Finian McGrath (Dublin North Central, Independent)
Link to this: Individually | In context | Oireachtas source

42. To ask the Minister for Finance his views on correspondence (details supplied) regarding inheritance tax. [49898/13]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Capital Acquisitions Tax (CAT) is the overall title for both Gift and Inheritance Tax. The tax is charged on the amount gifted to, or inherited by, the beneficiary of the gift or inheritance.

I am informed by the Revenue Commissioners that for the purposes of CAT, the relationship between the person who provides the gift or inheritance (i.e. the disponer) and the person who receives the gift or inheritance (i.e. the beneficiary), determines the maximum life-time tax-free threshold – known as the “Group threshold” below which gift or inheritance tax does not arise.

There are, in all, three separate Group thresholds based on the relationship of the beneficiary to the disponer.

Group A: tax free threshold €225,000 – applies where the beneficiary is a child (including adopted child, stepchild and certain foster children) or minor child of a deceased child of the disponer. Parents also fall within this threshold where they take an inheritance of an absolute interest from a child.

Group B: tax free threshold €30,150 – applies where the beneficiary is a brother, sister, a nephew, a niece or lineal ancestor or lineal descendant of the disponer.

Group C: tax free threshold €15,075 – applies in all other cases.

Each child is therefore separately entitled to receive life-time gifts or inheritances up to the value of €225,000 from his or her parents before any liability to CAT would arise.

In addition to the life-time tax free Group A threshold below which a child is not liable for gift or inheritance tax, there is an exemption from CAT that is separately available for certain dwelling houses under section 86 Capital Acquisitions Tax Consolidation Act (CATCA) 2003. The purpose of this exemption is to benefit individuals who have been living in a house for a period prior to taking the benefit, either by way of gift or inheritance. The main conditions attaching to the exemption are that the beneficiary of the dwelling house must have resided in the house for a minimum of 3 years prior to the gift or inheritance and must not have an interest in any other dwelling house. In addition, the beneficiary must continue to occupy that dwelling house as his or her only or main residence for a period of 6 years commencing on the date of the gift or inheritance.

This exemption ensures that what may be the family home for many people will not be the subject of gift or inheritance tax when it is transferred.

The dwelling house exemption is available to any beneficiary who meets the conditions for the exemption, irrespective of whether or not they are related to the disponer.

Gifts or inheritances that qualify for the dwelling house exemption do not erode a person’s tax free threshold.

For example, a child who qualifies for the dwelling house exemption in respect of a gift or an inheritance taken by him or her of that dwelling house also still fully retains his or her Group A tax free threshold of €225,000 which can separately be applied against the value of other assets received by way of gift or inheritance from his or her parents.

Where a person receives gifts or inheritances in excess of their relevant tax free threshold, CAT at a rate of 33% applies on the excess over the tax free threshold.

There were no changes to CAT in the recent Budget.