eProbate – A lot Done, More to do

The introduction of the new Statement of Affairs (Probate) Form SA.2 signals a significant change to the probate process, and provides the Revenue with earlier and more comprehensive access to the information executors are providing to the Probate Office. Brian Broderick reviews the new process and sets out a number of pros and cons

Arecent article from Revenue in the Irish Tax Review noted that one of the aims of Revenue’s Capital Acquisitions Tax (CAT) Strategy 2018-2020 was to increase levels of e-filing and e-payment of CAT through improved e-services.The online Form SA.2 is a step towards the improved e-services and practitioners filing CAT returns using a ROS business certificate will be able to use a ROS TAIN number, and have access to a wider range of online payment options for CAT.

Revenue have better insight into the information to be gleaned from the probate application as a result of the process of turning the paper CA24 into the online Form SA.2, and as the system becomes operational, there could be an increase in Revenue queries in relation to estates.

There may be future developments in terms of improving e-services. Revenue’s Corporate Priorities 2020 document indicates that they want to “Fully exploit opportunities to expand the pre-population of returns and leverage the benefits of the proposed online CAT form CA24 for Revenue, the Probate Office, taxpayers and agents”.

One possibility is that CAT returns could be pre-populated from Revenue’s records in the future (similar to the pre-populated returns currently provided for income tax). On the one hand this would be very useful for a busy practitioner, but on the other hand, there would be a risk that if beneficiaries did not file their CAT returns in a timely manner, the Revenue might assess based on the pre-populated returns. This would overestimate the CAT in many cases as the Form SA2 provides a “date of death” profile for the estate, and information on the costs of administration and any changes in the value of assets are not available to Revenue. The beneficiaries could go on to file a return to displace the assessment, resulting in an accurate CAT liability. However, there would be a risk that some beneficiaries would simply accept the Revenue figures and overpay the CAT.

A Revenue letter generally issues automatically to taxpayers once the Grant issues as a reminder that CAT returns are due. It is possible that this could include an indication of the CAT liability in the not too distant future. Form SA.2 While the manner in which the information is provided to Revenue has changed, and the format and layout of the new online form is unfamiliar, the information that needs to be included in the form is largely the same as the information in the paper Form CA24.

There are however some additional fields, including: • Confirmation of whether proceeds from a section 72/73 life assurance policy became payable to a beneficiary on the death of the disponer, • Domicile status of a beneficiary, and • Date of birth of a beneficiary.

Brian Broderick is a tax practitioner at O’Hanlon Tax Ltd

The inclusion of this additional information has no impact on the tax rules, or the tax position of the beneficiaries of an estate, but the information (and the information previously contained in the paper Form CA24) is likely to be used by Revenue to improve taxpayer profiling. Taxpayer Profiling It is likely that when Revenue look at “leveraging the benefits” they are considering the Risk Evaluation Analysis and Profiling (REAP) system that is Revenue’s risk analysis tool. REAP risk-rates Revenue’s customer base across all the main taxes and duties. ‘Risk’ in this context means the risk posed to Revenue’s core business of ‘collecting the right tax and duty at the right time’.

REAP has been designed to analyse a vast amount of data (including third party data) that Revenue has on tax and duty cases and to attribute scores based on the level of risk posed. The REAP system prioritises cases based on risk, enabling Revenue to target its attention on those cases who need it most and minimising contact with compliant taxpayers.

Revenue use returns such as stamp duty returns to build their database of information on the value of real property. Revenue have been known to link the value of property purchased by a taxpayer (from the stamp duty return) with the purchaser’s income (in the PAYE or income tax records) and raise queries if the value of the property purchased is too high for the purchaser’s means, allowing for the current mortgage guidelines. Revenue are looking for undeclared income, or an undeclared gift, in such a situation.

Practitioners should bear in mind that Revenue may be pulling existing information forward from their system to check the accuracy of the data in the Form SA.2, but they may also use the Form SA.2 to check back and assess the accuracy of pre-death returns. For example, if the Form SA.2 shows more than one residential property Revenue may check the deceased’s pre-death tax records, to see if the second property was rented, and confirm if any income received was returned.

By linking the LPT Property ID number to a taxpayer’s PPS number Revenue can check if a taxpayer holds more than one residential property. They can also link into data from the Private Residential Tenancies Board to see if a second property is or has been rented. If income tax returns are not being filed to return rental income, Revenue can raise queries or open an audit.

The level of data included in the Form SA.2 is significant, and Revenue are unlikely to have had such a detailed overview of the assets and general financial affairs of any deceased taxpayer, at any point during the taxpayer’s lifetime. The provision of the information to Revenue in an electronic format makes the data significantly more accessible to REAP.

Revenue may be pulling existing information forward from their system to check the accuracy of the data in the Form SA.2

Revenue are unlikely to have had such a detailed overview of the assets and general financial affairs of any deceased taxpayer, at any point during the taxpayer’s lifetime

Use of Information by Revenue The Revenue approach to the information provided in the old paper Form CA24 has been changing over the last number of years and profiling of deceased taxpayers has increased. Example Kieran died in 2020 aged 85. At the time his main source of income was a State pension, and he was also in receipt of a private pension of circa €20,000 per annum linked back to his employment pre-retirement.

Kieran had lived with family rent free and led a frugal life, and had a cash balance of €200,000 in the bank when he died. When Revenue reviewed the Form CA24 and compared the bank balance to the level of income it raised a flag, and Revenue wrote to the Kieran’s personal representative to ask where did he get the money.

In this case the source of funds was relatively clear to the family as Kieran had received a tax-free lump sum of circa €140,000 on his retirement, and the personal representative felt that the balance of €60,000 represented the savings of a lifetime.

This is just one example of how Revenue have started to use the information provided to them to extract a grant of representation, and in estates where the personal representative is not familiar with the financial affairs of the deceased, queries on the source of funds or assets may not be easy to answer.

Other ways that Revenue might use the information provided in the Form SA.2 include: • Reviewing the residence and domicile position of the deceased to establish whether there is consistency with the residence and domicile information included in pre-death tax returns • Comparing real property values with property values on Revenue’s property valuation database (and ownership details on the LPT database) in the context of CAT, and also in the context of CGT if assets are sold by the estate or beneficiaries • Reviewing the summary of benefits included in the

Form SA.2 and automatically linking this summary to the CAT returns ultimately filed by the beneficiaries to ensure consistency

The provision of the Form SA.2 information electronically to Revenue will allow for automated checks where there is a relief claim. Example John died in 2020 aged 80. His son Adrian had moved into the family home with John a number of years before he died and Adrian was appointed as the personal representative of John’s estate. Adrian was also the sole beneficiary of John’s estate and he did not own any residential property so he qualified for CAT dwelling house relief on the family home.

Adrian contracted to sell the family home prior to filing the Form SA2 and intends buying a new home to preserve the dwelling house relief. In the meantime he has moved in with his sister so the address included for him in the Form SA2 is different to the address of the disponer (John).

If Revenue’s system was set up to track property addresses for dwelling house relief this could result in queries from Revenue as there is generally a requirement for a beneficiary to be living in a property on the date of death to qualify for dwelling house relief, and a different address for the beneficiary in the Form SA2 may look like a beneficiary was living elsewhere.

Conclusion

The provision of information to Revenue electronically may ultimately speed up the probate process and prove beneficial to practitioners, and it has the potential to streamline CAT compliance by linking the assets included in the form SA.2 and the CAT returns filed by beneficiaries. Going forward, there may be more of a focus on the Estate Accounts, which bridge the gap between the “date of death” position shown on the Form SA.2 and the final distribution figure in the Form IT38.

However, if there is an increased focus on the deceased’s assets and liabilities, and Revenue are linking these back into historic tax returns filed by the deceased, then personal representatives, beneficiaries and their advisers may see increased levels of Revenue queries on probate files in the future. P