Inheritance Tax In Ireland - How to Reduce your Tax Burden
Here's what you need to know about inheritance tax in Ireland or estate planning
Last Updated - 03/01/2023
Last Updated - 03/01/2023
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:
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.
Inheritance tax in Ireland – or Capital Acquisitions Tax (CAT) - is 33% on the taxable portion of the inheritance.
There are many reasons why people might be reluctant to do inheritance planning. Some common reasons include:
Overall, there are many reasons why people might be reluctant to do inheritance planning, and it is important for individuals to consider their own circumstances and decide what is best for them and their families.
The person who receives the gift or inheritance is called the beneficiary. The tax-free amount depends on what group you belong to:
The Group A threshold is €335,000. This tax-free threshold applies when the beneficiary is a…
The Group B threshold is €32,500. This tax-free threshold applies when the beneficiary is a...
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).
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.
No, this does not apply in Ireland as it does in the UK. Lifetime gifts are not ignored even if the donor survives for seven years after the gift.
In the event that the value of the house is less than the individual's inheritance threshold, then there should be no CAT on the inheritance of the home. For example, if a home is valued at €320,000 and a parent leaves it to an only child, there is no tax liability on the inheritance. This is based on the only child receiving no other gifts or assets that would affect their inheritance threshold.
It is important to remember that CAT is only paid on amounts above the €335,000 threshold.
If the value of the house is above the threshold or brings the individual's inheritance above the threshold, then CAT should be paid. If we look at an example where the family home is valued at €420,000, there would be no tax on the first €335,000. However, there would be CAT due on the remaining €85,000 at a rate of 33% resulting in tax due of €28,050.
Check out our blog on Dwelling House Exemption to see if you are eligible for this.
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.
It's not a fun topic to think about, but inheritance tax is something that could affect you and your family down the road. The only way to reduce the amount of inheritance tax you'll have to pay is by talking about it and putting a plan in place. Here are a few tips on how to start the conversation about Inheritance Tax.
There was no mention of any changes to Inheritance tax, CGT, or CAT in Budget 2020.
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.
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:
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, for over 10 years and save another €80,000 in inheritance tax savings.
To understand this better, Nathan trust organized a webinar on "How to reduce your Inheritance Tax in Ireland" in April 2022. Tune in below to learn more in detail.
Please note, before you do this you need first to complete careful planning.
Need help in tax planning?
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:
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:
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.
Yes, they would fall into Group B outlined above. The Group B tax-free threshold is €32,500
The residency of the disponer and the asset are the important concepts here.
The person who is receiving the gift or inheritance is responsible for paying any Capital Acquisitions Tax (CAT) that is due.
It is sometimes hard to talk about Inheritance or money matters with your parents. If you are having a difficult time talking to your parents about inheritance, there are a few things you can do to make the conversation easier.
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 beneficiary's 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 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.
Do you want to pay less inheritance tax?
Just get in contact with us and we will walk you through how you can significantly reduce the tax you pay.
It tends to be very expensive. There are three main reasons for this.
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).
If you are not sure what a Non-Dom is, then you should check our Non-Dom page to help figure this out. If you are moving to Ireland from the UK, we have a special guide on the best way to do this.
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