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GAZETTE
Probate Tax - The
Implications for Practitioners
by Richard Grogan*
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
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
.
In arriving at the taxable value of an
estate for probate tax purposes, all debts
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.
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