Managing Income Tax Clearance – Part 1
02 November 2023
In the view of the author of this blog series certainly the most significant change to probate practice over the last number of years has been the introduction by the Revenue of the new income tax clearance procedure for estates. We are going to look at a number of aspects of this over a series of blogs.
The income tax clearance procedure refers to the fact that prior to distribution of funds to beneficiaries in an estate one must obtain a letter of clearance from Revenue authorising such distribution. To obtain this letter of clearance one must have submitted a tax return to Revenue in relation to the deceased and for the year prior to their death, and also the year of death. Also, one must have completed a due diligence questionnaire and also have probate submitted. Once all of these steps have been completed one may apply for clearance.
The principal question each solicitor must ask themselves at the start of an estate (and I say start as this must be dealt with at the very start of the file) is whether they are going to run this aspect themselves or outsource it to an accountant known to the deceased, the executor or the solicitor. What each solicitor does depends very much on their own practice and preferences. I set out the pros and cons of each approach here.
Outsourcing clearance to an accountant:
Pros 1. It means that the clearance task is off the desk of the solicitor and in the hands of a third party.
Pros 2. The work will tend to require the involvement of an accountant at some stage and so best to get one involved at an early stage.
Pros 3. Allows the solicitor to concentrate on work more suited to their skills.
Pros 4. The accountant involved will be able to navigate dealing with Revenue in a far more efficient manner than the solicitor.
Pros 5. The accountant can be the focus of frustration for clients in the event that Revenue delay on issuing a letter of clearance, rather than the solicitor been seen as the body delaying administration.
Cons 1. It takes the procedure out of the hands of the solicitor and thus creating a risk that the accountant dealing with the matter may delay in obtaining clearance or not give the matter sufficient priority to allow the file to move quickly.
Cons 2. It leaves the solicitor with less client contact and less opportunity to build and cement a relationship – a relationship which may have only just commenced with this file.
Cons 3. If the matter leaves the hands of the solicitor then there may be information requests that the solicitor could have dealt with not passed onto the solicitor quickly enough.
Cons 4. The solicitor is losing out from gaining experience in the area and thus deepening his or her expertise.
Con 5. The solicitor is loosing out from a potential fee earning uplift by charging the client for the additional work that is involved in this area.
Retaining the clearance procedure by a solicitor as distinct from an accountant
Obviously, much of the pros and cons with this approach are the reverse or the other side of the coin of the first outsourcing approach. Some of the main advantages being that the solicitor has more client contact, there is a fee opportunity and also the processes is managed by the solicitor and so the solicitor can ensure that the procedure occurs in a timely fashion.
How we work in our office is that we apply a hybrid approach. Our office manages the process but we work closely with a particular accountant as our main “go to” for this area (subject to client consent). The appointed accountant and our office work hand in hand in getting clearance through, meeting monthly to go through all cases and allocating tasks between us and working as a team on a common goal. The bulk of the fees pass to the accountant but there are some opportunities for client charging. However, the key is that the probate matter is progressing as quickly as possible.
Whatever the approach, the key with this area of probate practice is that the solicitor identifies the need to deal with this area at the start of the file and adopts steps appropriate to move the matter along as quickly as possible.
And remember, if you have any probate, will drafting or tax issues please do not hesitate to make contact with me. Colm Kelly theprobatehub.ie.