Inheritance Tax: JFL Financial Advisors

"The Pension & Investment People"

Independent Irish Financial Advisors

Irish Inheritance & CAT Tax

Protecting your Assets on Transfer

Current legislation states that a charge to Capital Acquisitions Tax or CAT arises where someone is in receipt of a gift or inheritance. Gifts or inheritances of Irish property are liable to tax whether or not the disponer ( i.e. the person giving the gift or inheritance) is resident or domiciled in Ireland. Foreign property is liable to tax only where either the disponer or the beneficiary is resident or ordinarily resident in Ireland at the relevant date.

The tax is charged on the taxable value of the gift or inheritance, which is the full market value of the gift or inheritance less any liabilities or costs which must be paid by the beneficiary, less the value of any consideration which the beneficiary has given to the disponer.

The relationship between the disponer and the beneficiary is central to assessing the CAT liability. This is because depending on that relationship a certain level of benefits may pass between them before a liability to CAT will arise. This non taxable level is known as a Group Threshold.

The tax free Group Thresholds that apply from 8th December 2010 are as follows:

Group Threshold (1) of €332,084 where the beneficiary is the child of the disponer, the minor child (under 18) of a deceased child of the disponer or the foster child of the disponer. A parent of the disponer can also be classed in this threshold if the interest taken is an absolute interest and it is taken as an inheritance on the death of the disponer.

Group Threshold (2) of €33,208 where the beneficiary is a lineal ancestor (eg. grandparent), a lineal descendent (other than a child or minor child of a deceased child eg. a grandchild), a brother, a sister or a child of a brother or sister (i.e. blood nephew or niece) of the disponer.

Group Threshold (3) of €16,604 where the beneficiary (who is not a spouse of the disponer) does not stand to the disponer in a relationship referred to in (1) or (2) above. Please note that in-laws and cousins are regarded as strangers for the purposes of CAT and therefore Group Threshold (3) applies.

These threshold amounts are increased each year in line with inflation.

For benefits taken on or after 5th December 2001, all benefits received from someone in the same Group Threshold as the current disponer since 5th December 1991 are added together to calculate how much, if any of the current benefit will be liable to CAT.

The current rate of CAT payable over and above the group threshold is 25%, the tax rate below the threshold is 0%.

The reality is that CAT can significantly reduce the value of a gift or inheritance therefore it is good practice to be aware of the thresholds and use them to their full potential. Where possible you should plan ahead so as to minimise the amount of CAT due by fully utilising the various reliefs and exemptions that are available. The most commonly applicable of these is the small gift exemption, whereby the first €1,270 of the total taxable value of all taxable gifts, taken by a donee from any one disponer, in any calander year, is exempt from tax and is not taken into account in computing CAT. It is also excluded from any future aggregation.

In particular the impact of CAT will be felt where the transfer comprises of illiquid assets and these assets have to be sold in order to realise the money needed to pay the tax.

*Source of information LIA Professional Factsheet 2011.

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