Parents will often want to gift ownership of property such as a house or plot of land to their children or other family members as a means of support or to help them to start off in their own lives.
Such gifts are subject to taxation, however. The Capital Acquisitions Tax (CAT), more commonly known as inheritance tax or gift tax, is charged on property or money that is gifted to or inherited by somebody.
The current rate of CAT in Ireland is 33%. Amounts under certain thresholds are tax-free, with the relevant threshold depending on the relationship between the recipient of the inheritance and the donor.
The thresholds were increased in Budget 2017and have been valid since October 12, 2016. The three thresholds are:
Group A: Where the recipient is the child of the donor, the tax-free threshold is currently €310,000. This threshold also applies to adopted children, step-children and in some cases to foster children. It also applies to parents when they receive an absolute inheritance from their child. The Group A threshold was raised from €280k in 2016.
Group B: Where the recipient is a brother, sister, niece or nephew of the donor, or another lineal descendent (e.g. grandchild), the threshold is €32,500.
Group C: This group applies to all other cases and the tax-free threshold is €16,250.
One important exemption from CAT is on gifts or inheritances passed between spouses or civil partners, which are tax-free regardless of their value.
For example: a daughter inherits a house from her parents valued at €500,000. That is €190,000 over the relevant Group A threshold so the CAT payable would be 33% of €190,000 or €62,700.
But if, for example, the same house was inherited by a brother, the threshold applied would be in Group B. The value of the house would exceed that threshold by €467,500 and the CAT payable would be €154,275, almost 2.5 times what a son or daughter would be taxed for inheriting the same house.
If you have any questions or queries about the inheritance tax system, get in touch with your solicitor today.