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CAPITAL ACQUISITIONS TAX
Gift and Inheritance tax
What is Capital Acquisitions Tax?Capital Acquisitions Tax comprises Gift Tax, Inheritance Tax, Discretionary Trust Tax.( It also formerly comprised Probate Tax which was introduced by Finance Act 1993 but later abolished by Finance Act 2001)
Gift Tax and Inheritance TaxGift tax is charged on taxable gifts taken on or after 28 February, 1974, and Inheritance Tax is charged on taxable inheritances taken on or after 1 April, 1975. An inheritance is a gratuitous benefit taken on a death and a gift is a gratuitous benefit taken otherwise than on a death. The tax is charged on the taxable value of the gift or inheritance. The taxable value is arrived at by deducting from the market value of the property comprised in the gift or inheritance permissible debts and incumbrances and any consideration paid by the beneficiary. Once the taxable value of the gift or inheritance has been determined the amount of tax payable will depend on whether the appropriate tax-free threshold has been exceeded. The rates of tax are as follows- The threshold amount - Nil Excess 20% (See Indexed Thresholds Table below for calculation of Gift Tax & Inheritance Tax, exemptions etc)
Discretionary Trust TaxA once-off Inheritance Tax applies to property subject to a discretionary trust on 25 January, 1984, or becoming subject to a discretionary trust on or after that date. The current rate of tax is 6%. In certain cases the 6% rate can be reduced to 3%. An annual Inheritance Tax at the rate of 1% applies to property subject to a discretionary trust on 5 April in each year commencing with the year 1986.
Probate TaxProbate Tax was introduced by Finance Act 1993 and was subsequently abolished by Finance Act 2001. Probate Tax is charged at the rate of 2% on the estates of persons dying on or after 18 June 1993 and before 6 December 2000. For deaths occurring on or after 18 June 1993 and before 1 December 1999 a charge to Probate Tax arose if the deceased was domiciled in Ireland at his date of death or if his estate included Irish assets. For deaths occurring on or after 1 December 1999 and before 6 December 2000 a charge to Probate Tax arose if the deceased was resident or ordinarily resident in Ireland at his date of death or if his estate included Irish assets. Assets passing otherwise than under the will or intestacy are excluded. Funeral expenses and debts owing by the deceased at the time of death are allowable in arriving at the taxable value. Exemptions include estates below €50,790 in 2000, property passing absolutely to a surviving spouse, the principal private residence (where there is a surviving spouse or where certain dependent children or relatives succeed), property passing to a charity, heritage property, superannuation benefits, certain government securities, unit trusts and policies taken by foreigners, qualifying insurance policies (to the extent that they are utilised in the payment of probate tax or inheritance tax) and property which has already within one year prior to the death borne probate tax on the death of a predeceased spouse (or within 5 years where there is a dependent child).
Indexed Thresholds for Capital Acquisitions Tax - 2006
Gift and Inheritance Tax
For the purpose of Gift and Inheritance Tax, the relationship between the person who provided the gift or inheritance (i.e. the Disponer) and the person who received the gift or inheritance (i.e. the beneficiary), determines the maximum tax free threshold - known as the "group threshold". Three Group thresholds were introduced on 1 December 1999 in respect of gifts and inheritances taken between 1 December 1999 and 31 December 2000. The Group thresholds are indexed by reference to the Consumer Price Index and the indexation factor for 2006 (1 January 2005 to 31 December 2005 inclusive) is 1.255. The indexed Group thresholds for 2004, 2005 and 2006 are set out in the table below.
GroupRelationship to DisponerGroup Threshold
2004(after indexation)2005(after indexation)2006(after indexation)
ASon/Daughter€456,438€466,725€478,155
BParent*/Brother/Sister/ Niece/Nephew/Grandchild€45,644€46,673€47,815
CRelationship other that Group A or B€22,822€23,336€23,908
*In certain circumstances a parent taking an inheritance from a child can qualify for Group A threshold.
Gifts or inheritances of Irish property are liable to tax whether or not the disponer is resident or domiciled in Ireland. Foreign property is liable to tax where either the disponer or the beneficiary is resident or ordinarily resident in Ireland at the relevant date.
Various exemptions from gift and Inheritance Tax have been provided for. For example, the first €3,000 taken as a gift by a beneficiary from a disponer in any one year is exempt from tax as are gifts and inheritances taken by one spouse from the other. There are exemptions in favour of certain charities, heritage property, superannuation benefits, and foreign donees of certain Irish government securities. Qualifying insurance policies to the extent that they are utilised in the payment of certain Gift Tax or Inheritance Tax are also exempt.
In addition to the exemptions various reliefs, which are subject to certain conditions being satisfied, apply e.g.
Agricultural Relief. This relief operates by reducing the market value of agricultural property; and
Business relief. The relief is granted by reducing the taxable value of business property
How can I provide for CAT ?
With the increase in Property Prices Capital Acquisitions Tax or Inheritance Tax has become relevant for an increasing number of people. The Revenue allow amounts to be transferred on death to family members and non-relatives free of tax up to certain limits. Above these limits an Inheritance Tax of 20% can be applied.
This Tax can be quite substantial. These days Property tends to be the larger asset that is being passed onto relatives on death. In some instances the Property may have to be disposed of in order to meet the tax bill.
We can help you to provide a lump sum that would reduce this potential tax bill through what is known as a Section 60 inheritance plan.
If you wish to obtain legal advice in relation to a Capital Tax matter, please click on the link below.
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