THE RULES OF IN­HER­I­TANCE TAX

Wicklow People (West Edition) - - NEWS - with Der­mot Byrne

THE par­ent to child ex­emp­tion is now €310,000 with gifts since De­cem­ber 1, 1999, ag­gre­gated and taken into ac­count. Ben­e­fits from an un­cle or aunt or other close rel­a­tives are given an ex­emp­tion of €32,500 and ben­e­fits from non-rel­a­tives are ex­empt up to €16,250.

The rate of tax is 33 per cent and the ex­empt thresh­old is that pre­vail­ing at the date of death.

Usu­ally, the ben­e­fi­cia­ries of a de­ceased per­son have a choice of the ef­fec­tive date of their in­her­i­tance which can be im­por­tant to avoid sur­charges and in­ter­est on late pay­ment of the tax. This date is called the val­u­a­tion date and it can be ei­ther the date of death or the date of Grant of Pro­bate. It is only when the Grant of Pro­bate is­sues that the ben­e­fi­cia­ries can treat their en­ti­tle­ments un­der the will of the de­ceased as their own. In a com­pli­cated es­tate, the Grant of Pro­bate may not is­sue for two or three years.

There are a num­ber of re­liefs from tax, of which the best known is agri­cul­tural re­lief. The value of farm as­sets can be re­duced by 90 per cent in or­der to ar­rive at the tax­able value. In or­der to do so, 80 per cent of the re­cip­i­ent’s as­sets must be in agri­cul­tural prop­erty at the val­u­a­tion date. If one were in doubt of meet­ing the test, the re­cip­i­ent could, be­tween the date of death and the date of Grant of Pro­bate, re­place non-agri­cul­tural as­sets such as cash with land, stock and ma­chin­ery.

A sim­i­lar dis­count of 90 per cent from mar­ket value is avail­able for busi­ness as­sets un­der busi­ness re­lief. This cov­ers most busi­ness ac­tiv­i­ties as the term busi­ness is widely de­fined. It does not cover the let­ting of res­i­den­tial prop­erty but does cover farm­ing and forestry where the ben­e­fi­cia­ries of th­ese as­sets does not qual­ify for agri­cul­tural re­lief due to be­ing un­able to meet the 80 per cent test of own­er­ship of such as­sets.

The next most com­mon re­lief is known as dwelling­house re­lief. It has been tight­ened up as it was be­ing abused. If a ben­e­fi­ciary had lived with the de­ceased in a dwelling­house for at least three years to the date of de­ceased’s death and the ben­e­fi­ciary of that house does not own an­other house, then the in­her­i­tance is ex­empt from tax. If the de­ceased had to leave the house for health rea­sons in their fi­nal three years, this is ig­nored.

The dwelling­house ex­emp­tion is also avail­able for the life­time gift of a house to a de­pen­dent rel­a­tive of the donor. The re­cip­i­ent must be per­ma­nently and to­tally in­ca­pac­i­tated or else aged over 65 years. Here, the donor does not need to live in the house as their pri­vate res­i­dence. As an ex­am­ple, if a par­ent pur­chased a house for a dis­abled child, it would be an ex­empt trans­ac­tion.

Life As­sur­ance Poli­cies held by the in­sured per­son can be used by the ben­e­fi­cia­ries to pay in­her­i­tance tax and will not be part of the es­tate of the de­ceased. They are gen­er­ally re­ferred to as Sec­tion 60 poli­cies.

Note that the In­her­i­tance Tax cov­ers ben­e­fits on death and gift tax refers to life­time ben­e­fits. Both el­e­ments are col­lec­tively called Cap­i­tal Ac­qui­si­tions Tax. The rates of tax and the ex­empt thresh­olds are iden­ti­cal with gifts and in­her­i­tances be­ing ag­gre­gated to es­tab­lish if a re­cip­i­ent is over the ex­empt thresh­old, i.e. €310,000 par­ent to child.

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