Everything you need to know about inheritance tax and thresholds

With inheritance tax and thresholds high on the agenda for the 2023 budget in September, John Lowe of MoneyDoctors.ie explains this complex tax.

Gifts and inheritances can be received tax-free up to a certain amount. The non-taxable 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 December 5, 1991.

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

It may also include a foster child if the foster child resided with and was in the care of the provider (the donor) and provided the care, at his or her own expense, for a period or periods totaling at least five years before the foster child reaches the age of 18.

This minimum period does not apply in the case of a succession taken on the date of the death of the disposator. In this case, the Group A threshold will apply provided the foster child was placed in the care of the donor before that date.

Group A also applies to parents who inherit from their child, but only when the parent assumes full ownership of the inheritance. If a parent receives an inheritance but does not have full ownership of the benefit, or if a parent receives a gift, then Group B applies.

If a parent inherits from their child and has full ownership of the inheritance, they are exempt from tax if in the previous five years the child received an inheritance or gift from one of the parents and that it was not exempt from the tax on capital acquisitions currently 33%. In this case, no tax has to be paid even if the child’s inheritance exceeds the threshold.

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Remember that you are exempt from CAT tax on the estate of a dwelling house if you or as a dependent relative meet certain conditions, as of December 25, 2016:

  1. The house was the deceased person’s sole or primary residence (although this does not apply if you are a dependent relative)
  2. You have lived in the house as your sole or primary residence for the 3 years immediately preceding the date of the estate.
  3. You do not own or have an interest in any other home.
  4. You do not acquire an interest in another house from the same disposesor between the date of inheritance and the date of valuation.
  5. The house continues to be your sole or principal residence for 6 years after the date of the estate. This does not apply if you:
  • Be aged 65 or over on the date of the succession
  • Are required, because of their employment, to live elsewhere

WHERE

  • Are required to live elsewhere due to mental or physical infirmity, and this is certified by a physician.

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

If a grandchild is a minor (under 18) and receives a gift or inheritance from their grandparent, Group A may apply if the parent of the grandchild is deceased.

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Group A can apply to a nephew or niece if they have worked in the business of the person giving the benefit within the past five years and meet the following criteria:

  • The nephew or niece must be a blood relative rather than a step-nephew or step-niece
  • The donation or inheritance consists of property used in the context of the activity, including agricultural, or shares of the company.
  • If the gift or inheritance consists of property, the nephew or niece must work more than 24 hours per week for the disponer (the donor) 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 operated exclusively by the disponer, spouse and nephew or niece, the requirement is that the nephew or niece works more than 15 hours per 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 are receiving a benefit from a relative of your deceased spouse, you may be assessed with the same group as your spouse would be if he received the benefit from his relationship. For example, if you receive a benefit from your spouse’s father, the group threshold would be Group C. But if you receive a benefit from your spouse’s father 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 04/07/09 on 31/12/09 to 12/07/10 to 12/06/11 to 12/05/12

to 13/10/15

to 10/11/16

to 9/10/18

to 09/10/19

at ?
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

VS

27 127

21,700

20,740

16,604

16,750

15,075

15,075

16,250

16,250

16,250

Anything received in succession beyond these thresholds is taxable at 33%.

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

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

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