All You Need to Know About Inheritance Tax In Ireland
Understanding inheritance tax in Ireland can be complex, especially when dealing with various aspects like capital acquisition tax, thresholds, and potential exemptions. Our expert team at Tax Returns Plus is here to guide you through the intricacies of inheritance tax in Ireland.
This blog post aims to provide a complete overview of inheritance tax in Ireland, including its rates, thresholds, exemptions and practical strategies to manage it.
What is the Inheritance Tax in Ireland?
Inheritance tax in Ireland, also known as Capital Acquisitions Tax (CAT), is a tax levied on assets inherited by an individual. It’s essential to understand how this tax works, as it can significantly impact the value of the inheritance. The inheritance tax rate in Ireland, the thresholds for tax-free inheritance, and other key aspects are governed by specific regulations that we’ll explore.
Understanding Capital Acquisitions Tax in Ireland
Capital Acquisitions Tax (CAT) is the formal name for inheritance tax in Ireland. It applies to all property and assets that are passed on to beneficiaries. The current CAT rate is crucial information for anyone dealing with inheritance.
Calculating Inheritance Tax in Ireland: Estimating Your Liability
You can visit www.revenue.ie to obtain insights into the value of the inheritances and the relationships between the benefactors and the beneficiaries, offering a clearer picture of the tax implications. Alternatively, you can contact one of our tax experts here at Tax Returns Plus, and they will be able to guide you.
How Much is Inheritance Tax in Ireland?
Currently the standard rate for inheritance tax in Ireland is 33%
However, the amount of inheritance tax in Ireland depends on several factors, including the value of the inherited property and the relationship between the benefactor (person providing the inheritance) and the beneficiary (person receiving the inheritance). It’s important to understand these nuances to estimate your tax liability accurately.
Inheritance Tax Rates and Thresholds in Ireland
Inheritance tax rates in Ireland are determined by the relationship between the benefactor and the beneficiary. There are different threshold levels beyond which the tax applies. Knowing these thresholds can help in efficient tax planning.
Gifts and inheritances between spouses or civil partners are exempt from Capital Acquisitions Tax (CAT). Widows, widowers, and surviving civil partners may also be eligible for additional relief. Additionally, you are not liable for CAT on gifts valued at €3,000 or less received from any one person in a calendar year.
Tax-Free Thresholds
Group A: €335,000
This threshold applies to beneficiaries who are:
- A child, including adopted, step-, or foster children (in certain circumstances), of the benefactor or the benefactor’s civil partner/spouse
- A parent inheriting an absolute interest of an inheritance on the death of your child
- A minor grandchild of the deceased benefactor if their child (your parent) is also deceased
Group B: €32,500
This threshold applies to beneficiaries who are:
- A parent of the benefactor, where you receive a limited interest or a gift
- Siblings, nieces and nephews of the benefactor
- Children of a brother or sister of the benefactor
A lineal ancestor, such as a grandchild of the benefactor
Group C: €16,250
This threshold applies to beneficiaries who have a relationship to the benefactor on the date of the gift or inheritance that is not covered by the above groups.
Estate Planning and Minimising Inheritance Tax in Ireland
While avoiding inheritance tax entirely might not be possible, there are several tax strategies to minimize its impact through Estate Planning. This section explores ways to reduce inheritance tax liability in Ireland.
Dwelling house exemption
If you inherit a house and qualify under the dwelling house exemption, you will not be liable for Capital Acquisitions Tax (CAT).
The rules surrounding this exemption are:
- The home must be the main residence of the person who has died.
- The individual inheriting the home must have lived there for three years before the homeowner’s death.
- The individual inheriting the home must remain living in the home for six years after it is inherited.
- The individual inheriting the home must not have an interest in any other property. This also includes any other properties that may be part of the same inheritance.
In some cases, there may be multiple properties that must be taken into account to try and minimise any CAT liabilities.
However, the above stipulations do not apply if:
- You are over age 65 at the time of inheritance, or
- Are required because of employment to live elsewhere, or
- You are required to live elsewhere because of your physical or mental state as certified by a doctor.
Business Relief
A business is regarded as any activity, trade, or profession which generates income or profits over time. If you inherit a business, you may qualify for business relief. This relief may enable the value of the qualifying business to be reduced by 90% when passed to a beneficiary.
The beneficiary must retain the business for a minimum period of six years and must ensure certain stipulations are met. If not met, there may be a clawback.
If you find yourself in this situation it would be advisable to consult the help of an expert with experience in these situations.
Agricultural Relief
This is similar to business relief where the value of an agricultural property can be reduced by 90% when passed to a ‘farmer’.
To qualify for agricultural relief as a farmer, the value of your agricultural property must:
- Consist of at least 80% of your total property value on the valuation date. This is referred to as a ‘farmer test’.
Revenue provides an in-depth analysis of the rules surrounding agricultural relief and the exemptions attached.
Favourite Niece/Nephew
In some cases, a niece or nephew of the deceased may be treated as a child and therefore fall under the €335,000 threshold. There are various conditions that must be met to be eligible for this relief.
Frequently Asked Questions
Addressing common queries about inheritance tax can provide further clarity. Let’s explore some of the most frequently asked questions.
How Much Inheritance is Tax-Free in Ireland?
The tax-free allowance for inheritance in Ireland varies based on the relationship between the benefactor and the beneficiary. Knowing these allowances helps in understanding how much inheritance can be received tax-free. Details of any gifts/inheritances or capital gains must be declared on your Form 11 in order to file your tax return.
What is Gift splitting?
If a gift is passed on to someone in a different group within three years of when it was received it is called gift splitting. Gift splitting affects the threshold used.
For example if a Father leaves his son €200,000 in January and the son in turn gifts this €200,000 to his own daughter within 3 years, it is deemed that daughter has then in fact received the gift from her Grandfather, not her Father. The Group B threshold applies to her gift not the Group A.
When do you pay and file Inheritance Tax?
If the valuation date falls between:
- 1 January and 31 August, you must pay by 31 October of that year
- 1 September and 31 December, you must pay by 31 October of the following year.
What Happens When Inheritance Tax is Not Paid?
Non-payment of inheritance tax in Ireland can lead to penalties and interest charges. It’s essential to comply with tax obligations to avoid these additional costs.
Conclusion
Inheritance tax in Ireland, or Capital Acquisitions Tax, is a vital consideration in estate planning. By understanding the rates, thresholds, and strategies to manage this tax, you can ensure your inheritance planning is as efficient as possible. For personalized advice and assistance with your tax returns, complete our short form now to receive a quote and find out how our team can help you with your Inheritance tax return this year.
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