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Inheritance Planning: Why do you need this?

Last will

Many people plan to leave inheritances to their children, to relatives or to deserving charities after they die. This section details the tax treatment of inheritances in Ireland and suggests ways of minimising the burden of Capital Acquisitions Tax.

Capital Acquisitions Tax (CAT)

CAT is applied both to gifts and to inheritances at the rate of 33% (2014). A certain amount can be gifted or bequeathed tax free, depending on which ‘group’ the recipient falls into, as follows:

  • Group A: €225,000 where the recipient is a child of the benefactor (or a minor grandchild of the benefactor if the parent is dead). This threshold may in limited circumstances be applied to a parent, surviving spouse of a deceased child and a niece/nephew if any of these has worked in a family business, substantially on a full-time basis, for a period of 5 years or more.
  • Group B: €30,150 where the recipient is a brother, sister, niece, nephew, parent or lineal ancestor/descendant of the benefactor.
  • Group C: €15,075 in all other cases.

  • Gifts/inheritances exempt from CAT:

    Any inheritance or gifts between spouses

  • The first €3,000 of all gifts received from any benefactor in any calendar year
  • Any inheritance from a deceased child which had been given to that child as a non-exempt gift or inheritance by the parent in the 5 years prior to death
  • A family home where:
  • – It is the principal private residence of the giver/deceased and/or the recipient, and
    – The recipient had been living in the home for the 3 years immediately preceding the transfer (without the donor – unless either the donor or recipient was dependant through infirmity on the other)
    – The recipient does not have an interest in any other property, and
    – The recipient does not dispose of the home for at least 6 years after the transfer, and
    – The donor has owned the house for at least 3 years

  • Gifts/inheritances partially exempt from CAT

  • Agricultural relief of 90% is granted on agricultural property included in a gift or inheritance received by a farmer
  • Business relief of 90% is granted on relevant business property included in a gift or inheritance, provided certain strict conditions regarding ownership and control are met
  • Any capital gains tax triggered by the death or gift can be offset against CAT liability, provided the asset in question is retained for at least 2 years after the gift/inheritance.
  • Taking full advantage of the €3,000 annual gift exemption by gifting €3,000 per annum to each of your intended heirs if you can afford to do so
  • The purchase of agricultural property for, or gifting of cash to buy agricultural property, to one of your heirs
  • Section 60 insurance life insurance policies, which can be used to pay CAT on an individual’s death
 

Means of reducing a CAT bill

 

For many people, inheritance will not create a tax burden – specifically if no child will receive more than €225,000 from their parents in their own right. However the very wealthy might wish to consider:

  • Taking full advantage of the €3,000 annual gift exemption by gifting €3,000 per annum to each of your intended heirs if you can afford to do so
  • The purchase of agricultural property for, or gifting of cash to buy agricultural property, to one of your heirs
  • Section 60 insurance life insurance policies, which can be used to pay CAT on an individual’s death

 

 

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