Query: I understand my son can inherit €335,000 tax-free from me. If I die before my husband - my son's stepfather - can my son then inherit an additional €335,000 tax-free from his stepfather on his stepfather's death, or is the total combined amount which he can inherit from his parents (that is, me and his stepfather) €335,000 tax-free? Furthermore, I want to leave a third of my home to my son. This home is in my name only as I bought it before meeting my husband. I want to leave the remaining two-thirds to my husband and I want to give my husband sole right of residence. When will my son have to pay tax on his share if the value exceeds the parent-to-child threshold? Will my son's inheritance tax be due upon my death or after my husband's death? I don't want to land a tax debt on my son without giving him any assets to liquidate so he can cover the cost. Catherine, Co Cork
Answer: The relationship between the disponer (the individual who provides the gift or inheritance) and the disponee (the individual receiving it) is key to assessing the Capital Acquisition Tax (CAT - the tax paid on gifts or inheritances) liability.
Depending on that relationship, a certain amount of the gift or inheritance is exempt from tax. The non-taxable amount is known as the group threshold. The largest group threshold to which a child is entitled is Group A. A child is defined as including a stepchild. Currently the Group A threshold is an amount of €335,000. Each group threshold is a lifetime threshold, and any benefits received within the same group threshold are aggregated. So under the Group A threshold, the total amount your child can inherit tax-free is €335,000.
An inheritance attracts CAT if either the disponer or the disponee is Irish resident or ordinarily resident, or if the inheritance is an Irish situate asset (an asset situated in Ireland).
The date of inheritance is usually the date of death of the disponer. The valuation date determines when you need to pay CAT. Where the valuation is between January 1 and August 31, the deadline for payment of the CAT is October 31 in that year. Where the valuation is between September 1 and December 31, the deadline is October 31 in the following year.
CAT will arise for your son if the value of the inheritance he receives exceeds his group threshold. It should be noted that if your son uses more than 80pc of his threshold, a CAT return IT38 must be filed.
So, in your situation, if you were to leave €330,000 to your son, then he could only inherit an additional €5,000 tax-free under the Group A threshold - therefore any monies left to him by your husband over this additional €5,000 would be subject to tax.
As for the third of the property you wish to bequeath to your son, this would be subject to tax if he has already received €335,000 in inheritance from you. However, it would be worth seeking advice on setting the property in trust to your husband for life and then on your son absolutely. This would mean that no tax will arise to your son on the date of the gift as he has only received a future interest in the property.
No stamp duty is due on inheritance.
Tax on Spanish flat sale
Query: We have owned a modest two-bed apartment in Spain for almost 20 years. It had been let for the last number of years. We had used it for a holiday home ourselves for a few weeks a year up until then. We would now like to sell it. We paid €69,000 for it. If we are fortunate and it has increased in value, will we have to pay tax on this increased value and, if so, how much tax? All our rental income taxes in Spain are paid to date. Anne, Co Tipperary.
Answer: In general, Capital Gains Tax (CGT - the tax charged on the capital gain made on the disposal of any asset) in Spain is due on the purchase price (less any purchase expenses) minus the sale price (less any expenses in relation to the sale). The Spanish CGT rate currently is 19pc. It should be noted that 3pc from the sale proceeds will be deducted by the notary as a withholding tax for CGT purposes. If your actual CGT is less than the 3pc withheld by the notary, a refund will be issued. You will need to have a Spanish bank account for this to be processed.
Assuming you are resident and domiciled in Ireland, you will be subject to CGT in Ireland as well. The CGT rate in Ireland is 33pc. Again, the CGT is due on the difference between the cost of acquisition and sale proceeds - decreased by any expenses made in respect of these. As Spain has the primary rights to tax the gain (if any), you might be able to deduct some, or all, of the foreign tax paid. As Ireland and Spain have entered into a double taxation agreement for CGT, any foreign tax paid in Spain can be offset against your Irish tax liability.
Artist's tax exemption
Query: I'm a full-time teacher who writes in my spare time. I self-published my first book recently. Do I have to pay tax on the income I earn from my book or do I qualify for the artist's tax exemption? Jill, Co Clare
Answer: Yes, you have to pay tax on your additional source of income from selling your book. Your income will be considered as a professional income and will be taxed under what is known as Schedule D - Case II.
You will be taxed on your gross income, less any expenses incurred wholly and exclusively for the business purposes. Taxes will include income tax, Universal Social Charge (USC) and PRSI. You will also be considered as a chargeable person if your non-PAYE income is more than €5,000 in a tax year and you will be required to register for income tax and file a self-assessed tax return Form 11.
Income earned by writers, artists and so on can be exempt from income tax in certain circumstances through an artist exemption, as you have suggested. To secure an exemption, your work must be determined by Revenue Commissioners to be both original and creative and a work which has, or is generally recognised as having, either cultural or artistic merit.
To claim this exemption, you should submit the artist's exemption claim form to the Revenue, together with samples of your work and any supporting documentation in the form of testimonials. You should also submit three published copies of the book - or relevant information and links in the case of e-books. If your work satisfies the criteria, Revenue will make a determination and income (up to €50,000) deriving from the work could be exempt from income tax.
Any income earned from a body of work before the tax year in which the application is made will not be exempt. The exemption applies to income tax only. USC and PRSI will be still chargeable to your income. Individuals in receipt of the artist's tax exemption must submit a self-assessment tax return Form 11.