Valuing Property For Probate

Valuing Property For Probate in Ireland

In most cases, a legal personal representative (LPR) will be required to value estate property on two occasions: 1) the date of death and 2) the date of grant of representation (GOR). During uncertain economic times when property values can fluctuate, a valuer will often provide a range within which a property is valued and an LPR will be faced with choosing a valuation on the higher or lower end. Below are two considerations for LPRs when confronted with this decision in respect of a dwellinghouse or a commercial property.

1Future Sale of the Property – Capital Gains Tax (CGT)

To sell real property in Ireland, an LPR will need an Irish GOR – usually, where there is a Will the GOR takes the form of a Grant of Probate. Even in the most straight-forward of cases, a GOR can take more than 12 months from the date of death to issue.

An LPR will be subject to Irish capital gains tax (“CGT”) (33% as of May 2020) on the uplift in value and as a result an LPR should choose a date of death valuation that ensures CGT is charged on the genuine rise in value on a sale. Frequently, where an LPR or intended beneficiary/ies are intent on selling the property, and ultimately do sell it, a valuation at the higher end of the date of death valuation proves to be the most appropriate.

If a sale of property is likely to occur quite quickly following a death then an LPR could consider delaying the application for a GOR until a sale price has been agreed so that an accurate valuation of the property at the date of death is ascertained.

CGT/ CAT set-off rarely available

For a beneficiary to qualify for a set-off of CGT paid, both CAT and CGT will need to arise ‘on the same event on the same property’1 and the property inherited must be a physical asset such as land, buildings or stocks, for example: most inheritances are excluded as a result because CGT arises on a sale and the asset to be inherited is cash. In addition, in order to avoid a clawback of the relief, the beneficiary/ies will need to retain the asset for at least 2 years from the date of inheritance. Further detail on when a CGT set-off is available is explained on the helpful Revenue Guidelines here.

An LPR must therefore take care in valuing estate property on the date of death to ensure it is not an artificially low valuation that gives rise to an unusually high CGT liability which results in an ‘sunken cost’ to the estate.

2No Sale of the Property

If an LPR does not intend on selling the property, in many instances a CGT liability is unlikely to arise. This is because a transfer of property from an estate to those entitled is not considered a disposal for CGT purposes2. There are many different situations in which a property will not be sold: for example, the asset may need to be transferred into a fixed or discretionary Will trust; or the beneficiaries intend on holding the property as an investment. In this situation, an LPR’s attention will usually focus on the value of the property as of the GOR, which usually determines the date on which benefits are to be valued for inheritance tax purposes – also called the ‘valuation date’. The valuation date will determine the date on which a beneficiary’s capital acquisitions tax return must be filed and inheritance tax paid. As a result, an LPR may well be justified in choosing a valuation on the lower end of a range. However, this area is not as simple as it seems. A beneficiary who ultimately intends to sell the property inherited (say, in 3 years’ time) will be subject to capital gains tax on the difference between the sale price and the GOR value and may well consider opting for a value which ensures maximised use of an unused group threshold amount or inheritance tax relief.

In a fluctuating property market, an LPR may need to procure a number of valuations, in consultation with beneficiaries if possible, to ensure an accurate market value for the property as of the valuation date is obtained.

Conclusion

In summary, an LPT must consider the potential negative tax implications for an estate of choosing an artificially low or high valuation of estate property, particularly during uncertain economic times.