Capital Acquisition Tax (Gift Tax and Inheritance Tax) Guide 2018

Here is a simple guide to current Irish tax system concerning gifts and inheritances.

The aim of the guide is to provide individuals with an understanding of the tax system and reliefs available, to ensure that they can arrange their affairs in a tax efficient manner.

The key to tax efficiency in relation to this lies with tax planning. The most important aspect is to understand how transfers of property, assets, and money are taxed and how best to manage this, given the reliefs available.

 

Introduction to Capital Acquisitions Tax 

CAT (Capital Acquisitions Tax) is tax payable on a gift or inheritance.

The rate of CAT is 33% and individuals normally aim is to ensure that this is kept to a minimum but utilising all reliefs possible.

Top Tip: Make a will! This is of utmost importance and it ensures that you can chose how your assets are distributed upon death. It also reduces the stress on others involved in administering your estate.

 

Definitions:

‘Beneficiary’ – is the person receiving the gift or inheritance.

‘Disponer’ – is the person giving the gif or inheritance.

‘Property’ – The asset(s) being transferred by gift or inheritance.

Types of CAT – Inheritance Tax and Gift Tax 

Inheritance Tax – Upon Death – This is the tax you pay when you inherit ANY property from a deceased individual.

Examples – House, Commercial property, bank account, shares, motor vehicles, certain insurance policies

 

Gift Tax – Other than upon death – this is the tax you pay on ANY BENEFIT received from an individual during that individuals lifetime.

Examples – Cash, house, use of house (rent free), car, shares

 

Note that both Gift and Inheritance tax rates are 33% (Jan 2018)

 

Who is liable for Irish (CAT) tax?

The beneficiary is liable to Irish tax when any of the below apply:

  • The disponer is Irish resident
  • The beneficiary is Irish Resident
  • The property is in Ireland

Therefore, if you (being Irish resident) receive a gift or inheritance from a person that is resident outside Ireland then you are taxable in Ireland.

If you live outside Ireland and receive an asset from a person resident in Ireland – you are taxable in Ireland.

If you live outside Ireland and receive an asset situated in Ireland, from a person resident outside Ireland – you are still taxable in Ireland.

What Reliefs are Available?

Annual Gift exemption: €3,000

This means that an individual can receive gifts up to €3,000 per annum by ANY person, or number of people, without incurring a tax liability i.e. €3,000 from Mother, Father, Brother, Uncle, Neighbour, Friend – Or ALL of these.

PLANNING POINT: If you have cash on deposit, and intend to leave to a certain individual in your will, then you can opt to transfer up to €3,000 per year and this will be tax free and will not affect their Thresholds below. Your spouse (if applicable) can do the same, to the same person.

 

The annual exemption does not apply to inheritance.

 

There are three tax free thresholds which apply for CAT purposes. These amounts are as follows:

Tax-free threshold (Since Budget 2017)

 06/12/12 - 13/10/1514/10/15 – 11/10/1612/10/16 to date
Group A€225,000€280,000€310,000
Group B€30,150€30,150 €32,500

Group C€15,075€15,075€16,250
 Note: All benefits received since 05/12/1991 will be taken into account for the thresholds stated above.

 

PLANNING POINT: Benefits can be transferred now to utilise the current threshold – if the threshold decreases, you have been tax efficient. If the threshold increases, you can transfer additional amount, tax free.

 

Dwelling House Relief

This is an exemption from tax upon receipt of a residential property in certain circumstances

Upon inheritance, to qualify;

  • the house must have been the only or main home of the person who died
  • the beneficiary must have lived in the house as their main home for the three years prior to the disponer’s death
  • the individual cannot own or have an interest or a share in any other house, including one you acquired as part of the same inheritance
  • the individual must live in the house for 6 years after receiving g the benefit unless he/she is > 65 years of age.

 

Upon receipt of a gift of dwelling house, to qualify;

  • the individual must be a dependent relative of the disponer. Dependent means that the beneficiary is permanently and totally incapacitated and unable to earn a living OR
  • the beneficiary must be 65 years of age or older
  • the house was your main home for the previous three years
  • the individual cannot own or have an interest or a share in any other house, including one you acquired as part of the same inheritance
  • the individual must live in the house for 6 years after receiving g the benefit unless he/she is > 65 years of age.

Agricultural Relief

This can reduce the taxable value of assets received by 90%. This is available when you receive agricultural property. It means that if the market value of the property and assets amounts to €500,000 then the taxable value is reduced to €50,000.

Agricultural Property includes agricultural land, pasture, crops, trees, underwood, houses, farm buildings, livestock, bloodstock, farm machinery.

It also incudes payment entitlements.

It does not include shares in a company trading as an agricultural company.

Conditions of the beneficiary

  • Must be a ‘farmer’ – i.e. 80% of assets must be agricultural (after the inheritance / gift)
  • Must farm the property for 6 years after receiving property OR Must lease to a farmer for 6 years
  • this means that 50% of the farmers working hours must be spent farming

Note: The farmer test above does not apply if claiming agricultural relief for trees and underwood.

 

Business Relief

This can reduce the taxable value of assets received by 90%. This is available when you receive business property, including agricultural property.

For example, if you receive qualifying business assets worth €1,000,000, you will be taxable on 90 % i.e. €100,000. Your group threshold can also be utilised on this and it may reduce your liability to NIL

Business assets include;

A business, an interest in the business, land, buildings, plant machinery used for the purposes of the business, shares in the business (see below).

Unquoted shares are business assets when:

  • the beneficiary owns/controls >25% of the company after inheritance / gift) OR
  • the beneficiary owns/controls >10% of the company after inheritance / gift) and has worked full-time in the company for a period of 5 years ending on the date of the benefit.

It is important to note that a single asset will not qualify for the relief, without the business being transferred to the same person at the same time

NOTE: Businesses dealing in currencies, securities, stocks, shares, land, buildings or investments do not qualify for the relief

Conditions

  • Business must have been owned by the disponer for at least 5 years (2 years if inheritance)
  • The business must continue to trade for 6 years. If an asset within the business is disposed of, it must be replaced within 1 year.
  • If any of the assets is sold as development land, the period of 6 years is extended to 10 years for that asset.

Other Exemptions

  • Gifts and inheritance s between married couples and civil partnerships are exempt
  • Inheritance by parents from child – in circumstances where the child had gifted the parent a taxable gift within 5 years prior to the death of the child
  • Certain life assurance policies – Section 72 and Section 73 Policies

 

Taxable benefits received from other countries

 

Beneficiary is resident in Ireland

ALL gifts and Inheritances received are taxable in Ireland, whether or not the disponer or property are situated in Ireland.

There may also be tax in another country if the disponer or property is situated in the other country. Double Taxation Agreements may allow for a credit of tax paid in the other country in certain circumstances.

 

Disponer is Resident in Ireland

ALL gifts and Inheritances received are taxable in Ireland, whether or not the beneficiary or property are situated in Ireland.

There may also be tax in another country if the beneficiary or property is situated in the other country. Double Taxation Agreements may allow for a credit of tax paid in the other country in certain circumstances.

 

Property situated in Ireland

ALL gifts and Inheritances received are taxable in Ireland, whether or not the beneficiary or disponer are situated in Ireland.

There may also be tax in another country if the beneficiary or disponer is situated in the other country. Double Taxation Agreements may allow for a credit of tax paid in the other country in certain circumstances.

 

Group Thresholds and Annual Exemption

The group thresholds apply to non-resident individuals.

The Annual exemption applys to non-resident individuals.

 

Double Taxation Relief (UK)

The DTA (Double taxation Agreement) between the UK and Ireland covers CAT.

In the UK the inheritance tax is taxable on the estate / deceased person, where in Ireland the tax is payable by the beneficiary

The DTA allows that a person in Ireland will receive a credit for the tax paid in the UK on the same property, at whichever rate is lower of the UK and Irish rate.

The credit cannot be more than the tax paid. The person who is liable to pay the tax in both UK and Ireland, is the person that receives the credit.

The person who inherits an estate, after all other costs have been paid, is generally the person who receives the tax credit. This person, who is called the residuary legatee, must pay tax in Ireland to qualify for the relief.

Requirements to claim credit in Ireland for UK tax paid:

  • Require a letter* from UK Revenue stating:
  • Value of property
  • Date Tax Paid
  • That tax was calculated in accordance with DTA
  • That tax is final i.e. no refund due
  • If refund payable, that UK will notify Ireland

*This letter is required to be kept for 6 years.

 

How to file your tax returns and arrange payment

To arrange to file your tax return, the following is required;

  • Ascertain the value of the property/assets received.
  • Ascertain the valuation date and date of gift/inheritance.
  • Compute the taxable amount.
  • Apply any reliefs available.
  • Compute the tax liability, if any.
  • Complete a Form IT38 – This can be done online through the Revenue online System (ROS).
  • Payments can be made online or by chequer/bank draft to Collector General.

The file and payment dates are outlined below:

Period 01/09/2015 to 31/08/2016 – DUE 31/10/2016

Period 01/09/2016 to 31/08/2017 – DUE 31/10/2017

Period 01/09/2017 to 31/08/2018 – DUE 31/10/2018

 

Late filing of returns are subject to a penalty of up to 10% of the liability.

Interest may also be payable on late payments and is calculated @ .0219% on a daily basis.

Book Consultation

Liam Burns can provide a consultation on this. Please feel free to get in touch anytime.

Fees start from €100 plus VAT (30 mins Phone Consultation) and €175 plus VAT (1hr Meeting). This can be very worthwhile given taxes can be very significant amounts.

 

ENSURE YOU ARE AS TAX EFFICIENT AS POSSIBLE, CLAIMING RELIEFS AVAILABLE, AND FILING YOUR RETURNS ACCURATELY AND ON TIME TO AVOID ANY UNNECESSARY CHARGES.

CONTACT US ON +353-1-567 7380 OR USE THE ENQUIRY FORM