Innovative approach achieving favourable agreement to revised Capital Acquisition Tax (CAT) liabilities

 

A long-standing full-time farming client’s wife inherited a substantial amount of funds & a farm with a house, after her Aunt died ten year following the sale of development lands at the height of the property boom.

 

In preparing for her planned inheritance, given her aunt’s ill-health and requirements to be looked after in a specialist nursing home, the client requested McGleenan & Co examine her pre-inheritance options.

 

Based on the information made available at the time, it appeared that the necessary conditions required to satisfy an entitlement to the Tax-Exempt Favoured Niece Status (FNS) would be satisfied thus sheltering the farm house & lands from CAT at 33%, which represented a 50% reduction in the full potential CAT liability. Other options such as merging the two farms were also examined, however the high non-farm asset element of the inheritance made any such transaction inappropriate in the circumstances.

 

As the deadline approached for filing & paying the CAT liability, it became apparent that the Aunts farm entitlements had in fact been leased on the understandable practical farming based suggestion of the husband’s Teagasc advisor for which no tax advice was ever sought. This of course immediately ruled out the client’s entitlement for claiming the FNS tax-free exemption, resulting in a doubling of the CAT liability.

 

In order to address client’s upset & concerns, McGleenan & Co set about an intensive programme of detailed work in order to examine all possible avenues to help the client manage the situation which by then had become not just a financial issue, but was causing stress induced ill-health, for someone who was meant to be in the process of “coming into” a nice inheritance.

 

A summary of the approach required in this unusual case is set out as follows:

 

We met the local tax office to brief them on the client’s plight and to request a hold be placed on processing the CAT returns which was agreed (after which a material payment on account was made to establish the client’s bona fides) while we re-examined the clients circumstances & valuation of the inherited lands.

 

After our own forensic research of all available material concerning the lands, it transpired that while the original valuation took account of a regular winter flooding pattern, there had been OPW reports commissioned showing increased level of summer flooding that were if anything even more significant to the productive potential  & hence the value of this particular holding.

 

Against significant professional resistance from the original Property Valuer & Executor’s Solicitors who were both acutely concerned for the wider credibility & standing with Revenue of their practices reputations, McGleenan & Co nevertheless convinced both firms to act in the manner sought based on tenacity & the quality the new evidence assembled.

 

Following submission of the amended Estate Returns & supporting valuations and after a very carefully prepared explanation to Revenue’s specialist CAT Division why this most unusual case had arisen, Revenue in fact saw the equity of the situation and allowed the revised returns to stand.

 

Besides reducing the final CAT liability by over €150k, this stress prone client was able to face the future safe in the knowledge that a Revenue Audit of the FNS, if carried out, would have given rise to substantial liability of up to €300k, as Capital Transaction Audits frequently are conducted 4-6 years after the transaction date which earns Revenue a greater yield from much higher levels of penalties & interest charges that would have accrued by that time.