With inheritance tax and thresholds very much on the Budget 2023 agenda this September, John Lowe of MoneyDoctors.ie explains this complex tax.

Gifts and inheritances can be received tax-free up to a certain amount. The tax-free amount, or threshold, varies depending on your relationship to the person giving the benefit.

There are three different categories or groups – Group A, Group B and Group C. Each has a threshold that applies to the total benefits you have received in that category since 5 December 1991.

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Group A applies where the beneficiary, the person receiving the benefit, is a child of the person giving it. This includes a stepchild or an adopted child.

It can also include a foster child if the foster child resided with and was under the care of the disponer (the giver) and they provided the care, at their expense, for a period or periods totalling at least five years before the foster child reached the age of 18.

This minimum period does not apply in the case of an inheritance taken on the date of death of the disponer. In this case the Group A threshold will apply provided that the foster child had been placed in the care of the disponer prior to that date.

Group A also applies to parents who take an inheritance from their child but only where the parent takes full and complete ownership of the inheritance. If a parent receives an inheritance where he or she does not have full and complete ownership of the benefit, or if a parent receives a gift, then Group B applies.

If a parent inherits from their child, and have full and complete ownership of the inheritance it is exempt from tax if, in the previous five years, the child took an inheritance or gift from either parent and it was not exempt from Capital Acquisitions Tax currently 33%. In this case, no tax needs to be paid even if the inheritance from the child is over the threshold.

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Remember you are exempt from CAT tax on the inheritance of a dwelling house if you or as a dependent relative satisfy certain conditions, on or after 25th December 2016:

  1. The house was the only or main home of the person who died ( though this does not apply if you are a dependent relative )
  2. You lived in the house as your only or main home for the 3 years immediately before the date of the inheritance.
  3. You do not own, or have an interest, in any other house.
  4. You do not acquire an interest in any other house from the same disponer between the date of the inheritance and the valuation date.
  5. The house continues to be your only or main home for 6 years after the date of the inheritance. This does not apply if you:
  • Are aged 65 years or over at the date of the inheritance
  • Are required by reason of employment to live elsewhere

OR

  • Are required to live elsewhere because of mental or physical infirmity, and this is certified by a doctor.

Group B applies where the beneficiary is the parent (see also Group A), grandparent, grandchild or great-grandchild, brother or sister, or nephew or niece of the giver.

If a grandchild is a minor (under 18 years of age) and takes a gift or inheritance from his or her grandparent, Group A may apply if the grandchild's parent is deceased.

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Group A may apply to a nephew or niece if he or she has worked in the business of the person giving the benefit for the previous five years and meets the following criteria:

  • The nephew or niece must be a blood relation rather than a nephew-in-law or niece-in-law
  • The gift or inheritance consists of property used in connection with the business, including farming, or of shares in the company.
  • If the gift or inheritance consists of property then the nephew or niece must work more than 24 hours a week for the disponer (the giver) at a place where the business is carried on, or for the company if the gift or inheritance is shares. But if the business is carried on exclusively by the disponer, their spouse and the nephew or niece then the requirement is that the nephew or niece work more than 15 hours a week.
  • The relief does not apply if the benefit is taken under a discretionary trust.

Group C applies to any relationship not included in Group A or Group B.

If you receive a benefit from a relation of your deceased spouse, you can be assessed with the same group as your spouse would be if they were receiving the benefit from their relation. For example, if you receive a benefit from the father of your spouse, the group threshold would be Group C. But if you receive a benefit from the father of your spouse and your spouse is deceased, then the group threshold that applies to you would be the same as for a child receiving a benefit from a parent, Group A.

CAT thresholds from 2009

to 7/4/09 to 31/12/09 to 7/12/10 to 6/12/11 to 5/12/12

to 13/10/15

to 11/10/16

to 9/10/18

to 9/10/19

to ?
A

542,544

434,000

414,799

332,084

250,000

225,000

280,000

310,000

320,000

320,000

B

54,254

43,400

41,481

33,208

33,500

30,150

30,150

32,500

32,500

32,500

C

27,127

21,700

20,740

16,604

16,750

15,075

15,075

16,250

16,250

16,250

Anything received by way of inheritance over these thresholds is taxable at 33%.

For more information click on John Lowe's profile above or on his website.

The views expressed here are those of the author and do not represent or reflect the views.