Written answers

Wednesday, 21 April 2021

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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467. To ask the Minister for Finance if there are differences in the approach of capital gains tax vis-à-vis inheritance in the case of an adopted person who leaves behind an estate and others; and if a capital gains tax of 44% is imposed on the estate of an adopted person who has left it to a blood relative or in the case of no blood relative being found that the estate becomes a State asset. [18373/21]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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My officials tried unsuccessfully to seek clarification with you on this PQ. Therefore, the reply is being made on a best efforts basis.

Given that the question is in relation to a death, the Deputy may have intended to query the relevant tax treatment in the circumstances set out for inheritance tax purposes and not capital gains tax. If this is the case, I am informed by Revenue that for such purposes, the relationship between the deceased person (i.e. the disponer) and the person who receives the gift or inheritance (i.e. the beneficiary) determines the maximum amount, known as the “Group threshold”, below which capital acquisitions tax (CAT) does not arise.

There are three separate Group thresholds based on the relationship of the beneficiary to the disponer. The Group A threshold (currently €335,000) applies, inter alia, where the beneficiary is a child (including adopted child, stepchild, and certain foster children) or minor child of a deceased child of the disponer. The Group B threshold (currently €32,500) applies where the beneficiary is a brother, sister, a nephew, a niece or lineal ancestor or lineal descendant of the disponer. The Group C threshold (currently €16,250) applies in all other cases.

Any prior gift or inheritance received by a beneficiary since 5 December 1991 from within the same Group threshold is aggregated for the purposes of determining whether any tax is payable on a benefit. Where a person receives gifts or inheritances that are in excess of his or her relevant tax-free threshold, CAT at a rate of 33% applies on the excess benefit. Each beneficiary of an estate must determine his or her own liability to inheritance tax, the estate of the deceased is not liable to inheritance tax in this regard. Estate duty, which was levied on the market value of a deceased person’s estate, was abolished by Finance Act 1975.

Under the Status of Children Act 1987, an adopted child is deemed to be the child of the adopting parent and not the child of any other person, and all other relationships are to be determined accordingly. For inheritance tax purposes therefore, the relationship of a child that has been adopted under the Adoption Act 2010, or under an intercountry adoption effected outside of the State and recognised under the 2010 Act, to their natural parents and natural relatives ceases to exist, with one exception. Further to an amendment in Finance Act 2001, an adopted child can avail of the Group A threshold in respect of a gift or inheritance taken from his or her natural parents or adoptive parents. In all other cases an adopted child assumes the same relationships to their adoptive parents and relations as the natural children of those adoptive parents.

Where an adopted child is a disponer and the beneficiary of an inheritance is a natural relative, that relative is deemed to have a relationship of a stranger in blood to the adopted child and therefore must avail of the Group C threshold.

If an adopted disponer dies intestate, then the estate of that person is administered in accordance with a hierarchy of succession set out in the Succession Act 1965 which is determined by reference to the class of relationship borne to the deceased person. Under this Act adopted persons cease to bear any relationship to their natural parents or relatives. Where no successors can be identified, the State is the ultimate beneficiary of an estate. Each beneficiary receiving a benefit from the intestate adopted disponer must establish his or her inheritance tax liability in the usual way.

In recognition of the specific reference to capital gains tax (CGT) in the Deputy’s question, for completeness, the CGT consequences of a death may be summarised as follows:

In general, CGT is chargeable on any gain arising on the disposal of an asset at the rate of 33%, with the first €1,270 of chargeable gains of an individual in any year being exempt from CGT. However, the transfer of an asset on the death of a person is not treated as a disposal for CGT purposes. The beneficiary of the deceased person is deemed to have acquired the asset at its market value on the date of death. That value will represent the base cost of the asset for any subsequent disposal of that asset by the beneficiary, in respect of which a CGT liability may arise. The adoptive status of the disponer or beneficiary does not impact this principle of CGT.

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