BY JOHN ELLIS, FINANCIAL ADVISOR
The Budget introduced changes to the Capital Acquisitions Tax (CAT) thresholds, marking the first major adjustments in five years. CAT is a tax on gifts and inheritances that many individuals will face on receipt, now exacerbated by the rising property values across Ireland.
Thresholds were increased across the three major groups used to determine the tax-free amount a beneficiary can receive and is determined on their relationship to the person providing the gift or inheritance:
Group A: Includes children, stepchildren, adopted children, and certain foster children. The threshold has been increased from €335,000 to €400,000.
Group B: Includes siblings, nieces, nephews, grandchildren, and other lineal descendants. The threshold rises from €32,500 to €40,000.
Group C: Covers all other individuals, such as cousins, uncles, and aunts. The threshold goes from €16,250 to €20,000.
Any inheritance or gift amount over these thresholds is taxed at a rate of 33%.
Minister for Finance Jack Chambers [pictured acknowledged that: “These changes reflect the reality of increased property values, particularly in family estates, and are a move to alleviate some of the pressures faced by those inheriting property’”
The changes have been widely welcomed. Kate Russell, a solicitor in the Property and Probate Department of Comyn Kelleher Tobin, said: “Estate planning is highly personal and often complex. With the new thresholds, it is more important than ever to seek professional advice to ensure assets are distributed according to your wishes while minimising the tax burden for beneficiaries.”
Alison McHugh, EY Ireland’s Head of Private Client Services, echoed these sentiments. “The increase in the Group A threshold for family transfers to €400,000 will be especially welcomed. The changes to Group B and Group C thresholds are long overdue, and their increases provide much-needed relief,” she said.
In tandem with the increased thresholds, there are other exemptions that can further reduce or eliminate the tax burden. For instance, gifts or inheritances from spouses or civil partners still remain fully exempt from CAT. Additionally, under the Small Gifts Exemption, individuals can receive up to €3,000 a year from any person without triggering tax liabilities.
The introduction of a six-year “active farmer” test for those availing of agricultural relief also offers extra reductions on CAT for agricultural property, but the donor must now meet specific criteria to qualify.
Should you receive a gift or inheritance its important to know when the tax deadline for payment, as all gifts and inheritances with a valuation date in the 12-month period ending on August 31 must be paid and filed by October 31 of that year. That means that if you inherit between January and August, you must pay by October 31 of the same year. But if you inherit between September and December, you will not have to pay the inheritance tax bill until October 31 in the following year.
If you receive a gift or inheritance, you are responsible for paying any Capital Acquisitions Tax. 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.
If you do not file a tax return and pay the tax by October 31 there is a late filing charge. This is 5% if you delay two months or less and 10% after that with late-payment interest charges of 0.0219% a day will also apply – equivalent to 8% a year)
Estate planning continues to be a complex and highly personal process, and beneficiaries and donors alike must stay informed about thresholds, exemptions, and relief policies to ensure they can effectively manage their tax liabilities. Professional advice is paramount to ensure that estate planning aligns with the new regulations while minimising financial burdens on families.
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