Capital Acquisitions Tax
- Taxable Inheritance
- Taxable Gift
- Thresholds for CAT
- Main Exemptions and Reliefs
- Private Residence Relief
- Business Relief
- Payment and Compliance
- Surcharge for Understatement
- Joint Account Limits
Capital Acquisitions Tax (CAT) is a tax on gifts and inheritances.
The following is a summary of the method of assessment to CAT:
A taxable inheritance arises in any of the following situations:
- The disponer is resident or ordinarily resident in Ireland at the date of the disposition
- The successor is Irish resident or ordinarily resident at the date of the inheritance
- The property is located in Ireland at the date of the inheritance
A taxable gift arises in any of the following situations:
- The disponer is resident or ordinarily resident in Ireland at the date of the disposition (not applicable to gifts under a Discretionary Trust)
- Where a gift is taken under a Discretionary Trust, the disponer is resident or ordinarily resident in Ireland at the date of the disposition or the date of death (if the gift is taken after the death of the disponer)
- The beneficiary is resident or ordinarily resident in Ireland at the date of the gift.
- Provided the settlor or beneficiary is not Irish domiciled, he is not deemed to be resident until after 1 December 2004 and then only if he has been resident in Ireland for 5 consecutive years of assessment immediately before the year of assessment in which the gift is received and is also resident at the date of the gift.
Gifts/inheritances taken on or after 5 December 1991 are aggregated with later gifts/inheritances in order to arrive at the current tax payable.
Only gifts/inheritances within the same group are to be aggregated.
The following maximum tax-free thresholds apply for gifts and inheritances:
|Relationship to Donor||Post 12/10/2016||Post 14/10/2015|
Group 1 – This threshold applies where the donee or successor is a child, minor child of a deceased child of the disponer, a foster child of the disponer subject to certain conditions, or a spouse of a deceased child. It also applies to inheritances taken by a parent from a deceased child, subject to certain conditions. Certain inheritances taken by a parent from a child may be totally exempt.
Group 2 – This threshold applies where a donee or successor is a lineal ancestor, lineal descendant (other than a child or minor child of a deceased child), a brother, sister, or a child of a brother or sister of the disponer.
Group 3 – This applies where the donee or successor is not related as outlined in either of the previous classes.
A rate of 33% (25% prior to 7 December 2011)applies to all gifts/inheritances. This rate applies to the amount of gift or inheritance in excess of the tax-free threshold.
|Excess over threshold amount||33%||33%|
The following exemptions and reliefs apply:
- Inheritances and gifts between husband and wife are exempt.
- Transfers of property by virtue of an order under the Family Law Acts 1995 or 1996.
- The first €3,000 of gifts from each disponer taken in a calendar year.
- Gifts or legacies applied for public or charitable purposes.
- Normal and reasonable payments received in the disponer’s lifetime by family members for support, maintenance or education or by a dependent relative for support or maintenance.
- Life assurance policies (Section 60 policies) designed for the payment of CAT and used for this purpose within one year of the death of the Insured person. Any excess proceeds may be taxable.
- Dwelling houses, which are the only or main residence of the beneficiary (subject to certain conditions).
- Business Property Relief
- Agricultural relief
This has been completely changed in Finance Act 2016, so that the circumstances in which a beneficiary of a gift of qualifying property can avail of this relief are very limited.
The inheritance of a private dwelling house is exempt from CAT provided:
- The beneficiary has continuously lived in the house as his only or main residence for 3 years prior to the date of the inheritance.
- At the date of the inheritance, the beneficiary is not beneficially entitled to any other dwelling house or to any interest in another dwelling house.
- If the beneficiary is under 55, he must either continue to live in the house for 6 years after the date of the inheritance or in the event of sale, invest the proceeds of sale in another dwelling which will be his only or main residence, to avoid a clawback.
The relief is very restricted in the case of gifts. Relief will only be available where the beneficiary is a dependant
relative of the donor; for these purposes, the beneficiary must be over 65 or incapacitated due to mental/physical
infirmity. There is no requirement that the property was the disponer’s only or main residence during the three year
period prior to the gift but, typically, the beneficiary must live in it for six years to avoid a clawback.
- It is not necessary for individuals to be related in order to avail of this relief.
- If a person has an interest in another residential property it may, depending on circumstances be worth divesting yourself of this interest prior to receiving the gift.
Business Property Relief
The value of business assets is reduced for a gift/inheritance of relevant business property by 90% subject to a number of qualifications. The relevant business property must have been owned by the disponer, or his/her spouse for at least five years prior to the transfer in the case of a gift or two years in the case of an inheritance. The asset must remain in the business for at least six years to avoid a claw-back of the CAT relief.
Business property relief also applies to a gift or inheritance of shares in a holding company that holds shares in one or more companies controlled by the beneficiary and his/her relatives, nominees or trustees.
A clawback of the relief will apply where the full proceeds from the disposal or compulsory acquisition are not fully expended within one year in the case of a disposal or within six years in the case of a compulsory acquisition made after 25 March 2002.
Where there is a disposal of land which qualified for agricultural relief or business asset relief in the period commencing six years after the date of the gift or inheritance and ending ten years after that date, there will be a clawback of the relief by reference to the development value of the land at the date of the gift or inheritance.
Tip: Agricultural property may qualify for Business Relief where it fails to qualify for Agricultural Relief.
It is not necessary for the business to be carried out in the State or for the property to be situated in the State for the relief to apply.
Payment and Compliance
There is a new Pay and File system (outlined below) which requires returns to be filed via ROS where reliefs and exemptions (other than a small gift exemption) are being claimed by the beneficiary.
Valuation Date Return Filing and Payment Deadline
- 1 January – 31 August 31 October in the same year
- 1 September – 31 December 31 October in the following year
Interest on outstanding tax will be computed from 1 October each year.
There is a four year time limit for claiming repayments of overpaid tax, including the overpayment of probate tax; the four year period runs from the date of payment of the tax where the tax has been paid on time or from the valuation date where the tax has been paid late. Surcharge for Late Returns
- Filed within 2 months of due date 5% (maximum €12,695)
- Filed after 2 months of due date 10% (maximum €63,485)
Surcharge for Understatement
A surcharge applies to discourage understatement of asset values in self-assessment returns. The surcharge is:
(a) 10% if the declared market value was between 50% and 66% of the true value,
(b) 20% if the declared market value was between 40% and 49% of the true value,
(c) 30% if the declared market value was less than 39% of the true value.
Joint Account Limits
The amount that can be held in a joint account, which can be released to the survivor of a deceased person without prior Revenue approval, is €50,000
Records must be maintained for a period of 6 years commencing on the valuation date of the gift or inheritance.
Solicitors are liable for the CAT of beneficiaries in cases of probate on which they act.