In Ireland, gifting money to your loved ones is pretty easy, but it’s important to bear in mind that some gifts might be taxable.
Irish gift tax or inheritance tax is called Capital Acquisitions Tax or CAT and is payable by the person who is receiving the gift. When you receive a gift, you may have to pay gift tax on it. Also, if you receive an inheritance when someone from your family dies, you may be liable to inheritance tax. Both are considered types of Capital Acquisitions.
How does it work?
The gift that you receive is only taxed if the value is over a certain limit or threshold. You should know that different tax-free thresholds apply and they depend on the relationship between the person giving and the one receiving the gift. There are also exemptions and reliefs that can prevent you from paying gift tax. For instance, if you receive a gift or inheritance from your legal spouse, you are exempt from Capital Acquisitions Tax.
Where does it apply?
Gif tax is applicable to all property that is located in Ireland. Also, when the property gifted is not in Ireland but either the person receiving or giving the gift are tax residents in Ireland.
To a certain amount, a gift can be received tax-free. This amount depends on your relationship with the person giving you the gift. 3 different categories exist to distinguish the type of relationship you have with the person. Each category has a threshold that applies to the total benefits/gifts you have received in that category.
Gift tax group thresholds
Group A applies where the beneficiary is a child of the person giving the gift. This can also include a stepchild or an adopted child. Equally, a foster child can be a part of this group under specific conditions.
Group A also includes parents who take an inheritance from their child but only where the parent takes full and complete ownership of the inheritance. Indeed, 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.
It’s important to know that when a parent inherits from their child, and have full and complete ownership of the inheritance, they are exempt from tax. And this, only if in the last five years, the child took a gift from either parent and it was not exempt from CAT. 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 (if not eligible for exemption)
- Nephew or niece
- Grandchild or great-grandchild of the giver
When a grandchild is under the age of 18 and takes a gift from their grandparent, Group A may apply if the grandchild’s parent passed away.
Group C applies to any relationship not included in Group A or B.
If you receive a gift or inheritance from your deceased spouse or civil partner, you can be included in 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 an inheritance from the mother of your spouse, the group threshold would be Group C. But if you receive a benefit from the mother 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.
The date on which the market value of the property that’s being gifted is set, is called the valuation date. When it’s a gift, the valuation gift is usually the date of the gift.
However, when it’s an inheritance, the valuation date is usually 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
How am I taxed?
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 some deductions.
Indeed, 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 include funeral expenses or debts owed by the deceased for instance. For a gift, they could include legal costs or stamp duty.
How much tax will I pay?
Knowing how much you will pay in taxes when you receive a gift is essential. Capital Acquisitions Tax is charged at 33% on gifts or inheritances made on or after 5 December 2012. This only applies to amounts over the group threshold. It means that 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. So €215,000 is taxed at 33%.
Exemptions from CAT
- 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
- Benefits taken from a charity
- Winnings from a lottery, sweepstake, game, or betting
- Retirement benefits and pension benefits 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 able to control the company.
- Reasonable support for the maintenance or education of a child or spouse or civil partner.
You should know that the first €3,000 of the total value of all gifts received from anyone is exempt from CAT. 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. However, this exemption does not apply to inheritances, only to gifts.
Learn more about inheritance tax here.
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