Inheritance Tax in Ireland

January 8, 2014
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Inheritance Tax in Ireland (Also known as Gift Tax – Capital acquisitions tax CAT) –  All figures are Valid for 2014

The rate of Inheritance or Capital Acquisition Tax in Ireland  is  33% in respect of gifts or inheritances made from midnight on 4 Dec 2012  (The rate was formerly 30% .) This rate only applies to amounts over the  thresholds. See Below

When somebody close to you dies, tax issues are likely to be the last thing on your mind. However, you are required to make a tax return on any inheritance within a relatively short period of the death,

An inheritance is any assets passed by the deceased to beneficiaries at the time of death. These can include cash in bank accounts, stocks, shares, property, land, livestock, jewellery and cars.
A tax return on your inheritance has to be filed within four months of the ‘valuation date’. The valuation date could vary, but it tends to be either four months from the date of death or four months from the date of probate.

Your tax liability as a result of an inheritance will depend on a number of factors.

The first step is establishing the value of the inheritance and the relationship between you and the deceased person.
Whether you inherit a family residence, a cash lump sum or a selection of shares and bonds, the tax treatment is broadly similar. In the case of all asset classes, the current market value of the asset is the first step in determining its taxable value.

When assessing the value of your inheritance, it is important to note that the taxable value may not be the same as the market value. The taxable value of an asset is the market value of the asset on the valuation date, reduced by any applicable reliefs. Relevant liabilities – costs, expenses and consideration – can also be deducted. For gifts, there is an additional deduction of the small gift exemption.For example, outstanding mortgage costs could be set against the market value of the property, to reduce its taxable value.

The tax payable on your inheritance is also affected by your relationship with the person leaving you the bequest. A threshold applies to all gift or inheritances received, with the amount of the threshold varying, depending on the nature of the relationship between the two parties. You will be exempt from CAT on inheritances up to this threshold.
Spouses are exempt from capital gains tax (CGT), CAT and stamp duty, whether alive or dead, when passing assets to the other spouse.

Thresholds

For the 2012 – 2013 tax year, the maximum thresholds were reduced  in the 2013 Budget . The new threshold of  €225,000   applies where the beneficiary is a child – or, in some cases,  parent – of the deceased.

If you receive an inheritance from another close relative, such as a sibling, aunt, uncle or grandparent, a threshold of €30,150 applies.

The lowest threshold of €15,075 euro applies in all other cases.

The rate of Inheritance or Capital Acquisition Tax is  33% in respect of gifts or inheritances made from midnight on 7 Dec 2012  (The rate was formerly 30% .) This rate only applies to amounts over the  thresholds.

Falling below the CAT threshold does not necessarily remove the requirement to file a return in relation to your inheritance. If your inheritance was equal to 80 per cent or more of the threshold value, you still have to file a return.

Another important point when dealing with CAT is that the thresholds are cumulative. Prior benefits received by a beneficiary since December 5, 1991 which fall within the same group threshold as the current benefit will be aggregated, to determine whether the threshold has been breached.

Cohabiting couples could only avail of the smallest threshold, currently €15075, under CAT rules. But cohabiting couples might be able to avail of dwelling house relief, whereby a gift or inheritance of a house which has been your main residence may be exempt from CAT, if you do not have an interest in any other house.
In order to qualify for this relief, the person must have occupied the house as their main residence for the three years immediately before the date of the gift or inheritance. A beneficiary who is under 55 must continue to occupy the house as their main residence for the following six years.

A number of other reliefs from CAT are also available, in certain circumstances. If you inherit the family business or family farm, you may also qualify for tax relief provided certain conditions are satisfied.

Business relief and agricultural relief reduces the taxable value of relevant assets by 90 per cent. However, if you sell the assets within a certain period, a clawback of relief may apply.

While stocks, shares and bonds are subject to CAT, certain government securities are exempt. There is an exemption for government securities and unit trusts holding government securities, if neither the beneficiary nor the disponer [deceased] is domiciled or ordinarily resident in Ireland at the date of the inheritance or gift.

There are a number of full exemptions from inheritance tax, irrespective of the value of the inheritance. Bequests to charities and public bodies are exempt from CAT. Also any inheritance of heritage property, such as pictures, prints, works of art or heritage houses and gardens, were exempt from inheritance tax, once certain conditions were met.

Any inheritance of the proceeds of certain insurance policies, where the proceeds are used to pay inheritance tax, and any inheritances left to discharge the medical expenses of a beneficiary, are subject to full exemption also.

The following are exempt from CAT

* Gifts or inheritances from a spouse

* Payments for damages or compensation

* Benefits used only for the medical expenses of a person who is permanently incapacitated due to physical or mental illness

* Benefits taken for charitable purposes or received from a charity

* Winnings from a lottery, sweepstake, game, or betting

* Retirement benefits and pension and redundancy payments are not usually liable to Gift Tax.

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