Inheritance Tax - CAT 2

What is an inheritance?

An inheritance arises when property of any nature passes on a death to any other person. An inheritance is taken where a person, called a successor, becomes entitled in possession under any disposition (e.g. deed, will, intestacy, etc.) on a death to a benefit and does not give full value for it. Examples of inheritances are:

• Under a will A leaves a legacy of €100,000 to his brother B.
• Under an intestacy B is entitled to a share in the estate as one of the next of kin of A. (An intestacy occurs where a person dies without having made a will.)

In each case, B takes an inheritance on A’s death. A is the disponer and B is the successor. Inheritance tax is charged where the successor becomes immediately entitled to the benefit. Future interests are not taxed until such time as they fall into possession. For example, if A by will leaves property to B for life and then to C on B’s death, C is not liable for inheritance tax until B dies. C’s interest is a future interest which is not liable to inheritance tax until B dies.

In what circumstance does inheritance tax arise?

Inheritance tax is charged on the taxable value of a taxable inheritance taken by a successor where the date of the inheritance is on or after 1 April 1975.

Inheritance tax is payable when the value of the inheritance (together with any other gifts and inheritances taken by the successor from within the same group threshold since 5 December 1991) exceeds a person’s tax free amount or Tax Threshold.

What are the tax free thresholds?

As in the case of gifts, there are three tax-free thresholds. These thresholds depend on the relationship between the person receiving the inheritance (the successor) and the person who gave the inheritance (the disponer).

Different threshold amounts apply depending on the year the gift was made.

For the current and prior year thresholds see: CAT Thresholds.

These thresholds can be reached either by a single gift or by a series of gifts and inheritances over a period of years. Only prior gifts and inheritances to which the same group threshold applies are aggregated (added together) for the purposes of calculating tax.

Example:

Lisa took a gift of €30,000 from her grandmother in 2005. In 2008 she took an inheritance of €40,000 from her aunt. Both of these benefits fall within Group B above, therefore they are aggregated.

As the first benefit of €30,000 was below the Group B threshold, no tax applied. However, when Lisa took the inheritance of €40,000 her total benefits from Group B were €70,000 which exceeded the Group B threshold, and tax applies on the excess.

How is inheritance tax calculated?

All gifts and inheritances taken by a successor on or after December 1991, that come within the same group threshold, are aggregated (added together) to determine the amount of tax payable on the current inheritance. Tax is charged on the market value of the property comprised in the inheritance. A deduction may be made from the inheritance for any debts owed by the deceased, funeral expenses and solicitors costs.

The rates of tax are as follows -

The threshold amount	Nil
Excess	33%

How do I file my return and pay my tax?

Gift Tax is a Self Assessment tax. The obligation to make a return to the Revenue Commissioners rests with the person who receives the gift. A IT38 Return (Inheritance Tax/Gift Tax Return) must be filed when a gift either by itself or when aggregated with prior benefits taken by the donee, exceeds 80% of the appropriate tax-free amount. Where a gift is made on or after 11 February, 1999, the donor is obliged to make a return in certain circumstances. Where the gift is made on or after 14 June 2010 and any relief other than the small gift exemption is claimed the IT38 must be filed online through ROS, Revenue’s online service.

A guide to completing the return and paying the tax can be found at the following link:

IT39 - Guide to completing the IT38 return (Pay and File)

Is a foreign inheritance liable to inheritance tax?

An inheritance of property situated outside Ireland is liable only if the disponer or the successor is resident or ordinarily resident in Ireland. Property situated in Ireland is liable to inheritance tax irrespective of the residence status of the deceased or the successor.

Where the deceased or the successor was domiciled outside Ireland at the date of the inheritance he or she is deemed to be non resident, unless he or she has been resident in Ireland for five consecutive years prior to the year in which the inheritance occurred.

Are there any exemptions from inheritance tax?

Yes. The main exemptions are -

• inheritances taken by spouses or civil partners after 29 January 1985.
• an inheritance taken by a qualifying cohabitant by court order under the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 is exempt from Inheritance Tax.
• inheritances for public or charitable purposes.
• inheritance of a dwelling-house taken on or after 1 December, 1999 provided certain conditions are fulfilled.
  See CAT 10 - Gift/Inheritance Tax for Dwelling-House
• pictures, prints, books or other items which are of national, scientific or artistic interest are exempt from inheritance tax provided certain conditions are fulfilled.
• Inheritances taken by a parent from a child on the date of death of the child are exempt, provided a non exempt gift or inheritance was taken by the child from either or both parents within 5 years immediately prior to the child’s death.

December 2012