To obtain income tax clearance for a deceased one must use the new Revenue Clearance procedure, which involves completing a due diligence questionnaire. This was something that I mentioned in the Solicitors Growth presentation that I conducted recently. (As an aside, if you are not part of Solicitors Growth, I would highly recommend; check them out at solicitorsgrowth.com).

Under the due diligence procedure, the form asks executors to set out details of the value of assets disposed of in the last 4 years. The form also asks whether assets have been disposed of in the 10 years up to the date of death. So therefore, one would think that if you have investigated back 10 years, and there is nothing, then, you have completed your due diligence. Well yes and no.

Yes, the look-back period is 10 years. However, there are a couple of catch-all questions in the due diligence procedure. Such as

“have all returns and payments been filed and paid for all tax heads”. or

“Are there any tax compliance matters of doubt that should be drawn to Revenue’s attention…”

So I gave the example at Solicitors Growth that, if an executor knows that a transfer took place 11 years ago and no CGT was paid, then the executor cannot proceed with the application for clearance, just because it is beyond the 10-year period. So, the principle of the system is that the executor is effectively stating that the deceased is tax compliant (from a pre-death income tax perspective). The due diligence questionnaire is the method adopted by Revenue to flush out or prompt an executor in locating any potential tax issues. So if you are confident that there were no disposals in the last 10 years, then you don’t need to go beyond that. Likewise, as stated above, if there is a non-compliant disposal 11 years ago, you cannot ignore it.

This brings me to a recent case. We acted for a deceased widow on social welfare and applied for clearance in the normal course. We submitted a Form 11 for the social welfare income demonstrating that the deceased had no liability. However, in that context, the Revenue did raise an issue with us with respect to a farm disposal that took place in 2005! Revenue requested full capital gains tax information about the disposal. They requested this information totally unprompted by us. It appears that they had information “on file” to indicate that a deed was stamped at a particular rate and they knew the consideration (perhaps they had sight of an old PD Form). Revenue indicated that they could find no corresponding capital gains tax return and required one to be filed.

As we had no access to any historical information we had to reconstruct information from discussions with our client and in particular to determine whether or not his parents as disponers were over 55 at the time of disposal (thus entitling them to retirement relief). We also had to determine whether or not they were farming for the 10 years prior to the disposal (another test for the relief). We had a historic valuation from Revenue and we used this for the CG1 return. There was nil liability as we were able to demonstrate retirement relief. Revenue were helpful in that they provided whatever information they had but that information was light.

What this case demonstrates (if it ever were needed) is that the due diligence procedure is doing its job in flushing out any remnants of tax liability that might be existing. While it appears to be a good system in performing that task, it certainly brings with a significant degree of extra responsibility on each probate file.

Hopefully, this was helpful and if you have any comments or observations let me know. Also if you have any probate, tax, or will drafting queries please reach out through the query service on theprobatehub.ie.