Post-Death Variations and the SA.2

23 May 2024

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A question sometimes arises: if there has been a post-death variation, does that impact what goes into the SA.2? Some reflections on this question.

Analysis

Firstly, the SA.2 should reflect the date of death position. So (but see comments below) regardless of what happens after death, the date of death snapshot must be reflected in the SA.2.

This would particularly apply if say a property was sold after death or a deed of family arrangement took place where benefits /assets were exchanged between family members. These post-death events don’t impact the SA.2.

A question then arises with respect to disclaimers. Several views could be taken here.

Firstly, there should be no change, a disclaimer is a post-death variation like any other and as a result, there is no change to the SA.2.

A contrary view to this is based on the following. We look at both testae and intestate deaths.

Contrary View – Testate Deaths

s. 12 of the Capital Acquisitions Tax Consolidation Act 2003 (CATCA) states that if a benefit under a will is disclaimed any liability to tax in respect of such benefit shall cease as if such benefit had not existed. So one could take the view, that by this wording, Revenue are stating that a disclaimed asset is to be treated as if it didn’t exist. If the asset didn’t exist then that should be taken into account in the SA.2. However, on the other hand, it is clear that the asset still exists. What the section is really saying is that the asset is treated as ceasing to exist for the particular beneficiary that disclaims. In any event, the section doesn’t state that the asset ceases to exist. What is says is that the liability to tax to the benefit ceases as if the asset ceased to exist. There is a distinction there.

Therefore, there is language in the section that might lend one to altering the date of death position in the SA.2 where there is a will and disclaimers; however, in this author’s view, s. 12 is not an imperative to move away from the strict date of death position.

Contrary View – Intestacies

A slightly different view could be taken with respect to disclaimers on intestacy. Disclaimers on intestacy are regulated under s. 72A of the Succession Act. What that section states (subject to certain qualifications that are not relevant for this note) is that the effect of a disclaimer of a share on intestacy is that the person disclaiming is treated as having pre-deceased the deceased. That would therefore give one pause for thought when filing out the SA.2. The section appears to alter the date of death position by virtue of the disclaimer.

One could take the view as a result of the above that the date of death snapshot in the SA.2 where there has been a disclaimer of an intestate share is altered by the disclaimer. That would be a reasonable conclusion based on s 72A of the Succession Act. However, one could take an alternative view, namely that S, 72A is a section which talks about the legal effect of a disclaimer. Its focus is on how the disclaimed share would be distributed, rather than substituting one state of facts on a particular date for another. Its focus is on the effect rather than the origin of that effect. Or put another way. S. 72A is not concerned about a factual position on a particular date but on legal effect. So because legal effect is its focus, it is silent on the factual position as of the date of death. So one could take the view that one still retains the date of death position in the SA.2 without taking into account the disclaimer.

Conclusion and Reflections

There is a strong argument to retain the date of death position in the SA.2 notwithstanding disclaimers, from a purely practical position. This is because, ultimately tax is paid on the estate as altered by the disclaimer and so it is immaterial what goes into the SA.2, as the important return is the IT38 and what is submitted to Revenue as the taxable benefit. Therefore the SA.2 is somewhat academic. In this author’s view, it is always best to insert the date of death position in the SA.2. It is immutable and a practitioner cannot be criticised for putting in date of death valuations which are black and white. Even if there is a mismatch between the taxable benefits returned on an IT38 and a SA.2, that should not be of concern for practitioners, because a properly drafted disclaimer is a legitimate tax planning and post-death variation tool which can and should be disclosed to Revenue without undue trepidation.

Hope this helps and if you have any tax, will drafting or probate queries please do not hesitate to email me on colm@theprobatehub.ie