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Taxation Partner is a Tax support service for Solicitors. We provide advice on all tax matters which Solicitors encounter on a day to day basis. This includes Capital Acquisitions Tax, Capital Gains Tax, VAT on Property, Estate Taxes, Termination Payments and Revenue Audits.

Tax thoughts – Don’t let Capital losses die

In circumstances where an individual inherits an asset from a spouse, no Capital Acquisition Tax applies. Also because there is no Capital Gains Tax on death, no Capital Gains Tax arises. The surviving spouse inherits the asset at the market value of that asset at the date of death.

Where a lifetime transfer of asset takes place between spouses, interposal reliefs ensure that no Capital Acquisition Tax or Capital Gains Tax arises. Interestingly however, Capital Gains Tax legislation dictates that the recipient spouse will assume the disponer spouses original base costs for the purpose of a future disposal.

In circumstances where clients hold assets upon which there are uncrystallised losses, it makes sense that these assets are transferred inter vivos, as distinct from on death. This ensures that any capital losses resting in that asset, don’t die.

See example below.

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John purchased an office block in 2007 for €2millon. The value of the office block collapsed to as low as €500,000.00 but has recovered somewhat and is now valued at €1millon.

John died in 2016, his last Will & Testament provides that his wife Mary will inherit the asset.

If we assume that the property is sold for €1.75millon in 2023, Mary’s base cost on that disposal will be market value when inherited – €1millon. Mary will pay Capital Gains Tax on €750,000.00

Alternatively, prior to John’s death, consideration should be given to transferring the office block to Mary.

Again, no tax arises, however Section 579TCA 1997 provides that Mary assumes John’s base cost which is €2millon, notwithstanding that the asset is worth €1millon.

Moving on to 2023 in our hypnotically example, if Mary sales the property for €1.75millon, her base cost for €2millon ensures that a loss of €250,000.00 arises.

The key point is that capital gains fall away on death. So do capital losses.

Clients can become rather disillusioned when dealing with loss bearing assets, and advisors can become casual where no tax liabilities arise, but losses are very valuable and should not be allowed to die.

Get in touch to find out how Taxation Partner can help you.
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