How Much Inheritance Tax will I have to pay?

In Ireland inheritance tax is currently 33%. This means that a beneficiary (person receiving a gift by Will) will pay 33% tax on the benefit (after the tax free threshold). Inheritance tax is only payable if the benefit received is higher than the threshold currently allowed for each type of beneficiary, so what does this mean? There are 3 Threshold groups; A, B and C.

Threshold Group A

Group A includes children of the deceased. At present a child can inherit the sum of €335,000 tax free. Anything over this amount will be subject to tax at 33%. Previous gifts in the same group will be considered when calculating the tax-free threshold available. Therefore, if you have received a previous benefit from your mother or father that benefit will be added to the current benefit for tax purposes.

Tax free threshold in relation to a gift from parent to child stands currently at €335,000 (as of 2022). This is the maximum amount that as a child you can inherit from your parents without having to pay tax i.e., aggregable benefit (a prior gift is aggregable if it was received on/after 5^th December 1991).

Case Study Example: John inherited the sum of €200,000 from his mother 5 years ago. He had received no prior benefits under this Group and therefore this benefit would not be subject to tax. This left John with a remaining tax-free threshold under Group A of €135,000. John’s father has just passed away and he is due to receive the sum of €200,000 from his father’s estate. Therefore, John will receive €135,000 from his father’s estate tax free and pay 33% on the sum of €65,000 i.e., €21,450 will be payable in CAT.

Threshold Group B

The second threshold is Group B which includes: Brothers, Sisters, Nieces, Nephews, Grandchildren and Other lineal descendants. The tax-free threshold for Group B currently stands at €32,500.  So again, this means that if a person under this group receives a benefit of more than this threshold, the amount over and above €32,500 will be subject to tax at 33%. Again, this group takes into consideration any previous benefits received under this Group i.e., any previous gifts from a brother, sister, niece, nephew etc

Threshold Group C

Group C covers anyone that does not fall within Group A or B i.e. this would include cousins, in-laws and friends. The tax-free threshold for Group C currently stands at €16,250.

Children and Grandchildren of Deceased

It is not always straightforward ascertaining which group a beneficiary belongs to. Children referred to in Group A will include stepchildren, adopted children and foster children (provided certain criteria is met). The child of a Civil Partner is also included under the umbrella of Group A. Group A also encompasses children of a pre-deceased child where such child is under the age of 18.

If a parent has left a benefit to one of their children, and this child dies before the parent does, the child of the predeceased child i.e., the grandchild, will inherit under Group A if they are under the age of 18. If they have already reached the age of majority, then they will be taxed under Group B. Parents of a deceased child will also fall under Group A. where a child dies leaving a house or other benefit to their parents then the parents will be taxed under Group A. this generally happens in an intestate situation where a child dies unexpectedly, is not married, and has no children.

What Tax Reliefs and Exemptions are available?

Small Gift Exemption

There is a tax exemption available in Ireland for gifts of up to €3000. This gift can be taken from any person, regardless of the relationship. This small gift is available on a annual basis. This exemption is not considered when dealing with an inheritance but will be looked at where a gift becomes an inheritance. Gifts of up to €3000 can be taken from numerous people in any given calendar year and will not be subject to tax.

Dwelling House Relief

This relief allows a beneficiary to inherit a property tax free if all qualifying criteria are met. This relief applies where a beneficiary (person benefitting under a Will) has been in continuous occupation of the dwelling house as his/her only or main residence for a period of 3 years prior to the benefit. The beneficiary must not be beneficially entitled to an interest in any other dwellinghouse at the date of benefit.

Agricultural Relief

Depending on the particular facts of each case when a beneficiary receives a gift or inheritance of a farm this relief can reduce the market value of the qualifying assets by 90%. Certain conditions must be met to qualify for this relief. The property must be agricultural property and the beneficiary must a farmer that has worked the land for 6 years prior to the benefit.

Business Relief

Where a beneficiary receives a gift or inheritance of a relevant business property, they may be entitled to this relief which reduces the value of the benefit received by 90%. Certain conditions must be met to avail of this relief. The property must consist of a business or shares in a business. The relevant business must be owned by the disponer for a period of 5 years in the case of a gift and 2 years in the case of an inheritance.

Favourite Niece or Nephew Relief

This relief allows for nieces or nephews to be treated as a child of the disponer where certain conditions are satisfied. Where this relief applies it means that a nieces or nephew will be moved from Group B up to Group A for tax purposes. This relief applies where:

• The niece or nephew has worked substantially on a full-time basis for the disponer for a period of 5 years before the date of the benefit.
• In carrying on the trade, business, or profession of the disponer, and the benefit consists of property which was used in connection with the business or:
• In carrying on or assisting in the trade, business or profession of a private trading company controlled by the disponer and the benefit consists of shares in that company.

This benefit only applies in respect of the business assets or shares. If the niece or nephew is given a benefit that consists of both business and non-business assets, two separate thresholds will be available i.e., Group A for business assets and Group B for non-business assets.

The above list is an extremely brief outline, and it is advisable that you obtain the services of a tax advisor if you believe you are entitled to any of these.

When do I have to pay Capital Gains Tax?

Capital Gains Tax (CGT) is the taxation of a gain which is made on the disposal of an asset i.e., where an asset is sold for more than the original cost. Although we have outlined Capital Acquisition Tax (CAT) above i.e., inheritance tax, a Personal representative may find themselves in a position where Capital Gains Tax is also payable on a particular asset of an estate. All assets contained in the estate of a deceased are valued at the date of death. If between the date of death and the date of disposal of the asset the value of the asset has increased then there will be CGT payable on the increased value i.e., the gain.

Example Scenario

Alison buys shares for €12,000, which at the date of her death were worth €20,000. The shares have been left by Will to Karen. If, when the shares are transferred to Karen they are still worth €20,000 and no more, then there will be no CGT payable. If, however, when the shares are transferred to Karen they are now worth €25,000 then there is a gain of €5,000 from the date of death up to the date of distribution of the asset and in this case CGT would be payable on the gain of €5,000.

How to get a Tax Clearance Certificate from Revenue

The deceased’s Revenue office should be notified of the date of death of the deceased as soon as possible and given the contact information for the Personal Representative or their solicitor so that all correspondence can be addressed accordingly during the administration of the estate.

It is the duty of the Personal Representative to ensure that the tax affairs of the deceased are in order. All outstanding income tax of the deceased must be established and paid. until this step is taken the Personal Representative should not distribute the estate. Until very recently the procedure was to file the CA24 or the SA2 with Revenue seeking a tax clearance certificate. Revenue have now set out a new procedure that must be followed by the Personal Representative to obtain a certificate of tax clearance.

If the deceased was self-employed, it is easier to have their accountant deal with any outstanding tax liabilities If the deceased was an employee, then the employer should be asked to send a P45 to Revenue so that they can deal with the deceased’s tax affairs. Before submitting a clearance request it is necessary to ensure you have the full value of the estate. Once all relevant information has been obtained the request can be sent to Revenue and they then have 35 days to respond letting you know if all the tax affairs are in order or if they require anything further.

If it transpires that there are assets that were not included in the initial application to the Probate Office and the SA2 then it will be necessary to amend the SA2 and request clearance again from Revenue. This has the effect of starting the 35-day timeframe again. If Revenue do not respond within the 35 days then the Personal Representative is free to distribute the estate.

Related Pages

All you Need to Know About Making a Will >

What is Probate and How does it Work? >

Steps you need to take when a Loved One Dies >

What to do if a loved one dies >