Financial Advice

Income tax credits and relief following a death

Tax credits reduce the amount of tax you have to pay. This section explains the tax credits that apply to the income of a deceased person. It also explains the tax credits and reliefs that are available to a widowed person.

Tax credits in the year of death
Unmarried/widowed person

In the year in which they die, a single or widowed person has the normal tax credits to which they are entitled for the whole year, January to December. If a refund of tax is due, it can be claimed by the person responsible for finalising the affairs of the deceased.

Unmarried couples are treated as single for tax purposes.

Married couples

If your spouse dies, the way you are taxed in that year depends on how you were taxed as a couple. That is, whether you were taxed through Single Assessment, Separate Assessment or Joint Assessment.

Single assessment

If you were both taxed as single persons then the Widowed Person’s Tax Credit (see below) will replace the personal tax credit you had at the start of the year.

Separate assessment

If you and your spouse were taxed under separate assessment then the Widowed Person’s Tax Credit will replace your personal tax credit. You may also be entitled to unused tax credits that were allocated to your spouse.

Joint assessment

If a married couple is jointly assessed for tax, the spouse with the obligation to make tax returns, etc., is known as the assessable spouse while the other spouse is known as the non-assessable spouse. The assessable spouse is the spouse the couple has nominated as such. If no one has been nominated, the assessable person is the spouse with the higher income and remains the assessable spouse until a decision is made to the contrary.

The tax treatment of a married couple jointly assessed to tax in the year where one spouse dies depends on whether the assessable spouse or the non-assessable spouse dies.

Death of the non-assessable spouse

In the tax year in which a non assessable spouse dies, the assessable spouse

  • Is taxable on his/her own total income for the full year plus the total income of his/her spouse to the date of death
  • Is entitled to the full amount of the married tax credit and the PAYE credit (2 PAYE credits if both have sufficient income taxable under the PAYE system)
  • May claim other tax credits due to both spouses in that year

Death of the assessable spouse

For the period 1 January to the date of death, the assessable spouse:

  • Is taxable on his/her own total income and the total income of his/her spouse for this period
  • Is entitled to the full amount of the married tax credit and the PAYE credit (2 PAYE credits if both have sufficient income taxable under the PAYE system)
  • May claim a proportion of other credits up to date of death
  • Has the tax rate bands that apply to a married couple

From the date of death to the end of the tax year, the widowed spouse:

  • Is assessable on his/her own income for this period
  • Is entitled to the widowed person’s tax credit for year of bereavement and the PAYE credit (if taxed on PAYE)
  • May claim tax credits for the period following the death
  • Has the tax rate bands that apply to a single/widowed person
  • Widowed Person’s Tax Credit

An increased personal tax credit is available to widowed persons. The amount of the tax credit varies according to whether or not the surviving spouse has dependent children and how recent the bereavement.

Widowed person without dependent children

A widowed person without a dependent child will still get the Married Person’s Tax Credit in the year of bereavement, which is €3,300 in 2011.

In subsequent years, you will get the Widowed Person’s Tax Credit, which is €2,190 in 2011.

Widowed person with dependent children

If you are a widowed person with a dependent child you will still get the Married Person’s Tax Credit in the year of bereavement which is €3,300 in 2011. In subsequent years, as long as you continue to have dependent children you will get a Widowed Person’s (with dependent children) Tax Credit (€1,650 in 2011) and the One-Parent Family Tax Credit (€1,650 in 2011).

You are also entitled to an additional tax credit, the Widowed Parent Tax Credit, for the first five years after the year of death – see below.

If you are widowed with dependent children and have not remarried but are cohabiting with a partner, you are not considered as a widowed person (with dependent children) for tax purposes. This means you are not entitled to the Widowed Person’s (with dependent children) Tax Credit or the One-Parent Family Tax Credit; however, you can get the Widowed Person’s Tax Credit instead.

Also, if you are widowed and have not remarried but no longer have dependent children, you will not be considered as a widowed person (with dependent children). Instead, you will get the Widowed Person’s Tax Credit.

The Widowed Parent Tax Credit is available for five years, beginning in the year after the year of bereavement. If you are bereaved in 2011 you will not get a Widowed Parent Tax Credit until 2012. Only one Widowed Parent Tax Credit is granted, irrespective of the number of children. The amount of the tax credit varies each year as follows:

If you were bereaved in: Widowed Parent Tax Credit due in 2010 is: Widowed Parent Tax Credit due in 2011 is:
2010 Nil €3,600
2009 €4,000 €3,150
2008 €3,500 €2,700
2007 €3,000 €2,250
2006 €2,500 €1,800
2005 €2,000 Nil

 

To qualify for the Widowed Persons Tax Credit:

  • You must not have re-married by the start of the tax year and must not be cohabiting with a partner.
  • A qualifying child must reside with you for some part of the tax year.
  • The child must be under 18 or, if over 18, in full-time eduction or undergoing a full-time training course for a trade or profession for a minimum of two years. There is no age restriction if the child became permanently incapacitated when under 21 or in full-time education or training.
  • The child may be an adopted child, a stepchild or any child that you support and have custody of

How to apply

Following the death of a spouse, you should contact Revenue to inform them so that they can arrange for you to receive the appropriate tax credits. Please remember to have yourPPSNumber to hand in any dealings with Revenue.

You can also claim tax credits online.

Where to apply

Lo-call telephone numbers for Revenue regional offices are widely available.

What happens the deceased’s estate

When a person dies, his/her property passes to his/her personal representative. The personal representative then has the duty to distribute the deceased’s money and property in accordance with the law, the will – if there is one – or the laws of intestacy if there is no will.

Rules

A Testator is a person who has made a will. If you die without making a will, you are said to die intestate. If that happens, your money and property is distributed in accordance with the rules set out in the Succession Act, 1965.

There are some restrictions on what you can do in a will. In general, you may not completely disinherit a spouse/civil partner and, if you do, your spouse/civil partner may claim his/her legal right share. You are not obliged to leave any assets to your children but if you do not, they may be able to make a claim on the basis that you have not fulfilled your obligations towards them. Apart from that, you may dispose of your estate (estate is the term used to describe all of your assets, your money, property, etc.) in whatever way you like.

The personal representative is either:

  • an executor or executors – this is a person or people appointed by the deceased person in his/her will.
  • an administrator(s) – this is usually the next of kin or a lawyer. An administrator is appointed where there is no will, or where no executor is nominated in the will or where the executor has predeceased the testator or is unwilling or unable to act as executor.

It is the personal representative’s responsibility to distribute the estate in accordance with the will of the deceased, and/or the law.

Money in the bank

If the money in the bank or the insurance policy is in the deceased’s name only then family members usually cannot get access until probate is taken out. If the amount of money in the bank is small, the bank may release it provided the personal representatives or the next of kin sign an indemnity form – in effect, this is a guarantee that the bank will not be at a loss if there are other claims on the money.

If the bank account is in joint names, the money can be transferred into the survivor’s name. You will need the death certificate to do this. If there is an account with more than 31,743.45 euro, you will also need a letter of clearance from the Revenue Commissioners allowing the money to be transferred into your name pending investigations about liability to Capital Acquisitions Tax (CAT), see below. Spouses are not liable for CAT on inheritances from each other. You should apply to the Capital Taxes Office of the Revenue Commissioners for a letter of clearance.

Credit union accounts

If the deceased had a credit union account and had completed a valid Nomination Form, when opening the account, nominating someone as next of kin, the proceeds of the account up to a maximum of €23,000 go to the person or persons nominated on the form. They do not form part of the deceased’s estate.

The balance of the account forms part of the deceased’s estate and is distributed in accordance with succession law.

Occupational and personal pensions

The rules governing occupational and personal pensions vary with the different pension arrangements. If the deceased was a member of a pension scheme, you should contact the scheme administrators to find out if there is a pension for the spouse/civil partner and/or children. Self-employed people may have pension arrangements that involve some of the investments becoming part of the deceased’s estate.

Divorced people and those whose civil partnership has been dissolved may have access to some part of the pension scheme depending on whether or not a pension adjustment order was made at the time of the divorce/dissolution.

The legal right share

If there is a will and the spouse/civil partner has never renounced his/her rights and is not “unworthy to succeed”, then that spouse/civil partner has a right to what is called a “legal right share” of the deceased’s estate.

  • If there are no children, the spouse/civil partner is entitled to one-half of the estate;
  • if there are children, the spouse/civil partner is entitled to one-third of the estate. The children are not necessarily entitled to the rest.

If you find that your spouse or civil partner has made a will that does not recognise your legal right share, you may still claim your right. You do not have to go to court; the executor or administrator is obliged to grant you your share.

Cohabiting couples have no legal rights to each other’s estates. A church annulment has no legal status and so does not change the status of a spouse. If a partner in such an annulled marriage subsequently “remarries” or enters into a civil partnership, this is not a legal marriage or civil partnership, and the parties have no rights vis a vis each other. Cohabiting couples may, of course, make wills in favour of each other but such wills may not negate the legal right share of a spouse/civil partner.

The family home

If the family home is held by both spouses/civil partners as joint tenants, the surviving spouse/civil partner automatically inherits the deceased spouse’s/civil partner’s interest. In the case of a cohabiting couple where the family home is held as joint tenants, the surviving partner automatically inherits the deceased partner’s interest but may be liable for inheritance tax, unless the surviving partner qualifies for dwelling house tax exemption. Where both die at the same time so that it is not possible to say who died first, property held as joint tenants is divided equally so as to form part of each of their estates.

The surviving spouse/civil partner may require that the family home be given to him/her in satisfaction of the legal right share or the share on intestacy. If the family home is worth more than the legal right share then normally the spouse/civil partner would have to pay the difference into the deceased’s estate. However, the surviving spouse/civil partner may apply to the court to have the dwelling house given to him/her either without paying the difference or by paying such sum as the court thinks reasonable. The court may make such an order if it thinks that hardship would otherwise be caused either to the surviving spouse/civil partner or to a dependent child.

Renouncing or losing your rights under a will

There are various circumstances in which a spouse/civil partner renounces his/her rights under the Succession Act. Sometimes this might be done prior to marriage/civil partnership or the spouse/civil partner may waive the right in favour of a child or children. If the couple are separated, it is usual to renounce rights to each other’s estates in a separation agreement. A separation does not always involve renunciation of succession rights. A divorce/dissolution decree means the end of succession rights; the court, of course, has the power to take the loss of these rights into account when deciding on the financial settlement between the spouses/civil partners.

Being “unworthy to succeed” is relatively rare and would arise, for example, where the surviving spouse/civil partner murdered the deceased or committed certain other serious crimes against the deceased. It may also arise if you had deserted your spouse/civil partner for at least two years before the death.

Rights of children under a will

Unlike a spouse/civil partner, children have no absolute right to inherit their parent’s estate if the parent has made a will. However, if a child considers that he/she has not been adequately provided for, he/she may make an application to court. The child need not be a minor or be dependent in order to use this procedure. The court has to decide if the parent has “failed in his moral duty to make proper provision for the child in accordance with his means”. Each case is decided on its merits and the court looks at the situation from the point of view of a “prudent and just” parent. Anyone considering challenging a will on these grounds should get legal opinion before applying to the court.

Children born within or outside marriage have the same rights.

Intestacy

If a person dies without having made a will or if the will is invalid for whatever reason, that person is said to have died “intestate”. If there is a valid will, but part of it is invalid then that part is dealt with as if there was an intestacy. The rules for division of property on intestacy are as follows:

If the deceased is survived by

  • spouse/civil partner but no children – spouse/civil partner gets entire estate
  • spouse/civil partner and children – spouse/civil partner gets two-thirds, one-third is divided equally between children (if a child has already died his/her children take a share)
  • parents, no spouse/civil partner or children – divided equally or entirely to one parent if only one survives.
  • children, no spouse/civil partner – divided equally between children (as above)
  • brothers and sisters only – shared equally, the children of a deceased brother or sister take the share
  • nieces and nephews only – divided equally between those surviving
  • other relatives – divided equally between nearest equal relationship
  • no relatives – the state

Capital Acquisitions Tax

If you receive a gift, you may have to pay Gift Tax on it. If you receive an inheritance following a death, it may be liable to Inheritance Tax. Both these taxes are types of Capital Acquisitions Tax.

The benefit (the gift or inheritance) is taxed if its value is over a certain limit or threshold. Different tax-free thresholds apply depending on the relationship between the disponer (the person giving the benefit) and the beneficiary (the person receiving the benefit). There are also a number of exemptions and relief’s that depend on the type of the gift or inheritance.

If you receive a gift or inheritance from your spouse, you are exempt from Capital Acquisitions Tax.

The tax applies to all property that is located in Ireland. It also applies where the property is not located in Ireland but either the person giving the benefit or the person receiving it are resident or ordinarily resident in Ireland for tax purposes.

Group thresholds

Gifts and inheritances can be received tax-free up to a certain amount. The tax-free amount, or threshold, varies depending on your relationship to the person giving the benefit. There are three different categories or groups. Each has a threshold that applies to the total benefits you have received in that category since 5 December 1991.

Group A applies where the beneficiary, the person receiving the benefit, is a child of the person giving it. This includes a stepchild or an adopted child.

It can also include a foster child if the foster child resided with and was under the care of the disponer and they provided the care, at their expense, for a period or periods totalling at least 5 years before the foster child reached the age of 18. This minimum period does not apply in the case of an inheritance taken on the date of death of the disponer. In this case the Group A threshold will apply provided that the foster child had been placed in the care of the disponer prior to that date.

Group A also applies to parents who take an inheritance from their child but only where the parent takes full and complete ownership of the inheritance. If a parent receives an inheritance where he or she does not have full and complete ownership of the benefit, or if a parent receives a gift, then Group B applies.

If a parent inherits from their child, and have full and complete ownership of the inheritance it is exempt from tax if, in the previous five years, the child took an inheritance or gift from either parent and it was not exempt from Capital Acquisitions Tax. In this case, no tax needs to be paid even if the inheritance from the child is over the threshold.

Group B applies where the beneficiary is the:

  • Parent – see also Group A above
  • Grandparent
  • Grandchild or great-grandchild – see below
  • Brother or sister
  • Nephew or niece of the giver – see below

If a grandchild is a minor (under 18 years of age) and takes a gift or inheritance from his or her grandparent Group A may apply if the grandchild’s parent is deceased.

Group A may apply to a nephew or niece if he or she has worked in the business of the person giving the benefit for the previous five years and meets the following criteria:

  • The nephew or niece must be a blood relation rather than a nephew or niece-in-law
  • The gift or inheritance consists of property used in connection with the business, including farming, or of shares in the company.
  • If the gift or inheritance consists of property then the nephew or niece must work more than 24 hours a week for the disponer at a place where the business is carried on, or for the company if the gift or inheritance is shares. But if the business is carried on exclusively by the disponer, their spouse and the nephew or niece then the requirement is that the nephew or niece work more than 15 hours a week.
  • The relief does not apply if the benefit is taken under a discretionary trust.

Group C applies to any relationship not included in Group A or Group B.

If you receive a benefit from a relation of your deceased spouse, you can be assessed with the same group as your spouse would be if they were receiving the benefit from their relation. For example, if you receive a benefit from the father of your spouse, the group threshold would be Group C. But if you receive a benefit from the father of your spouse and your spouse is deceased, then the group threshold that applies to you would be the same as for a child receiving a benefit from a parent, Group A.

CAT thresholds
2009 (up to 7 April 2009) 2009 (on or after 8 April 2009) 2010 (up to 7 December 2010) 2010 (on or after 8 December 2010) and 2011
Group A €542,544 €434,000 €414,799 €332,084
Group B €54,254 €43,400 €41,481 €33,208
Group C €27,127 €21,700 €20,740 €16,604

Valuation

The valuation date is the date on which the market value of the property comprising the gift/inheritance is established.

In the case of a gift, the valuation date is normally the date of the gift.

In the case of an inheritance, the valuation date is normally the earliest of the following dates:

  • The date the inheritance can be set aside for or given to the beneficiary
  • The date it is actually retained for the benefit of the beneficiary
  • The date it is transferred or paid over to the beneficiary

The valuation date will normally be the date of death in the following circumstances:

  • Gift made in contemplation of death (Donatio Mortis Causa)
  • Where a power of revocation has not been exercised. This could arise where a person makes a gift of property but reserves the power to revoke, or take back, the gift. If he or she dies and this power ceases, the recipient then becomes taxable as inheriting the benefit. If the beneficiary had free use of the benefit before this, he or she will be taxed as receiving a gift of the value of the use of the property.

Taxable value

The gift or inheritance is valued as the market value at the time you become entitled to the use or benefit of it.

The value that is taxable is the market value minus the following deductions.

You can deduct ‘any liabilities, costs and expenses that are properly payable’. This would include debts that must, by law, be paid and that are payable out of the benefit or because of it. With an inheritance, these may be funeral expenses, the costs of administering the estate, or debts owed by the deceased. For a gift, they could include legal costs or stamp duty.

If you make a payment for the benefit or some other contribution in return for it, this may also be deducted. This is known as a ‘consideration’ and could be, for example, a part payment, an amount paid annually to the donor or other person, or a payment of debts of the donor.

If you do not receive full ownership but instead receive a benefit for a limited period, then a number of factors are taken into account to calculate the value. The calculation of the value of a limited interest is explained in Revenue Guide IT 39.

Tax rate

Capital Acquisition Tax is charged at 25% in respect of gifts or inheritances made frommidnighton 7 April 2009. (The rate was formerly 22% in 2009 and 20% in 2008.) This only applies to amounts over the group threshold. For example, if you have received gifts from your parents with a taxable value of €550,000, you only pay tax on the amount over the appropriate group threshold (Group A threshold: €332,084). So €217,916 is taxed at 25%.

Exemptions

The following are exempt from Capital Acquisitions Tax:

  • Gifts or inheritances from a spouse
  • Payments for damages or compensation
  • Benefits used only for the medical expenses of a person who is permanently incapacitated due to physical or mental illness
  • Benefits taken for charitable purposes or received from a charity
  • Winnings from a lottery, sweepstake, game, or betting
  • Retirement benefits and pension and redundancy payments are not usually liable to Gift Tax

The first €3,000 of the total value of all gifts received from one person in any calendar year is exempt. This does not apply to inheritances.

If you receive a gift or inheritance of a house that has been your main residence, it may be exempt from tax if you do not own or have an interest in any other house. There are conditions on how long you must be resident in the house before and after receiving the benefit. More information is available on this Revenue website – see Dwelling-house exemption below – or Revenue’s leaflet CAT 10.

If a parent receives an inheritance from his/her child, and then takes full and complete ownership of the inheritance, it usually taxable under Group A. But it is exempt if, in the previous five years, the child took an inheritance or gift from either parent and it was not exempt from Capital Acquisitions Tax.

Other exemptions relate to certain Irish Government securities, bankruptcy, heritage property, and support of a child or spouse.

Further information on the above relief and exemptions is contained in Revenue guide IT 39 (Appendix 6).

Reliefs

Business Relief
Tax relief applies to gifts and inheritances of business property and reduces the taxable value of the property by 90%. More information on business relief can be found in Revenue leaflet CAT 4.

Agricultural Relief 
Tax relief applies to gifts and inheritances of agricultural property and reduces the market value of the property by 90% for the purposes of Capital Acquisitions Tax. More information on agricultural relief can be found in Revenue leaflet CAT 5.

Making a return and paying Capital Acquisition Tax

If you have received a gift or inheritance then you are responsible for paying any Capital Acquisition Tax that is due. If you are not resident in Ireland, you must get an agent who is resident in Ireland, such as a solicitor, to take responsibility for the payment ofCAT.

You must make a tax return if the total value of gifts and inheritances you have received in one of the groups, A, B or C, since 5 December 1991 is more than 80% of the tax-free threshold for that group.

For example, if you received a gift of €20,000 from a brother and then an inheritance of €10,000 from a grandparent, both of these benefits would come under Group B and amount to a total of €30,000. The threshold for Group B in 2011 is €33,208 and 80% of this is €26,566.40. Because the benefits in group B exceed 80% of the tax-free threshold, you are required to make a tax return even though the total amount received is below the threshold.

Gifts or inheritances with a valuation date before 14 June 2010

You must complete the tax return and pay the tax within 4 months of the valuation date. You do this by completing Form IT 38. Revenue can provide A Guide to completing the Self Assessment Return (Form IT 38). If the tax is not paid within 4 months, interest is charged.

Gifts or inheritances with a valuation date on or after 14 June 2010

Gifts or inheritances with a valuation date on or after 14 June 2010 will have a new fixedCATpay and file date. All gifts and inheritances with a valuation date in the 12-month period ending on the 31 August must be paid and filed by 30 September.

This means, if the valuation date is between 1 January and 31 August, you must complete the tax return and pay the tax on or before 30 September in that year. If the valuation date is between 1 September and 31 December you must complete the tax return and pay the tax on or before 30 September in the following year.

For example
If your inheritance has a valuation date of 21 February 2011, you must complete the tax return and pay the tax on or before 30 September 2011.If your inheritance has a valuation date of 6 November 2011, you must complete the tax return and pay the tax on or before 30 September 2012.

There is a surcharge for late pay and file ofCAT. The surcharge is based on a percentage of the total tax payable for the year the return is late and graded according to the length of the delay. However, there is an overall cap on the level of the surcharge which is calculated as follows:

  • 5% surcharge to a maximum of €12,695, if you complete the tax return and pay the tax within 2 months of the pay and file date.
  • 10% surcharge up to a maximum of €63,485, if you do not complete the tax return and pay the tax within 2 months of the pay and file date.

Gift and inheritance tax returns must be made electronically using Revenue’s Online Service, however there are some exceptions. A new paper gift and inheritance tax return (Form IT38S) will be available but can only be used by you, the taxpayer, if you meet the following criteria:

  • You are not claiming any relief, exemption or credit, apart from small gift exemption.
  • The benefit taken is an absolute interest without conditions or restrictions.
  • The property included in the return was taken from only one disponer and is not part of a larger benefit.

Special circumstances

In certain circumstances, it is possible to pay the tax by instalments over a period not exceeding 60 months. This applies to any property where the beneficiary does not have full and complete ownership.

It also applies if the benefit is full and complete ownership of the following:

  • Property which cannot be moved (for example, lands or a house) or
  • Property which can be moved and is agricultural or business property

Revenue can consider allowing a postponement of tax due if there is hardship involved.

Contact

Revenue

CAT National Taxpayer Information Unit
Ist Floor
CRIO
Cathedral Street
Dublin 1
Ireland

Tel: (01) 865 5000
Locall: 1890 201 104
Homepage: http://www.revenue.ie
Email:catdr@revenue.ie

Further information – Exemptions

The following items are exempt from Capital Acquisitions Tax:

  • Gifts or inheritances from a spouse
  • Payments for damages or compensation
  • Benefits used only for the medical expenses of a person who is permanently incapacitated due to physical or mental illness
  • Benefits taken for charitable purposes or received from a charity
  • Winnings from a lottery, sweepstake, game, or betting
  • Reasonable support for the maintenance or education of a child or spouse.

Houses, gardens or objects that are of national, scientific, historic or artistic merit and meet certain conditions (see ‘Heritage Property Relief’ below).

Pension and redundancy payments are not usually liable to Gift Tax. If the employee however is a relative of the employer, or the employer is a private company and the employee is deemed to control the company, Revenue may disallow this exemption if they consider the payment excessive.

The first €3,000 of the total value of all gifts received from one person in any calendar year is exempt. This does not apply to inheritances.

If a parent receives an inheritance (with full and complete ownership), from a child, it is exempt from tax if the child had taken an inheritance or gift from either parent in the previous five years and that inheritance or gift was not exempt from Capital Acquisitions Tax.

Payments that reduce the debt of a bankrupt or near-bankrupt are usually exempt under Section 82, Capital Acquisitions Tax Consolidation Act 2003.

Other exemptions relate to government securities or unit trusts where the beneficiary is non-resident.

Dwelling-house exemption

A gift or inheritance of a house which has been your main residence may be exempt from Capital Acquisitions Tax if you do not own or have an interest in any other house.

You must have lived in the house as your main residence for the three years immediately preceding the date of the gift or inheritance. However, in the case of gifts taken on or after 20 February 2007, time you lived in the house will not be counted if it was also the disponer’s only or main residence, unless, the disponer was dependent on your care because of old age or illness. Also the house must be owned by the disponer for three years if it is a gift taken on or after 20 February 2007.

If the house replaced another house as your main residence in that time, you can still claim the exemption provided that your main residence was in these houses for a total period of three out of the four preceding years. However, in the case of gifts taken on or after 20 February 2007, each house must be owned by the disponer for the relevant part of the 3 year period that it was occupied by you.

You must continue to occupy the house as your main residence for the following six years but this condition does not apply if you are over 55 years at the time of receiving the benefit. If you are away because of an obligation to work abroad you can include this as time resident.

Where the house is replaced by another property as your main residence, the time for which each house is your main residence must total six of the seven years commencing on the date of the gift or inheritance.

If you sell the house and the sale does not meet the conditions outlined above then the relief will be withdrawn. An exception to this is if the property is sold because you need long-term care in a hospital or nursing home.

If you sell the house within six years and the value of a replacement property is less than the value of the original property then there will be a claw-back of the difference. For example, if the original relief was for a property worth €600,000 and you sell this to buy a property worth €400,000, you will only be allowed relief on the €400,000 and there will be a claw-back on the €200,000 difference. You will need to complete a revised form IT 38 and pay the additional tax within four months.

Tax Relief

Agricultural Relief

Gifts and inheritances of agricultural property can qualify for relief that reduces the market value of the property by 90% for the purposes of Capital Acquisitions Tax.

To qualify for Agricultural Relief the beneficiary must be a farmer. This means that taking the gift or inheritance into account, agricultural property must account for at least 80% of the gross market value of your assets on valuation date. This restriction does not apply if the gift or inheritance is trees or under wood.

If your principal residence is not situated on the farm it does not qualify as agricultural property. A change announced in Budget 2007 means that in this case borrowings on such a residence can be offset against its value. This may reduce the value of assets that are non-agricultural, increasing the proportion of agricultural assets for the 80% rule.

The relief will be withdrawn:

  • If the beneficiary is not resident for all of the three tax years following the tax year in which the valuation date falls.
  • If the property is sold within six years and not replaced by another agricultural property with one year
  • If the property is compulsorily purchased within six years and not replaced within six years.
  • If a beneficiary does not qualify for Agricultural Relief, then agricultural property can qualify for Business Relief.

If Agricultural Relief or Business Relief has been granted on the development value of development land, the relief will be clawed back if the land is disposed of between six to ten years after the date of the gift or inheritance. Development land is land with a value that exceeds the current use value of the land at the date of the gift or inheritance.

In calculating the taxable value of the property after agricultural relief, only 10% of the value of the allowable deductions is taken into account (that is, the deductions are reduced by 90%, in proportion with the relief).

Business Relief

Gifts and inheritances of relevant business property qualify for relief that reduces the taxable value of the property by 90% for the purposes of Capital Acquisitions Tax.

Relevant business property

Relevant business property includes the following:

The business or, for a business carried on by a sole trader or by a partnership, an interest in the business. A “Business” is defined as one which is carried on for gain and it includes the exercise of a profession or vocation as well as a trade. Individual assets used in the business, such as a factory will not qualify for the relief if they are transferred to the beneficiary without the business.

The unquoted shares or securities of a company carrying on a business provided that the company is incorporated and that the shares meet certain requirements specified in section 93 of the Capital Acquisitions Tax Consolidation Act 2003.

Any land or buildings, machinery or plant in the State that are owned by the disponer but used wholly or mainly for the purpose of a business carried on by a company controlled by the disponer or by a partnership of which the disponer was a partner. The shares in the company or the partnership interest must be taken by the beneficiary together with the lands, buildings, machinery or plant in order for those assets to qualify for the relief.

Quoted shares or securities of a company if the shares were unquoted before 23rd  May 1994 or if later, were unquoted at the time the disponer became the beneficial owner. Quoted shares or securites must meet the same requirement specified for unquoted shares in order to qualify for relief.

Exclusions

Businesses are excluded from the relief if they wholly or mainly consist of dealing in currencies, securities, stocks, shares, land or buildings, or making or holding investments

Conditions

The relevant business property must have been in continuous ownership by the disponer for a minimum period of two years in the case of an inheritance which was taken on the death of the disponer or five years in any other case.

This period can include a period of ownership by the disponer’s spouse or a trustee. A replacement of a relevant business property can be included in the ownership requirement, in which case the minimum periods are extended to three and six years respectively.

In the case where a beneficiary receives a gift or inheritance that meets the minimum period requirement but they then die before they in turn have owned it for the minimum period, the subsequent inheritor of the benefit can still qualify business relief under the minimum period condition.

For more information on Business Relief see section 92 Capital Acquisitions Tax Consolidation Act 2003.

Heritage Property Relief

Houses and gardens or objects that are of national, scientific, historic or artistic interest are exempt from Capital Acquisitions Tax if they meet certain conditions.

Conditions

Reasonable facilities for viewing must be available to members of the public or, in the case of objects, to recognised bodies or associations.

The property must not be used for trading purposes.

Houses and gardens must have had reasonable facilities available for their viewing by the public for three years before a gift or inheritance.

The property must not be sold within six years unless the sale is to a national institution by private treaty. The relief can be clawed back if the conditions are not kept.

For more information the Revenue can also provide a leaflet on Heritage property relief.

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