Can buyer be liable for CAT ?

dooroy · 20-11-2020 01:08AM #1

I understand that the seller of a property can be liable for CAT but in a recent discussion it was said that if you bought a property for less than the valuation stated on probate you could be liable for CAT.
The buyer would be benefiting - and thus liable for CAT on the difference between probate value and purchase price.
Is this true - any opinions appreciated.

nompere · 20-11-2020 09:22AM

If the buyer and seller are unconnected, and reach a bargain at arms' length, then there's no benefit on which gift tax or inheritance tax may be charged.

If there's an intention to give the buyer a benefit by agreeing a low price then there may be CAT. The benefit would be measured by reference to the true value at the time of the deal - the probate value will be irrelevant for that.

The probate value might be important for CGT purposes, but that's the seller's issue, and has nothing to do with the buyer.

beauf · 20-11-2020 10:08AM

I'm no expert but my 2 cents

I think one scenerio is on inheritance siblings giving a low value on a family home to gift it to another sibling etc.

The whole probate thing I think it's a little unfair as you get valuations for probate at that time. But it could be a year or more later until probate goes through and the property sold. The market could have risen or fallen in that time. So you could easily end up over paying our under paying the CAT.

You can't claim a refund if you over pay. But if you under pay they can chase you for the difference and interest etc.

So between recieving a gift and undervaluing for probate. I expect that's where a additional CAT may arise. For buyer and seller respectively.

Isn't this more tax question than a legal one though.

nompere · 20-11-2020 11:35AM

beauf wrote: »

The whole probate thing I think it's a little unfair as you get valuations for probate at that time. But it could be a year or more later until probate goes through and the property sold. The market could have risen or fallen in that time. So you could easily end up over paying our under paying the CAT.

There's an old fashioned idea that probate values should be low. If a property is to be sold, then the probate value needs to be realistically high, to avoid the possibility of CGT on the sale.

And if the property is being sold by the executors any CAT will be charged, in effect, on the sale value, as the beneficiaries wil be receiving the sale proceeds.

About the only time when a low probate value makes sense is if a beneficiary is going to retain a property.

beauf · 20-11-2020 02:11PM

Most people's concern would be over paying it I assume. Since you can't claim it back. And its likely to be a significant sum.

coylemj · 20-11-2020 04:06PM

dooroy wrote: »

I understand that the seller of a property can be liable for CAT but in a recent discussion it was said that if you bought a property for less than the valuation stated on probate you could be liable for CAT.
The buyer would be benefiting - and thus liable for CAT on the difference between probate value and purchase price.
Is this true - any opinions appreciated.

Revenue get to see the sale price and if they determine that the price paid was less than the market value, it would be considered a gift and the buyer may be liable to pay tax on the benefit.

But as has been pointed out here, the probate valuation may already be out of date by the time the asset is transferred by the executor to the legatee. If the market has dropped in the meantine, it doesn't mean that somebody buying the property for less than the probate valuation will be liable to pay tax on the difference. If the buyer is paying market rate on the day, there is no taxable benefit.

The loser here will be the person who inherited the property because they may have paid CAT based on the probate valuation, yet get less when they go to sell the house.

Can buyer be liable for CAT ?

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