Rising house prices pushing up families' inheritance tax
Threshold raised but tax rate on estates still 33pc
Published 26/10/2015 | 02:30
Inheritance tax changes in the Budget mean children can inherit more without paying tax.
The tax-free threshold for asset transfers from a parent to a child is set to increase by 24pc to €280,000.
The increase applies in respect of gifts or inheritances received on Thursday, October 15. It was €225,000 up to then.
However, it is significant that there was no change in the tax rate. It stays at 33pc.
The change in the tax, which is called capital acquisitions tax (CAT), came as this country has one of the toughest inheritance tax regimes in the western world.
Thousands of families are being hit with huge inheritance tax bills, as rising property prices push them over exemption limits.
Solicitor Susan Murphy of MakeMyWill Solicitors outlines what you need to know about inheritance tax.
Do I have to pay tax on the gift/inheritance I received?
If you received a gift of €3,000 or lower during the year from anyone, you are entitled to a small gift exemption and there is no requirement to file a return. This exemption does not apply to inheritances received. For gifts or inheritances over €3,000, you need to see which tax-free threshold category you fall into.
• Group A: parent to child - the threshold is €225,000 (amended to €280,000 in Budget 2016).
• Group B: siblings, nieces, nephews, grandchildren - the threshold is €30,150.
• Group C: strangers-in-blood - the threshold is €15,175.
If you received a gift or inheritance during the period September 1, 2014 and August 31, 2015 and the total aggregable value of gifts or inheritances received exceeds the group threshold applicable, you may be liable to pay capital acquisitions tax (commonly known as gift or inheritance tax) at a rate of 33pc.
You must file a tax return by next October 31.
The Revenue might already be aware that you have a tax liability and may have sent you a personalised IT38 Form (A Gift/Inheritance Tax Return Form).
Tax reliefs and exemptions
There are three main tax reliefs that may apply to your gift or inheritance:
The beneficiary must satisfy four conditions:
• He or she must qualify as a "farmer", that is, they must show that over 80pc of their assets (including the gift or inheritance) could be deemed "agricultural" assets;
• They must have farmed or leased the agricultural property for at least six years prior to the date of the gift or inheritance;
• They must have an agricultural qualification or farm the land at least 50pc of their normal working hours;
• The property must be farmed on a commercial basis with a view to making a profit. If you qualify for agricultural relief, the market value of the property you are receiving is reduced by 90pc (for a farm worth €800,000, the taxable value is €80,000).
Favourite niece/nephew relief
If an uncle or aunt has given you their business, you may fall into the Group A category, where the tax free threshold is €225,000 (amended to €280,000 in Budget 2016) provided you have worked for him or her substantially on a full- time basis for the preceding five years.
This relief only applies to assets used in connection with the business.
Also, certain gifts or inheritances may come with a tax exemption, such as:
If you receive a property that has been your main residence for over three years immediately prior to the gift or inheritance, and you are not beneficially entitled to an interest in any other property, you may qualify for the dwelling-house exemption.
This means the entire value of the property is deducted from the amount taxable.