Base Cost of Assets and Transfers between spouses
12 June 2021
Sean is a young an enthusiastic solicitor. He feels he has a good bit of probate and property experience under this belt. The principal is out so he was the last man standing when the call came into the office to attend at the local hospital to take instructions on a will. He took due instructions and as part of the consultation the client indicated that in addition to the family home and some other liquid assets, the client wished to leave another real property to his wife. The client asked Sean should he leave this property in his will or transfer it during his lifetime. Sean said “Well, as transfers between spouses are exempt, its all the one”.
So, it was decided to transfer the property during the lifetime of the client. Sean went back to the office and prepared the documents and went back the next day to the client (he was diligent, efficient and bright). The transfer papers were signed and the asset transferred. 48 hours later the client sadly passed away. Sean read his will which had been prepared in light of the inter vivos transfer. All was good. Some time later the wife of Sean’s client decided she would sell the non family home property gifted to her by her husband by inter vivos transfer. All was not good.
Unfortunately, Sean was right about transfers between spouses but didn’t know all of the Taxes Consolidation Act 1997. In particular he forgot about s. 1028 of the Act. This effectively states that the base cost of an asset acquired by the wife in this example, is the date of acquisition by the husband. The husband bought the property 25 years ago for a bargain. A significant CGT liability now accrued on sale. This could have been completely avoided if the property was left in a will, as death resets the base cost.
This is a true story. The name has been changed but not the liability.
Sean is now a little older and wiser now. I’m sharing this so that we can all get the benefit of Sean’s wisdom.