11 Taxable inheritance

Summary

Where an inheritance is taken under a disposition made before 1 December 1999, the entire property comprised in the inheritance is liable to tax where the disponer is domiciled in the State at the date of the disposition. In any other case, only the property located in the State is liable to tax.

Where an inheritance is taken under a disposition made on or after 1 December 1999, the entire property comprised in the inheritance is liable to tax where—

• the disponer is resident or ordinarily resident in the State at the date of the disposition, or
• the successor i.e. the beneficiary (other than in the case of certain discretionary trusts to which the 6% and 1% charges apply) is resident or ordinarily resident in the State at the date of the inheritance.

A foreign-domiciled person will not be considered to be resident or ordinarily resident in the State for this purpose until 1 December 2004 and then only if he/she has been resident in the State for the 5 consecutive years preceding that date.

Details

(1) Where an inheritance is taken under a disposition made prior to 1 December 1999, the “taxable inheritance” means the whole of the inheritance where the disponer is domiciled in the State at the date of the disposition under which the successor takes the inheritance.

In any other case, the location of the property at the date of the inheritance is taken into account. Where, at that date, the whole of the property—

• which was to be appropriated to the inheritance, or
• out of which the property was to be appropriated to the inheritance,

was located in the State, the “taxable inheritance” means the whole of the inheritance. A specific bequest of “all my shares in Allied Irish Bank” in the will of a foreigner is an example of property which was to be appropriated to the inheritance. A specific bequest of “€2,000 from my account in Allied Irish Bank, Rathfarnham” is an example of property out of which the property was to be appropriated to the inheritance.

As the securities and bank account were located here at the date of death, the entire legacies are liable to tax notwithstanding that, at the date when the legacies are retained for the legatees, the securities may have been sold or the bank account may have been closed and the proceeds are held in a foreign bank.

Where, however, the property referred to above is located partly inside and partly outside the State, the part or proportion of the property that is located in the State at the date of the inheritance (e.g. the Irish securities in a bequest of “all securities” contained in a will) is liable to tax.

(2) Where an inheritance is taken under a disposition made on or after 1 December 1999, all the property comprised in the inheritance is liable to tax where—

• the disponer is resident or ordinarily resident in the State at the date of the disposition, or
• the successor (other than a discretionary trust to which the 6% and 1% charges imposed on certain discretionary trusts under sections 15(1) and 20(1) respectively apply) is resident or ordinarily resident in the State at the date of the inheritance.

Property located in the State is liable to inheritance tax irrespective of the residence or ordinary residence of the disponer or the successor.

[As regards “property which was to be appropriated to the inheritance” and “out of which property was to be appropriated to the inheritance”, see the last three paragraphs of the note on subsection (1) which are also relevant to inheritances taken under dispositions made on or after 1 December 1999.]

(3)(a) Property which was not applied to satisfy the inheritance (i.e. property specifically bequeathed by will to another beneficiary) is to be ignored for the purpose of ascertaining what part of the property concerned is located in the State.

(3)(b) A right to the proceeds of sale of property is deemed to be located in the State to the extent that such property is unsold and located in the State.

(4) A foreign-domiciled person will not be considered to be resident or ordinarily resident in the State until 1 December 2004 and then only if he/she has been resident in the State for the 5 consecutive tax years preceding the relevant date.

(5)(a) “company” and “share” have the same meanings as they have in section 27; “company controlled by the donee” has the same meaning as is assigned to “company controlled by the donee or successor” by section 27.

(5)(b) A person cannot artificially change the location of Irish assets by transferring them into a foreign, family-controlled private company. The measure operates by deeming the proportion of the value of a share in a foreign company that is directly or indirectly attributable to underlying Irish assets to be property located in the State.

(5)(c) The measure in subsection (5)(b) will not apply to a disponer who was foreign-domiciled at all times up to and including the date of the inheritance or where the share in question is actually located in the State at the date of the inheritance.

Relevant Date: Finance Act 2015