How much tax do I have to pay on the sale of shares that I inherited?

Beneficiary is trying to work out the value of shares they received and costs they can set against their sale

I am just wondering if you can help me around CGT evaluation. I inherited shares from my father on his passing. Firstly, is this tax worked out from his date of death or date of probate when calculating the tax, as I have now sold the shares?

Secondly, can I offset solicitor fees which occurred in the sale of the shares against the capital gains tax when filing the CGT1 form?

Ms UMcL

There is not a big history of personal direct share ownership in Ireland compared to some other countries. Perhaps it is the small scale of the Irish market, or that rather disastrous first wave of shareholder democracy here – the ill-fated Telecom Éireann/Eir flotation – but, for whatever reason, owning shares directly is very much the exception, rather than the rule.

So it’s not that surprising that when people suddenly find themselves in possession of shares, like you, through inheritance, it can be a bit of a steep learning curve.

The sometimes complicated rules about the timing of inheritance doesn’t help, particularly the issue of the valuation date.

In general, under inheritance, the valuation date – the date on which the market value of the asset coming into your ownership is assessed – is the date when you actually get possession and use of it.

So, for items that pass under survivorship such as assets jointly owned, the valuation date is the date of death. For specific bequests, it will usually be the date of probate; and for recipients of benefit under a residue of a will, it can frequently be even later, especially if addressing the residue entails selling physical property.

So far, so good. Except that when it comes to capital gains, the rules change again. Here, you are deemed to have received the asset on the date of death of your father.

Technically, what is happening is that ownership of the asset passes to the executor/personal representative on the date of death. If they later sell the asset during the executor/probate process, it is the personal representative (in reality the estate) that will be liable for any capital gain from the time of death.

However, if the asset – in this case the shares – is subsequently passed on to a beneficiary, “no chargeable gain shall accrue to the personal representatives”.

Instead, “the legatee [that is you in this case, the beneficiary] shall be treated as if the personal representatives’ acquisition of the asset had been the legatee’s acquisition of the asset”. This is all set down in section 573 under Part 19, Chapter 3 of the Taxes Consolidation Act (TCA).

What it means in English is that if the executor or personal representative passes the shares on to you under the terms of the will, the tax code considers that they owned them on your behalf from the date of your father’s death, and therefore the market value is the same for you as it was for the executor – the date of your father’s death.

So the price of the shares at close on the day your father died is the “acquisition price” or starting price for you in assessing capital gains.

Moving on to the issue of costs allowed to be set against any capital gain, again you need to turn to TCA1997, in this case section 552 in Part 19, Chapter 2.

The Revenue Tax and Duty Manual – effectively a practical guide to the how the legislation should be implemented in practice, states: “Fees paid to a professional adviser are allowable only to the extent that they are directly referable to the cost of acquiring or disposing of each particular investment.”

It adds. “To the extent that the fees are referable to advice about the general state of markets or the prospects of particular forms of investment or the management of a portfolio, they are not allowable.”

The key thing here is how essential the services of a solicitor would be to the sale of these shares. Normally, for shares, allowable costs would be things like the stockbroker fees that you have no choice but to pay if you are selling shares. I’m not sure that Revenue will consider the involvement and cost of a solicitor to be necessary to the process.

If you are claiming that the solicitor’s engagement was a necessary expense, you should be prepared for the possibility that Revenue may query it, so you need to be comfortable that you can show why that is so.

Remember that any gain on the sale of these shares can be reduced by losses you make this year on the sale of any other assets – or by losses built up over previous years that have not yet been offset against gains.

Finally, if you have sold these shares this year, you will need to pay any tax due by December 15th. That is the deadline for any capital gains accrued up to November 30th of a year. Any gain you get in December is payable by the end of January in the following year.

Outside payment, you will need to make a capital gains tax return, and this is due by October 31st in the year after the gain is made.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice

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