if Anne did not pay the full valuation for Martin’s share, there would be a gift from Martin to Anne for C.A.T. purposes.
CGT
Revenue guidance states that:
“Where, within two years of death (or such longer period as the revenue Commissioners may allow) the disposition of the property under a will or intestacy is varied by a deed of family arrangement or similar instrument, the deed is deemed to have retroactive effect from the date of death. The arrangement is not, therefore, to be treated as constituting a disposal and is not the occasion of a charge to CGT.”
In certain circumstances this two-year period can be extended by revenue if there are delays in administering the estate e.g. difficulties in establishing title to property. Family disagreement about the structure of the disclaimer would not, in our opinion, qualify for the concession.
Therefore CGT = nil
Stamp Duty
Where consideration is received for varying interests by way of a deed of family arrangement, this will be a liability to stamp duty.
Scenario 2
Martin disclaims his share of the estate.
Where a beneficiary disclaims his right to a benefit, his share will fall into the residue of the estate.
The residue is then distributed under intestacy rules.
C.A.T.
In this case as there are no other beneficiaries, Anne will inherit the entire estate.
Anne – House €300k plus holiday home €100k plus Bank €70k = €470
Assume no prior benefits threshold €335k – Benefit €470k – Taxable €135k @33% = €45.5k
Martin – no C.A.T. as no benefit received.
C.G.T.
There is no C.G.T. for Martin as he has disclaimed his benefit and is deemed never to have received it, therefore he was never beneficially entitled in possession.
Stamp Duty
There will be no liability to stamp duty.
Scenario 3
In her will the mother leaves the house and the holiday home as specific bequests to Anne and Martin.
There are a number of other smaller bequests to charities, total €20k
Bank now €50k after charitable bequests for residue purposes.
The residue will pass to Anne and Martin.
Martin has disclaimed his right to the benefit of the house. This will fall into the residue and go to Anne.
He has not disclaimed the bequest of the holiday home. He will still inherit this.
C.A.T.
Anne – House €300k plus holiday home €50k plus Bank €25k = €375
Assume no prior benefits threshold €335k – Benefit €375k – Taxable €40k @33% = €13.2k
Martin – House €0k plus holiday home €50k plus Bank €25k = €75
Assume no prior benefits threshold €335k – C.A.T. nil
Note – If Martin disclaimed his share of the house and directed that it should go to Anne, she would be deemed to be getting the benefit from Martin.
CAT for Anne would be; Half share of house €150k – group threshold €32.5K – less Small Gift Exemption €3k – taxable – €114.5k @33% = €37.785k
C.G.T.
There is no C.G.T. for Martin as he has disclaimed his benefit and is deemed never to have received it, therefore he was never beneficially entitled in possession.
Stamp Duty
There will be no liability to stamp duty.
Please reach out if you have any queries regarding these scenarios, or indeed, if you require any tax advice.
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