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 reliefs that depend on the type of the gift or inheritance.
If you receive a gift or inheritance from your spouse or civil partner, 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.
Budget 2020: The Group A tax-free threshold, which applies primarily to gifts and inheritances from parents to their children, will increase from €320,000 to €335,000. This increase applies to gifts or inheritances received on or after the 9 October 2019. There is no change to Group B or Group C tax-free thresholds.
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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 they do 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 they 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
- 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 their grandparent Group A may apply if the grandchild's parent is deceased.
Group A may apply to a nephew or niece if they have 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 or civil partner, you can be assessed with the same group as your spouse or civil partner would have been if they were receiving the benefit from their relation. For example, if you receive a benefit from the father of your spouse or civil partner, the group threshold would be Group C. But if you receive a benefit from the father of your spouse or civil partner and your spouse or civil partner 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.
|Group A: €335,000||Applies where the beneficiary is a child (including adopted child, step-child and certain foster children) or minor child of a deceased child of the disponer. Parents also fall within this threshold where they take an inheritance of an absolute interest from a child.|
|Group B: €32,500||Applies where the beneficiary is a brother, sister, niece, nephew or lineal ancestor or lineal descendant of the disponer.|
|Group C: €16,250||Applies in all other cases.|
|2009 (up to 7 April 2009)||8 April 2009 to 31 December 2009||1 January 2010 to 7 December 2010||8 December 2010 to 6 December 2011||7 December 2011 to 5 December 2012||6 December 2012 to 13 October 2015||14 October 2015 to 11 October 2016||12 October 2016 to 9 October 2018||10 October 2018 to 9 October 2019|
ValuationThe valuation date is the date on which the market value of the property comprising the gift or 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 they die and this power ceases, the recipient then becomes taxable as inheriting the benefit. If the beneficiary had free use of the benefit before this, they will be taxed as receiving a gift of the value of the use of the property.
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. More information on the calculation of the value of a limited interest is explained on revenue.ie.
Capital Acquisitions Tax is charged at 33% on gifts or inheritances made on or after 5 December 2012 (the rate was formerly 30%). 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 since 9 October 2019: €335,000). So €215,000 is taxed at 33%.
The following are exempt from Capital Acquisitions Tax:
- Gifts or inheritances from a spouse or civil partner
- 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 (pdf)
- 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. However, if the employee 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.
- Reasonable support for the maintenance or education of a child or spouse or civil partner.
The first €3,000 of the total value of all gifts received from any one person in any calendar year is exempt. So, you could receive a gift from several people in the same calendar year and the first €3,000 from each person is exempt from CAT. This exemption 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 about the Dwelling House Exemption is available on Revenue's website and in Revenue's Operational Manual (pdf).
If a parent receives an inheritance from their child, and takes full and complete ownership of the inheritance, it is usually taxable under Group A. But it is exempt if, in the previous 5 years, the child took an inheritance or gift from either parent and it was not exempt from Capital Acquisitions Tax.
Payments that reduce the debt of a bankrupt or near-bankrupt are usually exempt (Section 82, Capital Acquisitions Tax Consolidation Act 2003).
Other exemptions relate to certain Irish Government securities or unit trusts where the beneficiary is non-resident.
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. More information on business relief can be found on revenue.ie.
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 on revenue.ie.
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.
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 6 years unless the sale is to a national institution by private treaty.
The relief can be clawed back if the conditions are not kept.
Making a return and paying Capital Acquisitions Tax
If you have received a gift or inheritance, then you are responsible for paying any Capital Acquisitions 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 of CAT.
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 is currently €32,500 and 80% of this is €26,000. Because the benefits you received exceed 80% of the tax-free threshold for Group B, you are required to make a tax return even though the total amount received is below the threshold.
Making your return online
Gift and inheritance tax returns must be made electronically using Revenue’s Online Service. Revenue provide a guide to filing your gift or inheritance tax return online.
There are some exceptions where a paper gift and inheritance tax return (Form IT38S) is available. It 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.
Pay and File dates for CAT
Taxable gifts or inheritances with a valuation date on or after 14 June 2010 have a fixed CAT pay 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 31 October.
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 31 October 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 31 October in the following year. If you pay and file your tax return online using the Revenue Online Service (ROS), you may be able to file your return slightly later.
If your inheritance has a valuation date of 21 February 2019, you must complete the tax return and pay the tax on or before 31 October 2019.
If your inheritance has a valuation date of 6 November 2019, you must complete the tax return and pay the tax on or before 31 October 2020. However, if you pay and file online through ROS this deadline is extended to 12 November 2020.
There is a surcharge for late pay and file of CAT. 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.
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.
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 provide a guide to completing the Self Assessment Return (Form IT 38). If the tax is not paid within 4 months, interest is charged.