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Inheritance Tax in Ireland

Here's what you need to know about inheritance tax in Ireland or estate planning

How to avoid inheritance tax in Ireland

 

While it can be very difficult to completely avoid inheritance tax in Ireland, with careful planning you should be able to significantly reduce the amount of inheritance tax your beneficiaries end up paying.

When you engage with one of our tax specialists we will be able to see how your set of particular circumstances can be used to reduce your inheritance burden. These can include:

  • Increasing the number of beneficiaries in your will
  • Taking advantage of the annual tax-free gift allowance in a structured manner
  • Changing the nature of your assets
  • Setting up a family partnership

If you are interested in reducing the amount of inheritance tax your will pay, get in contact with us. 

Need help with tax planning?

Get in touch with our tax experts

What is inheritance Tax in Ireland?

Inheritance tax in Ireland – or Capital Acquisitions Tax (CAT) is a tax on gifts and inheritances. You may receive gifts and inheritances up to a set value over your life before having to pay CAT. 

We organized a webinar recently on Inheritance Tax in Ireland. Tune in to the event in our channel below and please comment on the video if you have any queries that we can help with. 

 

How much is the inheritance tax in Ireland?

Inheritance tax in Ireland – or Capital Acquisitions Tax (CAT) - is 33% on the taxable portion of the inheritance. 

How much inheritance is tax-free in Ireland?

The person who receives the gift or inheritance is called the beneficiary. The tax-free amount depends on what group you belong to:

Group A: Tax-free threshold

The Group A threshold is  €335,000. This tax-free threshold applies when the beneficiary is a…

  • child (this includes an adopted child, stepchild, and certain foster children) 
  • minor child of a deceased child of the disponer (donor or person giving the inheritance).
  • Parents also fall within this threshold where they take an absolute inheritance (full and complete ownership) of the inheritance on the death of their child.

Group B: Tax-free threshold

The Group B threshold is  €32,500. This tax-free threshold applies when the beneficiary is a...

  • a parent of the disponer
  • a brother or sister of the disponer
  • a child of a brother or sister of the disponer
  • a child of the civil partner of a brother or sister of the disponer
  • a grandparent of the disponer
  • a grandchild of the disponer
  • a lineal ancestor or a lineal descendant of the disponer.

Group C: Tax-free threshold

The Group C tax-free threshold is €16,250 and it applies in all other cases. This includes all the categories not covered above (cousins, great-nephews/ great-nieces and non-relatives).

Need help with inheritance tax planning?

Get in touch with our tax experts

How much can a grandchild inherit tax-free in Ireland?

Inheritance tax in Ireland for your grandchild falls into Group B - €32,500.

Please note that you must name your grandchild on the will for them to avail of this. If the grandchild is under 18, then the parent is responsible for the distribution of the funds. 

Does Ireland have an inheritance tax 7-year rule?

No, this does not apply in Ireland like it does in the UK. Lifetime gifts are not ignored even if the donor survives for seven years after the gift.

How much can a grandparent gift a grandchild in Ireland?

You can gift your grandchild up to €3,000 a year tax-free. It is important to note that this money must be sent from your bank account to your grandchild's bank account in that year.

There are banking solutions available that allow grandparents to build up a lump sum for their grandchildren tax-free without fully handing over the funds to the grandchild. This could also significantly reduce the inheritance tax and if managed properly give your grandchild a deposit on their first house!

Financial planning is vital before you do this. 

 

Were there any changes to inheritance tax in Ireland in Budget 2022?

There was no mention of any changes to Inheritance tax, CGT, or CAT in Budget 2020. 

How to pay inheritance tax in Ireland

You are required to file form IT38 and pay the Inheritance tax. This can be done online in your Myrevenue account.  

You need to complete this form within the tax year you receive the inheritance.

Avoiding inheritance tax in Ireland

With careful tax planning, you can reduce the inheritance tax you will pay. Let's analyse this via the following scenario:

The inheritance consists of:

  • Property valued at €1,350,000
  • Cash/Pensions/Investments worth €550,000
  • Total inheritance worth €1,900,000 The 2 beneficiaries are a Daughter (who is married with 2 children and 1 grandchild) and a Son (who has a partner with 3 children).

The Daughter will receive 50% of the inheritance and the Brother 50%. Without any tax planning, each beneficiary will face a tax bill of €202,950 (a total of over €400k).

Daughter Son
Total Inheritance €950,000 €950,000
Child Free Threshold €335,000 €335,000
Grandchild Tax-Free Threshold €65,000 €97,500
Great Grandchild Tax-Free Threshold €32,500  
Spouse Tax-Free Threshold €16,250 €16,250
Taxable Inheritance €501,250 €501,250
Total Tax Bill €501,250 €165,413
Net Inheritance €784,587 €784,588
Tax saving €37,537 €37,537

 

As the parents have reasonably large reserves of cash, they can decide to give a tax-free gift of €3,000 to each child, partner, grandchild, and great-grandchild a year. If they plan ahead, over 10 years and save another €80,000 in inheritance tax savings. 

Please note, before you do this you need to first complete careful planning. 

Need help in tax planning?

Get in touch with our tax experts

Inheritance tax Ireland favourite nephew

You may qualify for Favourite Nephew or Niece relief if you receive a gift or inheritance of business assets. The relief allows the use of the Group A threshold. This is subject to conditions.

Jargon alert - Disponer: The person who provided the gift or inheritance.

For the purpose of this relief you are a nephew or niece if you are the child of disponer:

  • brother
  • sister
  • brother's civil partner
  • sister's civil partner.

You must have worked for the disponer for five years immediately before receiving the gift or inheritance. During these five years you must have worked for more than:

24 hours per week at the place of business
or
15 hours per week at the place of business where the business is carried on exclusively by you and either the:

  • disponer
  • the disponer's spouse or civil partner.

The relief only applies to assets used in the business. Group B threshold applies to non-business assets.

Where the gift or inheritance includes business and non-business assets, liabilities must be apportioned between business and non-business assets.

Do siblings pay inheritance tax?

Yes, they would fall into Group B outlined above. The Group B tax-free threshold is  €32,500

What if I was not born or resident in Ireland - do I still pay inheritance tax?

The residency of the disponer and the asset are the important concepts here. 

Who is responsible for paying inheritance tax?

The person who is receiving the gift or inheritance is responsible for paying any Capital Acquisitions Tax (CAT) that is due.

Can you use an insurance policy to pay the inheritance tax?

There is a Revenue-approved life insurance policy called a TA section 72 policy. If certain conditions are met, the proceeds of this policy will not lead to an increase in the beneficiaries Inheritance Tax bill. Instead, it will be used to pay the outstanding Inheritance Tax bill on their other inheritances.

The disponer can pay for the policy. 

Take the following example:

  • Mary and John have one child - Eimear. 
  • They will be leaving their daughter an estate worth €1,250,000 (most of this is non-cash assets)
  • Eimear's tax-free threshold is €320,000
  • Eimear's inheritance tax liability will be €306,900

Mary and John could take out a Section 72 Insurance policy for €306,900 and this amount would be received tax-free by Eimear to pay her inheritance tax bill. 

The term must be for a minimum of 8 years and there cannot be a break in payments. 

You must be between 18-74 to start the contract. 

How much does inheritance tax insurance cost?

It tends to be very expensive. There are three main reasons for this.

  1. First, section 72s are guaranteed whole-of-life policies: they continue until you die regardless of what age that might be.
  2. They are insuring large sums of money (Eimears example is €306,900).
  3. For couples, the most common payout is on a second life basis. For example, their spouse can inherit everything from them with no inheritance tax issue. The tax activity only happens when the 2nd person dies. 

Irish inheritance tax and Non-Dom Irish tax residents

If you are a tax resident in Ireland but have been born and educated outside of Ireland, then you are probably considered a Non-Dom in Ireland from a tax perspective. 

If you inherit cash or assets based in another jurisdiction then there is probably no tax activity unless you decide to bring back some or all of the money into Ireland (if you remit the funds). 

Need help in tax planning?

Get in touch with our tax experts

 


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