Inheritance & Tax Planning
It shouldn’t be a surprise that Ireland has one of the highest inheritance tax rates in the world. Many families don’t plan adequately for passing assets to the next generation and this can be a very costly mistake for those left behind.
There are 3 main things you need to know about gift/inheritance tax, or to give it its proper name Capital Acquisitions Tax (CAT), and how it may affect your family:
The rates of Capital Acquisition Tax (CAT) and Capital Gains Tax (CGT) were increased massively in recent years – rising from 20% to the current 33% – that’s an increase of 65%! Note that where assets are transferred during your lifetime both CAT and CGT can apply, in addition to stamp duty. Where assets are transferred on death only CAT applies.
It’s not just the rate of tax that changed radically; the CAT tax free thresholds (i.e. the amount or value of assets you can transfer tax free) were also dramatically reduced. Today, the tax-free threshold for gifts/inheritances received by a child from his/her parents is just €280,000, down over 45% from the €542,544 it was in early 2009.
The combined impact of the increased rate and lower tax free thresholds is huge and is hitting hardest at smaller families – where there are fewer children to inherit.
For example: Assume a transfer of assets worth €500,000 from parent to child. In early 2009 this transaction would have had a nil CAT liability. Today the CAT payable would amount to €72,600 (i.e. €500,000 – €280,000 = €220,000 @ 33%) ! None of the other tax changes in recent years has had such a dramatic effect.
Notwithstanding the above changes, some generous reliefs from CGT and CAT still remain.
The CAT reliefs still available include business relief, agricultural relief and dwelling house relief. In respect of CGT retirement, relief is available in respect of the transfer of business assets. Certain conditions must be met in order to qualify for these reliefs and in many cases, with careful planning, substantial assets can still be transferred tax free.
Proactive tax planning can help ensure you make the most of these reliefs whilst they are still around.