Do I have to pay Irish tax on legacy received from Britain?
Published 23/08/2015 | 02:30
Your questions - Lorcan Hand, Director at Grant Thornton
I recently received a legacy from Britain of slightly over €100,000. The British solicitors told me that tax had been deducted at source. Must I now pay tax on the inheritance to the Revenue Commissioners in Ireland?
Also, do the tax authorities in Britain inform the Irish tax authorities of legacies going from there to Ireland?
Frank, Ballycotton, Co Cork
CAPITAL Acquisitions Tax (CAT) is the tax which applies in Ireland to gifts or inheritances. Unlike Britain - which applies inheritance tax to the value of estates only, Irish CAT is a tax payable by the beneficiary.
Territoriality tax rules apply to an inheritance in the case where the deceased, or you as the successor, is resident or ordinarily resident in Ireland. Under those rules, the whole of the inheritance will be regarded as taxable for CAT purposes.
If neither you nor the deceased were resident or ordinarily resident at the date of the inheritance, then only so much of the property which is located in Ireland would be regarded as a taxable inheritance. Generally a person who is not Irish domiciled is not within the CAT regime for the first five years of their tax residence.
You have not indicated the deceased's, or your own, domiciled status. Therefore, I assume that you are Irish-domiciled. On that basis, you will be potentially liable to CAT in Ireland, depending on the extent of any prior gifts or inheritances taken and also the relationship between you and the deceased. If the legacy is from a parent, you can inherit €225,000 from him or her over your lifetime. This €225,000 is known as the lifetime threshold. If the legacy is from another family member, the lifetime threshold is €30,150. In any other case, the lifetime threshold is €15,075.
Where the accumulated amount of the benefit received exceeds those thresholds, CAT at 33pc applies on the balance. The good news is that the British inheritance tax paid by you on the legacy should qualify for relief under the double taxation convention between Britain and Ireland. To claim this relief, you need a certificate from the Revenue and Customs in Britain.
Under the pay and file tax rules, you must file a tax return and declare the value of any gifts or inheritances received. Remember, the double taxation treaty between Ireland and Britain has provisions whereby the two authorities may exchange information between them.
I hold Anglo Irish Shares, purchased for €804,000 15 years ago - which are now of no value. I also hold Arytza shares, purchased four years ago and presently showing a profit of about €805,000.
If I sell these shares now, can I offset the loss in Anglo against the profit in Arytza for tax purposes?
Peter, Delgany, Co Wicklow
Where you realise a gain from the sale of an asset, Capital Gains Tax (CGT) rules permit the offset of capital losses incurred from the disposal of other assets against gains - when calculating the amount of CGT payable.
You indicate that your Arytza shares were purchased four years ago and are showing a profit at present of about €805,000. Until such time as you actually realise this gain by selling those shares, no tax charge arises.
Should you proceed to dispose of the shares, thereby realising that gain, then you are entitled to a deduction for any losses incurred - as long as you have not already offset those losses against prior gains.
Typically, for a loss to be claimed as a deduction, that loss must be a realised loss as opposed to a dramatic fall in the value of shares due to stock market volatility.
There is, however, a provision whereby assets which have become of 'negligible value' may be utilised to shelter a gain on an asset.
In most cases, to claim relief for an asset which has become of negligible value, it is necessary to lodge a formal claim with the Revenue Commissioners within the tax year in which the claim arises. (However, in practice, a claim made within 12 months of the end of the year of assessment would be admitted by Revenue.) Typically, the details should be included in your annual tax return.
In the case of Anglo Irish Bank Corporation, the shares in Anglo were transferred to the Minister for Finance in accordance with the Anglo Irish Bank Corporation Act 2009. Therefore, there was a disposal of those shares for CGT purposes in 2009, triggering a loss at that time. If no claim was made at that time to utilise that loss against any gains arising on other capital disposals, then the loss on the Anglo Irish shares of €804,000 will be available now.
You should also bear in mind that if it transpires that compensation is payable to Anglo shareholders in accordance with the terms of the Anglo Irish Bank Corp Act 2009 at some point in the future, any such compensation will be taxable in full with no base cost of the Anglo shares being available against that gain.
Remember, you also have an entitlement to the annual CGT exemption of €1,270 - which will reduce the amount of profit you must pay tax on.
I contributed to a pension fund in a semi-state company. Early on, I took on an additional contribution which will cover my wife and children for the pension should I die before them. This part (50pc) of my pension will go to my widow if I pass on before her.
Currently 100pc of my pension is paid as one pension. I am only allowed the lower allowance for the universal social charge (USC) for one person.
As half of my pension will go to my wife when I die, should I not be given the benefit of two lower allowances on my pension, thereby reducing the amount of USC I pay on my pension?
Jim, Castlebar, Co Mayo
The Universal Social Charge (USC) came into effect in Ireland from January 1, 2011 as part of the austerity measures required to boost Ireland's exchequer funds. It applies to individuals. At present, you are in receipt of a pension from your former semi-state employer. On that basis, USC is applied to you as an individual based on your income for the tax year.
Your question does not indicate whether your wife is currently in receipt of any income in her own right. If so, then USC, will be applied to her income. If not, there is no provision to transfer any of her unused tax exemption under the USC system.
The terms of the pension arrangements which you currently have are that, upon your death, your wife will then be in receipt of a pension, equal to 50pc of your present pension, which will be paid to her directly. At that point, the USC would be applied to that pension based on the rates and exemptions applicable at that time.
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