Estate / Inheritance Tax Planning
Some people may have the perception that, given the recent reduction in estate and asset values, the need to plan for Capital Acquisitions Tax has gone away.
If you look at some of the underlying facts, however, the truth is very different.
Revenue have reported that €280,000,000 was paid in Capital Acquisitions Tax (CAT) in 2012.
The rate of Capital Acquisitions Tax, both for gifts and inheritances, has increased from 20% in 2008 to 33% in 2013.
In addition tax-free thresholds have been dramatically reduced in recent e.g. from €414,799 to €225,000 for a son / daughter, which will result in a lot of people having an inheritance tax issue, without realising it.
Do you have an Inheritance Tax problem that you haven’t considered?
In calculating the value of a person’s Estate, all assets are taken into account such as;
Certain reliefs and exemptions may apply to certain types of assets. These have been introduced over the years primarily to encourage private enterprise and to avoid the forced sale of a family farm, business or the family home in certain circumstances. The main exemptions or reliefs are as follows:
Ø Spouse or Civil Partner Exemption
Ø Agricultural Relief
Ø Business Relief
Ø Family Home Relief
Ø Life Assurance Relief
Please note that you must meet certain criteria in order to qualify for reliefs / exemptions.
Under current legislation, you can gift €3,000 to an individual each year tax-free. This payment does not use up any of the “group threshold” under Capital Acquisitions Tax.
Estate Planning / Inheritance Tax (Capital Acquisitions Tax) – Technical Facts
Inheritance Tax comes under the heading of Capital Acquisitions Tax (CAT), which is the tax charged when you receive a gift or an inheritance. CAT comprises two separate taxes;
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Gift Tax payable on lifetime gifts, and
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Inheritance Tax payable on inheritances received on a death
It is important to note that the person receiving the gift or inheritance is liable to CAT and not the person or estate providing the benefit.
The Tax due is based on the “market value” of assets, which is the price (in the opinion of the Revenue Commissioners) the assets would fetch if sold on the open market in such a manner that best price is obtained.
For new gifts and inheritances received on or after 5th December 2001, tax is calculated according to the total of all gifts and inheritances received from all sources since 5th December, 1991.
| | Tax Rate |
| Group Threshold (see below) | NIL |
| Balance | 33% |
The Group threshold amounts vary depending on the relationship between the beneficiary and the disponer i.e. the person providing the gift or inheritance.
| Group 1 €225,000 | Where the person receiving the property is a child of the disponer, or of the civil partner of the disponer, or a minor child of a deceased child of the disponer, or of the civil partner of the disponer, or a minor child of the civil partner of a deceased child of the disponer, or of the civil partner of the disponer. |
| Group 2 €30,150 | Where the person receiving the property is a lineal ancestor, descendant, a brother/sister, or child of a brother/ sister or the child of a civil partner of a brother or sister of the disponer. |
| Group 3 €15,075 | All other cases |
The threshold amounts are those applying with effect from 6th December 2012.
Important Note
Under the current aggregation rules all benefits from Group 1 will be added together with an overall threshold of €225,000.
Benefits from Group 2 members (brother, sister, grandparent etc) will be added together for the purpose of the €30,150 threshold
Benefits from Group 3 members (strangers) for the purpose of the €15,075 threshold.
So in effect a beneficiary can potentially receive up to €270,225 tax-free if the benefits come through different “groups”.
If you would like to discuss any aspect of this article, please feel free to contact us.
The information contained in this document is based on Assie Sattar Financial Services (ASFS) understanding of legislation as at April 2014, which may change in the future. While great care has been taken to ensure the accuracy of the information it contains, ASFS cannot accept any responsibility for its interpretation nor does it provide legal or tax advice.