Taxation of Estates

Taxation of
Kevin Doughan, BCL, TEP
Head of Probate - Holmes O’Malley Sexton
Monday, 2nd November 2015
Inheritance Tax
Capital acquisitions tax
• Covers inheritance and gift tax
• Current rate of CAT- 33% CAT
payable if
A) Deceased
resident/ordinary resident in
Ireland or
B) beneficiary is
resident/ordinary resident in
C) Assets are situated in
If a or b applies- a worldwide
Beneficiary Based Tax
Tax Free
• Depends on degree of relationship
• Group A- children, and minor children of a predeceased child
(includes Step children, adopted children and foster children
(criteria apply))- €225,000 (2015)
• Group B- brother, sister, niece, nephew, and grandchildren€30,150
• Group C- everyone else-€15,075
• Determined by blood connection- in-laws are not your
relatives (Common mistake)
• Aggregation system- 5th December 1991- bundling benefits
together- reduces threshold available.
• Pre-Death• A well thought out Will.
• Power of Appropriation- allows Executors or Trustees to redirect assets to specific beneficiaries who may qualify for
reliefs to minimise Tax.
• Post Death• Disclaimers- no obligation on any beneficiary to accept an
inheritance. A disclaimer can be used to direct an inheritance
to beneficiaries in a tax efficient manner.
• Succession Rules determines who benefits- not always the
intended result.
• Word of Caution- professional advice should be sought on the
correct application of disclaimers
Reliefs- Spouses and Civil Partners
• Exempt from CAT.
• Must be spouse/civil partner- a divorced spouse is no longer
your spouse.
• Does not apply to co-habitants.
Surviving spouse relief.
• Where a spouse of a deceased relative inherits.
• Spouse qualifies for threshold that relative would have had.
• Automatically applies- so can in rare occasions can have
adverse consequences.
Small Gift Exemption
• The first €3,000 from any person is exempt from CAT.
• Applies only to gifts not inheritances.
• Effective way of passing wealth while alive.
• Over 20 years you could pass €60,000 to a person tax free.
Dwelling-house relief
• Applies to dwelling houses.
• Exempt from CAT irrespective of value or relationship to
• A) 3 years occupancy before date of inheritance.
• Must not have an interest in another house (including a
foreign house).
• If under 55, must continue to occupy the dwelling-house for
further 6 years. Can be sold, but must re-invest fully in a new
dwelling within a year. Partial investment= partial claw-back
• No claw-back if sold as beneficiary needs long term nursing
home care or due to employment circumstances
Agricultural relief.
• Applies to agricultural property/Assets.
• Market value is reduced by 90%- only 10% is subject to CAT.
• Applies to farmland, machinery, livestock, farm buildings, and
single farm payments.
• Test- 80% of assets held on valuation date must be agricultural
in nature.
• Claw-back if sold within 6 years and not replaced with
agricultural property.
• Conditional bequest- to acquire agricultural property.
• Budget 2014 changes- must be active farmer or lands let to
person who is an active farmer for 6 years.
Other reliefs
Business Relief
Favourite nephew relief.
Exemption of certain inheritances by parents
(must have taken a non-exempt gift or inheritance from child
within 5 years of death of child)
• Section 72 type policies of insurance- where used to pay CAT.
• Exemption relating to qualifying expenses of incapacitated
persons (See above).
• Group a threshold- for parents inheriting an absolute interest
from children.
Discretionary Trust Tax
• Encourages trustees to pay out from trusts
• 6% initial Levy
• IL applies on the latest of a) Death of testator, b) date trust created,
c) date upon which no principal objects under 21
• Payable within 4 months of valuation date
• Annual levy of 1% of value of funds on 31st December each year
• Refund of Initial levy if trust ceases within 5 years.
• Trusts exclusive for incapacitated beneficiaries- Exempt
• Tip- Set up separate trusts.
Capital Gains Tax
• Tax on the increase in value of assets.
• No CGT arises on assets passed to a beneficiary under a
• Will only arise in an estate if there is a disposal/sale of assets.
• Assets inherited at market value at date of death- BASE COST
• If there is a loss, can be set-off against other gains in the
• If no gains- loss will remain unused.
• Consider the transfer of the assets to a beneficiary so he/she
can use the loss.
• Losses cannot be carried back- can only be carried forward.
Income Tax
• Executors are responsible for pre-death income and to file
appropriate tax returns.
• Post death income belongs to estate and liable to flat rate of
income tax @ 20%.
• Any income received during administration of the estate is
paid net of income tax to beneficiary.
• A form R185 (notice of tax deductions) should be given to
beneficiary to claim credit for tax deducted.
• Tax assessed on gross income in hands of beneficiary.
Recent Budget 2016 changes
• The only change made by the recent budget increased the
Group A threshold- gifts/inheritances by children from parents
to €280,000.
• Applies to benefits received from the 12th October 2015.
• No changes to other tax groups.
• The change is the start of the process to increase
incrementally the threshold to €500,000 over next 3-4 years.
• Rate of CAT remains @ 33%
Contact Details
P: 061 313222
E: [email protected]
• Kevin Doughan and Holmes O Malley Sexton Solicitors accept
no liability for the content of these guidance notes, or for the
consequences of any actions taken on the basis of the
information provided, unless that information is subsequently
confirmed in writing by Holmes O Malley Sexton Solicitors.
The information contained in this guide, is for general
information purposes only. While the information provided is
up to date, no representations or warranties of any kind,
express or implied, about the completeness, accuracy,
reliability, suitability is given, with respect to the information
contained for any purpose. Appropriate legal advice should be
taken at all times. Any reliance you place on such information
is entirely at your own risk.
• © Kevin Doughan