How does gift and inheritance tax work?
If you receive a gift or inheritance you may have to pay tax on it. Here’s a closer look at how gifts and inheritance are taxed in Ireland.
What is gift and inheritance tax?
Gift and Inheritance tax, also known as Capital Acquisitions Tax (CAT) may be due on assets you receive from a person’s estate when they die.
Estates typically consist of assets like money, shares, property and possessions. The amount of tax you must pay depends on the value of the estate and the current CAT rate.
CAT is due on all inheritances over certain thresholds. The tax-free threshold depends on your relationship to the deceased person.
What is the current inheritance tax rate?
CAT is currently set at 33% and has remained the same since 2012.
You can check previous capital acquisitions rates online at Revenue.ie.
How much can you inherit before tax?
There are three group thresholds, based on the relationship between the beneficiary and the disponer. These are:
| Threshold group | Tax free allowance | Who it includes |
|---|---|---|
| Group A | €400,000 | A son or daughter of the person giving the gift or inheritance |
| Group B | €40,000 | Other relatives, including parents, brothers, sisters, nieces, nephews. Also includes other direct descendants e.g. grandchildren. |
| Group C | €20,000 | Everyone else |
These thresholds apply to all gifts and inheritances you receive in each group.
Lifetime Inheritance Tax Thresholds
You pay inheritance tax on the total of all the gifts or inheritances that you have received throughout your lifetime. So, if you’ve previously had an inheritance, this will go towards your group allowance.
Here’s an example:
Jane received a gift from her uncle in 2015 worth €22,500, leaving her with €17,500 of her Group B allowance. When she received an inheritance from her sister in 2019 worth €25,000, she would only have to pay CAT on €7,500, after using up what’s left of her Group B allowance.
What is the disponer and benificiary?
The disponer is the person who gives you the gift or inheritance. The person who receives the gift or inheritance is known as the beneficiary.
In Ireland, the beneficiary is responsible for paying tax on the gift or inheritance.
What do you have to pay inheritance tax on?
You could have to pay tax on the following:
- Cash
- Property or land
- Stocks and shares
- Jewellery
- A vehicle
You may also have to pay CAT if you are given an interest-free loan or free use of a property for life.
Are there any exemptions?
You don’t need to pay CAT on gifts worth under €3,000 - this is called a Small Gift Exemption.
However, the Small Gift Exemption doesn’t apply if the disponer gives you a gift and then passes away within two years because it’s then seen as an inheritance.
As well as the Small Gift Exemption several types of gifts and inheritances are exempt from CAT entirely; these include:
You also get an allowance for gifts and inheritance from certain relatives and family members. You won’t have anything to pay if this is below the threshold.
You can check the full list of exemptions and explanations on the Revenue.ie website.
What are powers of revocation?
This is where someone gives a gift of property but reserves the right to take it back at any time. In these circumstances, CAT isn’t due.
However, if you are given property under these terms CAT will become payable if the person giving the gift:
- Gives up the right to take it back
- Passes away and the gift becomes an inheritance.
You can find out more about powers of revocation on the Revenue.ie website.
How and when to pay inheritance tax
If you think you need to pay gift and inheritance tax you’ll need to complete a IT38 form or file a tax return online at Revenue.ie.
The deadline for any money you owe will depend on the valuation date of your gift or inheritance:
- If it’s between 1st January and 31st August you will need to pay by 31st October that year
- If it’s between 1st September and 31st December you’ll need to pay by 31st October the following year
If you’re registered for the Revenue Online Service, you can choose to pay by either:
- Single Debit Instruction
- Credit or Debit card
If you don’t live in Ireland then you will need to pay by Electronic Funds Transfer. You can find out more about how to pay your CAT online on the Revenue.ie website.
If you’re late paying there could be extra charges to pay and interest added to what you owe.
Gift and inheritance tax FAQs
Are farms exempt from inheritance tax?
No, but farms and other agricultural property can benefit from additional CAT relief depending on your circumstances. If you qualify, any land will be assessed at 10% of its value for CAT purposes which could significantly reduce what you have to pay. You can find out more on the Revenue.ie website.
How does favourite nephew relief work?
Favourite Nephew or Niece Relief allows your niece or nephew to be treated as your “child” for tax purposes. To qualify they must have worked for you for at least 5 years before the gift or inheritance is made. You can find out more about this relief on the Revenue.ie website.
What is a disclaimer of benefit?
This is where you are given a gift or inheritance and choose not to keep it. In these cases CAT isn’t due but the gift or inheritance must be returned. You can find out more about disclaiming on the Revenue.ie website.
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