Navigating the Inheritance Tax Landscape

Inheritance tax is a topic many of us tend to overlook as none of us want to think of losing a loved one. Unfortunately, this oversight can lead to significant financial stress during an already painful and challenging time. In Ireland, inheritance tax, also known as Capital Acquisitions Tax (CAT), is something which affects everyone. It is important to be fully informed so that you can appropriately navigate this tax landscape.

It has been reported that in 2019 alone, the Irish government collected €522 million from CAT on €1.6 billion worth of assets. As we always aim to ensure our clients can navigate these issues to their greatest benefit, here we will shed light on how inheritance tax works in Ireland and ensure that your tax liabilities are not wrongly inflated.

What is Capital Acquisitions Tax (CAT)?

Capital Acquisitions Tax (CAT) applies to the value of gifts and inheritances received over specific thresholds during your lifetime. The current CAT rate in Ireland is 33% and it comprises two main sections: the Small Gift Exemption and Inheritance Tax.

  • Small Gift Exemption:
    This allows individuals to receive gifts up to €3,000 per year without incurring tax. It is worth noting that this exemption only applies to gifts, not inheritances.
  • Inheritance Tax:
    Any inheritance received over the threshold is subject to CAT. For instance, anything inherited by a child over €335,000 is taxed at 33%. This threshold is lower for other relationships.
Payment Deadlines

The responsibility for paying CAT lies with the recipient of the gift or inheritance. Payments must be made promptly:

  • For gifts or inheritances received between January and August, payment is due by October 31st.
  • For those received between September and December, payment is due by August 31st of the following year.
    Late payments incur penalties and interest charges, making timely payments crucial. As always, we advise getting ahead of these issues with constant filing and organisation of ongoing files.
Thresholds and Tax Calculations

CAT thresholds vary depending on your relationship with the person who passed:

  • Group A: €335,000 for children and certain other dependents.
  • Group B: €32,500 for siblings, nieces, nephews, and other close relatives.
  • Group C: €16,250 for all other individuals.
Strategies to Minimize Inheritance Tax
  1. Section 72 Policies: Revenue-approved life insurance policies designed to cover inheritance tax bills. They provide a lump sum on death, free from CAT.
  2. Small Gift Exemptions: Consistently using the €3,000 annual exemption can accumulate significant tax-free transfers over time.
  3. Dwelling House Exemption: If you inherit a home and meet certain conditions, you may avoid CAT on the property.
  4. Business and Agricultural Reliefs: These can reduce the value of inherited business or agricultural property by up to 90%, provided specific conditions are met.

It is essential to plan ahead, even for scenarios we wish to avoid. In terms of Inheritance Tax, planning is vital in order to reduce the financial burden placed upon our loved ones when we are no longer there to care for them. It is worth noting that property is included in the cut off cost, meaning that the price of any property left to a loved one also counts towards the threshold.

By planning ahead and making informed decisions, you can protect your loved ones from unnecessary financial stress during a challenging time.

We hope that this information has been useful for you and as always, Please do not hesitate to contact us.