Double whammy as inheritance tax threshold is cut
Published 06/12/2012 | 17:00
THE value of assets that parents can leave to their children without tax being paid on it has been reduced to €225,000.
Finance Minister Michael Noonan said the threshold for applying Capital Acquisitions Tax – the levy applied to gifts or inheritances – is being slashed by 10pc.
And in a double whammy, the rate of the tax will also increase from 30pc to 33pc. This also applies to Capital Gains Tax – the levy charged on the profits made on the disposal of an asset.
Mr Noonan sought to defend the move, by stating that a key element of the Budget was to ensure fairness.
"In that context, I am introducing a number of measures in the area of capital taxes to ensure that people with wealth make a fair contribution to the state," the Minister said. Capital Acquisitions Tax comprises Gift Tax, Inheritance Tax and Discretionary Trust Tax.
The Irish Farmers' Association (IFA) president John Bryan hit out at the decrease in the threshold, as farmers who opt to leave their farm to their children will be affected.
"The increase in the Capital Tax rate and the reduction in the CAT threshold will act as a disincentive to farm transfer and restructuring," he said.
Gifts and inheritances can be received tax-free up to a limit, but the threshold varies depending on the relationship with the person giving the benefit.
The first group, or Group A as it is known, applies to children of the person giving the benefit. The threshold was at €250,000, but will now drop to €225,000.
Group B applies to other relatives including parents, grandparents and siblings, with the threshold reduced to €30,150.
Anybody else not included in the first two categories falls into Group C, which has a new threshold of €15,075.
However, gifts or inheritances from a spouse or civil partner are exempt. Inheriting or receiving a house that has been your main residence may also be exempt.
Although Capital Gains Tax has also been hit with the 3pc hike, Mr Noonan said that the Capital Gains Tax incentive announced in last year's Budget means that any property bought between now and the end of next year will not be subject to the levy if held for at least seven years.
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