Ireland’s tough inheritance tax regime is a contentious topic – taxing the passing of wealth which has been accumulated by individuals for a second time, as income earned is subject to income tax.  Capital acquisitions tax (CAT) can erode as much as one third of this transfer of this wealth from person to person.  Previously there was a belief that parents who supported their children though gifting money as being a tax exempt amount.  However a recent clamp down by Revenue on inheritance tax has meant people are becoming more aware of what is and is not allowable.

Currently parents can support a child under the age of 18 without falling within the charge to CAT; while children under the age of 25 and in full time education can also avail of this exemption.  The biggest impact is where parents wish to support their children who are over 25 and returning to education and they wish to pay for college bills, contribute towards a housing deposit or allow them to live rent free in the family’s second home – all of which can lead to a child falling within the charge to CAT or reducing their lifetime threshold.  

Currently children are entitled to inherit a life time amount of €280,000 and payments such as the above can reduce this amount over time.  There is an annual exemption of €3,000 which entitles any individual to receive this amount from another person tax free.  In this way a child can receive €6,000 per annum tax free (€3,000 from both their mother and father).  This is a useful tax planning method and can vastly reduce an individual’s CAT liability if used over time.

This can be especially important to not reduce your lifetime threshold amount of €280,000 when inheriting property, as this threshold is inadequate in many situations.  Although there are specific reliefs in relation to the inheritance of farms and businesses, with property prices beginning to recover, more tax planning will be necessary in order to reduce an individual’s CAT liability or property inherited by individuals will have to be sold immediately in order to cover the inheritance tax due alone.

By Jamie Fortune