Taxable Value. Market Value and Valuation date. Deductible liabilities, costs and expenses

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1 Taxable Value The taxable value of a benefit is the net value on which tax is applied Calculation of the taxable value is as follows Market Value Less: liabilities, costs and expenses () Incumbrance-free value Less: consideration payable by beneficiary () Taxable Value Small gift exemption can also be deducted from the taxable value Market Value and Valuation date Market value can be defined as the price which the property would secure if sold on the open market on the valuation date In the case of a gift, the valuation date is usually the date of the gift In the case of an inheritance, the valuation date is normally the earlier of: The earliest date on which any person becomes entitled to retain the subject matter of the inheritance on behalf of the successor, or The actual date of retainer, or The actual date of delivery or payment to the beneficiary Deductible liabilities, costs and expenses Most costs associated with the transfer of property are fully deductible at arriving at the incumbrance-free value s would be legal costs and stamp duties Funeral expenses and costs of administering the estate are deductible in the case of inheritance Expenses and liabilities of the deceased are deductible from the residue of the estate, but in some instances specific property may be charged with the payment of a liability and these liabilities are deducted also An example would be a property subject to a mortgage 1

2 Deductible liabilities, costs and expenses Contingent liabilities are not deductible Reimbursed liabilities are not deductible Liabilities associated with exempt assets cannot be deducted against the market value of non-exempt property The CAT liability, interest or penalties are not deductible Consideration paid by donee/successor To arrive at the taxable value, any consideration payable is deducted from the incumbrance-free value Consideration includes an undertaking to discharge a liability of the disponer or undertaking to discharge a liability of a third party Where consideration is payable in respect of a gift or inheritance which comprises taxable and non-taxable property, the amount of the consideration should be apportioned Valuation of annuities Where the gift or inheritance involves the provision of an amount on an annual basis special rules apply to determine the market value Where an annuity is charged on specific property it is valued using the following formula: Market value x annual value of benefit/annual value of property Tom gives an annuity of 10,000 to his daughter Kate. The annuity is secured on a rental property which Tom owns in Dublin. The rental property is valued at 420,000 and it produces annual rental income of 30,000. 2

3 Valuation of annuities Where the gift or inheritance involves the provision of an amount on an annual basis special rules apply to determine the market value Where an annuity is not charged on specific property the value of the benefit is taken to be the market value of the capital sum which invested in Government stock to acquire an amount of income equivalent to the annuity. The relevant Government stock is the latest issue prior to the date of disposition, which is not redeemable within 10 years. Valuation of annuities Michael covenants to pay an annuity in the amount of 15,000 to his mother Mary, aged 60, for the remainder of her life. The latest Government stock issue which was not redeemable within 10 years was a 6% Government bond. The price per stock unit (valued at 1) on the valuation date was A limited interest arises when a benefit is granted for a certain period, less than 50 years in duration, or granted for life. The beneficiary does not have a permanent or absolute interest in the property A limited interest is defined as an interest which is not an absolute interest. It may also arise where an interest is granted for a period of the lives of specified individuals other than the beneficiary 3

4 CAT legislation provides for the application of a limiting factor to the incumbrance-free value, in order to reduce the taxable value in line with the limited interest There are two limiting factor tables provided in the tax reference material One table gives the limiting factors for a life interest The other table gives the limiting factors for a certain period The calculation of the taxable value would be adjusted as follows: Market Value Less: liabilities, costs and expenses () Incumbrance-free value. Adjustment for limited interest Less: consideration payable by beneficiary () Taxable Value Tom transfers a farm for life to his son Pat on 1 July 2017, with the remainder on Pat s death transferring to Pat s son Martin. The farm is valued at 500,000 on 1 July 2017 and Pat was 58 years old at this time. Legal fees on the transfer of the limited interest amounted to 8,000. 4

5 Tom gives an annuity of 10,000 to his daughter Kate for a period of 5 years. In consideration, Kate agrees to waive a debt in the amount of 2,500 owed to he by her brother Jack. The annuity is secured on a rental property which Tom owns in Dublin. The rental property is valued at 420,000 and it produces rental income of 30,000 annually. 5