Inheritance Tax

Do I have to pay inheritance tax in Ireland?

As a beneficiary in a will, you only pay inheritance tax in Ireland if your benefit exceeds a certain amount. This is called the threshold. Any amount below the threshold is tax free. The amount of the threshold will vary depending on your relationship with the deceased. You will have to pay tax on any inheritance exceeding this threshold and the rate was changed to 25% since 7.12.11.The thresholds and the rates of tax change regularly and the relevant rates are those applicable at the date of death.

Go to http://www.revenue.ie/en/tax/cat/thresholds.html for prevailing rates.

A guide to making the inheritance tax return yourself is contained in Chapter xxxx

 

Is there a way to avoid Inheritance Tax in Ireland?

Yes. Thankfully there are many ways to reduce or avoid the payment of inheritance tax. This may be done before death by carefully drafting your Will or after death by use of Disclaimers in certain circumstances.

 

What is ‘Estate Planning’?

Estate Planning is a term that describes the orderly and efficient transfer of wealth and assets between individuals, usually family members. It covers any gift or inheritance and the careful consideration of the most tax efficient way to effect the transfer.

 

How can I transfer assets free of gift tax or inheritance tax?

The answer to this question depends on the value of the gift or inheritance and the relationship between the donor and the recipient. For example a parent may gift the sum of €250,000.00 to a child tax free. Any amount in excess of this will be taxed at a rate of 30% since the 7th December 2011. This rate may change so it is advisable to check the revenue site www.revenue.ie for the prevailing threshold and rate of tax applicable at the relevant date. The following is the tax free thresholds for donees with differing degrees of relationship with the donor or testator:

 

Indexed group thresholds
Relationship to DisponerGroup Threshold from 8/4/2009 to 31/12/2009Group Threshold from 1/1/2010 to 7/12/2010Group Threshold from 8/12/2010 to 31/12/2010Group Threshold from 1/1/2011 to 6/12/2011Group Threshold from 7/12/2011 to 5/12/2012Group Threshold from 6/12/2012
Son / Daughter €434,000 €414,799 €332,084 €332,084 €250,000 €225,000
Parent* / Brother / Sister / Niece / Nephew / Grandchild €43,400 €41,481 €33,208 €33,208 €33,500 €30,150
Relationship other than Group A or B €21,700 €20,740 €16,604 €16,604 €16,750 €15,075

 

How could establishing a Trust be useful and save tax?

Trusts are useful in the context of estate planning and can be useful in a variety of situations particularly:

  • To defer the vesting of assets in an intended beneficiary.
  • To retain control over capital.
  • To avoid the provisions of the Succession Act 1965 which confer certain rights on spouses and children.
  • To make provision for minors,  or beneficiaries who are incapacitated.
  • To protect beneficiaries who are exposed to creditors.
  • To defer the payment of tax.
  • To make provision for improvident beneficiaries to ensure their needs are fulfilled.

 

What is the advantage of a Discretionary Trust?

This is a trust that gives the trustees sole discretion as to how the assets of the trust are to be applied for the benefit of a class of named persons who are the beneficiaries. In other words, the person who sets up the trust and who provides the assets has no say in relation to who gets what except that the Trustees may take into account his or her wishes. The assets are normally subject to discretionary trust tax however there is an exemption from this tax where it is established for:

‘the benefit of one or more named individuals and for the reason that such individual, or all such individuals, is or are, because of age or improvidence, or of physical, mental or legal incapacity, incapable of managing that individual or those individuals affairs’

 

How may I pass my house to someone free of tax?

A dwelling house and up to I acre of land may be passed to anyone (relative or non relative ) tax free regardless of value if the following conditions are satisfied:

  • Beneficiary must have continuously occupied the property as his or her main residence for three years immediately prior to gift or inheritance;
  • Beneficiary, at the date of the gift or inheritance, beneficially entitled to an interest in any other dwelling house;
  • Must continue to occupy as his or her only/main residence for 6 years after date of gift or inheritance (unless aged >55)
  • House may be sold post gift/inheritance and within 6 years if replaced with another within 1 year;
  • House must not be disponer’s only/main residence (unless the disponer is compelled by old age or infirmity to depend on the services of the donee)

 

How do I pass my business to someone free of tax?

Relevant business property (which may include a business, qualifying quoted and unquoted shares), gifted or inherited will qualify for substantial tax relief if the conditions prescribed by the 2003 Capital Acquisitions Tax Act are satisfied:

Only 10% of the taxable value of the benefit will be taxed:

  • Only 10% of the value of the benefit passing will be taxed.
  • Private shares will qualify if beneficiary after the transfer:
  • Owns >25% of voting rights or
  • Controls company or
  • Owns 10% of nominal value of issued shares and has worked fulltime throughout period of 5 years in business.
  • Relief also applies to assets such as land, buildings, plant or machinery,not owned by the company if the asset is:
  • Owned by the disponer and
  • Used wholly or mainly for the purpose of a business controlled by the disponer and
  • Disposed of at the same time as the shares in the company or interest in the business
  • It must be a wholly or mainly trading business.
    • Genuine property development company will qualify.
    • Businesses which consist wholly or mainly of dealing do not qualify
    • A farm may qualify for business relief if beneficiary is not a farmer;
    • Clawback within 6 years if assets cease to qualify or are sold and not replaced

 

 

How do I pass my farm to my beneficiary free of tax?

Agricultural property (which may include farm buildings, houses and mansions) gifted or inherited by a farmer will qualify for a substantial reduction in tax if it satisfies the rules prescribed by the 2003 Capital Acquisitions Tax Act:

  • Only 10% of the value of the benefit passing will be taxed.
  • Only 10% of relevant liabilities costs and expenses may be deducted;
  • Beneficiary must be a ‘farmer’ on the valuation date ie his assets are > 80% farming;
  • There will be a clawback if the property is disposed of by the farmer;
  • If the beneficiary is not a farmer then business relief (see above) could apply.

 

 

Can my favourite nephew qualify for any tax relief?

Yes, business assets may be passed to a nephew who will qualify for the tax free threshold available to a child if the following rules are satisfied:

  • Applies to a child of a brother or sister of the disponer;
  • Nephew must have worked in the business substantially on a full time basis immediately prior to the benefit;
  • Benefit consists of property, used in connetion with trade, business, profession or employment or office of the disponer, or consists of shares in a company owning such property.

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