There is n annual exemption of €3,000 for gifts taken by any recipient from any disponer in any year. It applies to each calendar year. The relief is available as an exemption where the amount of the gift exceeds €3,000. Therefore, if €6,000 given, first €3,000 is deducted. The exemption is per disponer.
A gift or inheritance taken for public or charitable purposes is exempt. It is not taken into account for the purpose of calculation of the tax.
A charitable gift is one for a charitable or public purposes. See the chapters on charities and charitable purposes. Public purposes are wider than charitable purposes. Charitable purposes themselves encompass the benefit of the public or a class of the public. Howver, non-charitable public purpose gifts may be also exempted.
There is a complete exemption for gifts or inheritances between spouses and civil partners. This has not always existed. When the CAT was first introduced, spouses were in the equivalent of Group A. As of 30th January 1985, all inheritances are exempted. As of 31st January 1990, all gifts are exempted.
Transfers between former spouses after divorce, pursuant to divorce orders are subject to a separate specific exemption. The exemptions is limited to orders of tranfer in judicial separation or divorce.
Maintenance and Support
There is an exemption in respect of normal and reasonable payments made by an individual for the support, maintenance and education of his children and certain dependant relatives.The exemption applies to the receipt of money or the equivalent by a child and a person, in relation to whom the provider of the benefit stands in loco parentis. The benefits must be normal expenditure of a person in the circumstances of the disponer and reasonable having regard to his financial circumstances.
The exemption also covers dependant relatives of persons with total annual income less than a maximum annual old age social welfare pension for a single person who is maintained at the disponer’s expense. The person must be a relative who is incapacitated by old age or infirmity for maintaining himself, a widowed mother or father of the disponer or a spouse, or a child of the disponer who lives with the disponer, and on whose service the disponer depends because of old age or incapacity.
The exemption applies to children without any age restriction and the test in relation to what is normal and reasonable is determined by the circumstances of the disponer. The amendment to section 82(2) is intended to ensure that the exemption is confined to payments made to minor children and to children under the age of 25 years who are in full-time education.
Section 82(4) provides a similar exemption for normal and reasonable payments made to an orphaned minor child or to an orphaned minor child of a civil partner for support, maintenance or education, after the death of their parents, from a trust set up by the parents during their lifetime. The amendment extends the exemption
to orphaned children up to the age of 25 years who are in full-time education and ensures that children of living parents and orphaned children are treated equally for Capital Acquisitions Tax purposes.
There is an exemption for certain incapacitated persons. A qualifying trust must meet certain conditions. It must be established for the benefit of one or more incapacitated persons, for whose benefit public subscriptions have been raised. The trust funds must be applied for the benefit of that individual, and in the event of that individual’s death, the undistributed parts must be applied for charitable purposes and none of the trustees must be connected with the individuals.
Receipts by a minor child, provided by a diseased parent for his maintenance, education at a time when both parents are dead, are exempted by the provisions support and maintenance, will be part of the normal expenditure of a person in the circumstances and is reasonable having regard to the financial circumstances of the disponer immediately prior to death.
There is an exemption on gifts or inheritances of objects of national, scientific, historic or artistic interest. The exemption is subject to conditions. A claim must be made to Revenue. The objects concerned must be kept in the state except for temporary approved absences. Reasonable facilities for viewing must be available to members of the public or recognized bodies and associations. The reasonable facilities must be specified in the application.
The exemption is not available for objects used for the purpose of a business.
If the items are sold within six years, within and before the date of the benefit, the exemption will cease. There are exemptions for sales to the National Gallery, Commission of Public Works, universities, local authorities and certain other bodies.
There are ongoing conditions for the exemption. The exemption ceases if at any time before a certain specified events, there is a breach of any of the conditions. There is no time limit applying to this clawback.
If the exemption ceases to apply, the tax is reassessed.
The exemption also applies to certain houses and gardens. They must be situated in the State, not used for a business, and it must be shown to the Revenue on application that the house or garden is of national, scientific, historic or artistic interest. Reasonable facilities for viewing must be allowed to the public for a period of three years prior to the gift or inheritance. This is different to the position in relation to objects. The exemption does not apply if the property is sold within six years other than to the above-mentioned specific bodies.
Reasonable facilities must be allowed to the members of the public for viewing after the gift or inheritances as well as before it. There is no time limit on the condition.
re are certain published conditions in relation to what constitutes reasonable viewing facilities. Essentially, the house or gardens must be open to the public for at least 60 days including 40 days during between May and October, of which not less than 10 of the days must be on a Saturday or Sunday or both. The premises must be open for at least four hours. Access to the whole or a substantial part of the house or garden is required. The price paid, if only for access, is to be reasonable in amount. Other prescribed conditions apply.
There is exemption for a gift of inheritance which consists of shares in a private company which at the date of the inheritance and the valuation day derives its market value from relevant heritage properties. The heritage property must be owned by the company or by a subsidiary which held heritage property as of 1995. Where the condition applies, the shares are exempted from CAT to the extent that their value derives from heritage properties. There is provision for clawback and relief if the shares are sold within six years. The relief is also lost if the heritage property is sold by the company within six years. Furthermore, if at any time there is a breach of condition the exemption is withdrawn.
The Finance Act 2012 provided for a clawback of the exemption from CAT granted in respect of certain heritage objects where they are sold within 6 years of the valuation date. The clawback does not apply, however, where the relevant objects are sold by private treaty to certain State institutions. The amendment adds cultural institutions funded by grant or grant-in-aid or funded directly by the Department of Arts,Heritage and the Gaeltacht to the list of bodies mentioned.
There is an exemption where a parent takes an inheritance from a child on that child’s death, if that child had taken a gift or inheritance from one or both parents within the preceding five years. The latter gift must have been taxable so that exempt gifts are not covered. An exempt gift would exclude payments for support and maintenance as well as gifts below the €3,000 threshold. There is no requirement that the two gifts or inheritances be equal.
Bona fide payments to an employee or former employee out of funds provided by the employee or certain others by way of retirement benefit, redundancy payment or pension are not deemed inheritances. Benefits taken by widowed or widowers are exempt or if taken by other dependents will have the same threshold of the relationship between the beneficiary and the employee.
The exemption is disapplied where the payments are excessive and the employee is a relative of the employer or the provider of the benefits, or if the employer is a private company controlled or deemed to be controlled by the employee. In that latter instance, if the payments are made to a superannuation scheme, retirement scheme or redundancy scheme approved by the Revenue Commissioners, the payments are gifts or inheritances to the extent they are deemed excessive by the Revenue Commissioners.
Where a gift or inheritance is taken by a person other than the employee under a superannuation scheme, it is deemed taken from the employee as provider of the benefits. The normal CAT rules apply.
Generally, Irish situated assets are taxed in Ireland irrespective of the residence or domicile of the disponer or recipient.
Certain government issued securities are exempt. Conditions apply. The exemption applies to debt securities, shares or their equivalent. The relevant legislation exempts the recipient, if the beneficial owner is a person who is neither domiciled or ordinarily resident in the state.
There is a condition that the security or units are for a period of 15 years before the gift or inheritance, and that the recipient is neither domiciled or ordinarily resident in the state. Formerly shorter periods apply.
If the disponer is neither domiciled or ordinarily resident in the state at the time of the disposition the 15-year-rule does not apply.
Where a person receives an annuity which is not charged on a specific property it is deemed to be charged on a specified government security which would yield this return.
There is an exemption for compensation and damages for injuries and wrongs. It applies to injury to a person’s property, reputation or bodily injury.
There is an exemption for bona fide winnings from betting, lottery sweepstakes and games and prizes. The exemption is only available to bona fide winnings.
There are exemptions, on contributions towards a composition or arrangement by a person in or subject to bankruptcy, where contributions are made by friends or relatives of the debtor to enable a composition be made. There is an exemption in relation to the payment itself and any remission of debts by the creditor.
A gift or inheritance cannot arise where the benefit is provided by the recipient.
Companies other than public companies are looked through to for the purpose of Inheritance and Gift Tax. A disposition made by a private company or received by a private company is deemed to be made or taken respectively by the shareholders in the company.
Certain insurance policies issued by financial services companies are deemed exempt from CAT. Otherwise, they would be taxable in the hands of third parties with no other connection to Ireland. An interest in such a policy, is exempt provided the interest, the disponer and the donees are neither domiciled or ordinarily resident in the state.
Gifts or inheritances taken to discharge qualifying expenses of a permanently incapacitated individual are exempt. Qualifying expenses are those relating to medical care including the cost of maintenance in connection with the care. The Revenue must be satisfied, that the benefit is applied for such purpose.
See the section on pensions in relation to approved retirement funds and approved minimum retirement funds. They are each deemed assets of the pensioner. They pass on his death to his beneficiaries.
If the fund passes on the death of the pensioner to another ARF set up with the benefit of his or her spouse, no income tax charge applies and the normal CAT exemption is available.
If the fund passes to a child aged 21 years or older, a standard rate income tax charge applies but not CAT applies. If the fund passes to children under 21 years, CAT applies to them. If the benefit was to pass directly to a spouse and not an ARF, an immediate income tax liability would arise for the spouse.
The transfer of the ARF fund for the benefit of a child under 21, is exempt from income tax. CAT applies.
In the case of receipt of by a child over 21, of funds in the ARF directly, there is no CAT charge . However, a flat 20 percent standard rate income tax charge applies. In the event of transfers from the ARF other than to a spouse or children, income tax liability at the marginal rate of the recipient applies. A CAT charge would also apply.
Transfer of funds to a child under 21, after the death of spouse, is exempt from Income Tax but subject to CAT. The receipt by a child over 21 years of ARF assets following the spouse’s death, is subject to standard rate income tax.
The transfer on death of an ARF set up for the pension through a spouse to an individual who is not a child, is subject to an income tax charge at the standard rate. The individual would also be subject to CAT.
Finance Act 2017
Finance Act 2017 extends the exemption in Finance Act 2016 in respect of inheritances from retirement annuity contracts and personal retirement savings accounts which are deemed to vest on the owner’s 75th birthday.
Dwelling house exemption:
There is an exemption for an inheritance or gift of a dwelling house, which is the person’s only or main residence for the two years prior to the date of gift or inheritance. The premises must be a dwelling house, together with land suitable for use as a dwelling house, up to an acre surrounding it.
In the case of a gift, it must be owned during the two-year period by the disponer, in the case of gifts after February 2007. Periods during which, the property was not the disponer’s only or main residence, are not treated as a period of occupation by the beneficiary for the two year occupation test.
The beneficiary must not at the date of the gift, be a beneficiary entitled to any other dwelling house or interest in any dwelling house. This applies to worldwide property.
The beneficiary must continue to occupy the dwelling house or replacement as his only, or main residence for a period of six years after the gift or inheritance. If the property is sold within six years, the exemption is withdrawn unless the proceeds are reinvested in another dwelling house or other relief applies.
The test of what constitutes a dwelling house is similar to that applicable in relation to the capital gains tax principal private residence relief.
The person must have continuously occupied the dwellinghouse as his only or main residence during the two years prior to the gift or inheritance. Where the dwelling house directly or indirectly replaces another property this condition is satisfied, provided, the dwelling house and the other property were occupied by the beneficiary as his only or main dwelling house for three out of four years immediately prior to the gift or inheritance.
In the case of gifts, any period during which the property was the disponer’s only or main residence, is not counted towards the three years that a donee must have to qualify for the exemption. This does not apply, where the disponer is compelled to depend on the services of the donee by reason of old age or infirmity. In addition, the property or the property of a place must together be owned by the disponer during the relevant three year period.
In effect, the disponer’s family home may not be gifted during his lifetime but may be granted on death.
The beneficiary must not be entitled to a beneficial interest in any other dwelling house. This includes foreign property. It also includes any interest whatsoever. The exclusion only applies to an interest in another dwelling house. If the child has an interest in the dwelling house concerned, this does not apply. This facilitates a purchase by a parent to a party interested in the property for the subsequent gift or inheritance of the remainder or the further interest of the property.
There is a clawback, if the person fails to comply with subsequent conditions. The beneficiary must occupy the dwelling house as his or only main residence for the period of six years. Person may dispose off the dwelling house and reinvest. Where the property or the proceeds of the disposal are reinvested in another property, and the property or the replacement property are occupied for six of the seven years, the clawback does not apply.
The whole funds must be reinstated or there would be a partial clawback. The clawback provision does not apply where the condition is based due to the:
Death of the beneficiary
Where the beneficiary is over 55, where the sale is necessary as a consequence of the beneficiary requiring long-term medical care in a hospital, nursing home or convalescent home.
Finance Act 2016 Revisions
Finance Act 2016 changed completely revised the terms of the dwellinghouse exception. It removes it almost entirely in the case of lifetime gifts.
The restated exemption continues to be stand alone and is does not erode all or part of a class threshold as a current or prior gift. It does not apply to gifts which become inheritances by reason of death within two years. It applies only to inheritances to the dependent relatives.
The dwelling house relief is limited to the property and its curtilage up to 1 acre. A qualifying dwelling house is one used by the disponer as his only or main residence at the date of death. If he did not reside there due to mental or physical infirmity, this period may be deemed a period of occupation.
The successor must occupy the property as his main or only residence for three years at the date of inherence. Where the house replaced another dwelling that was the successor’s only or main residence, it suffices that the beneficiary resided there during a period of three of the four years for the purpose of computation of the period of residence. Non-occupation due to mental or physical infirmity may be deemed period of occupation for this purpose.
The successor must have no beneficial or other interest in other dwelling house at the date of inheritance. He or she must retain own and occupy the dwelling for six years after the date of inheritance. Otherwise a clawback will apply.If the house or apartment is sold during this period and the entire proceeds are reinvested in another house, no clawback applies.
The period of ownership above may be combined provided that the total periods of ownership and occupation amount to six of the seven years after the date of inheritance. If there is a partial reinvestment the clawback is reduced proportionately.
The requirement to occupy the dwelling house does not apply if the beneficiary is over 65 at the date of inheritance.
The clawback does not apply if the beneficiary moves out of the dwelling house by reason of mental or physical infirmity. This must be demonstrated by a certificate by a registered medical practitioner.
If the beneficiary’s absence is due to a condition of employment requiring him to work elsewhere in order to perform duties of employment both in Ireland and abroad, the clawback does not apply.
The exemption is now available only in respect of gifts to dependent relatives.
A dependent relatives is a person permanently and totally incapacitated by reason of mental or physical infirmity for maintaining themselves or a person over 65.
A relative in relation to a disponer or his the spouse or civil partner is a lineal ancestor, sibling, uncle or aunt, niece or nephew.
In this case the dependent relative need not have lived in the dwelling house prior to the gift.
The conditions are the dependent relative must have resided there for at least three years and the following six years. If he is obliged to move out due to mental or physical infirmity or condition of employment the condition does not apply.
Finance Act 2017 clarifies certain aspects of the dwelllinghouse exemption, provisions which were amended substantially in 2016. Liability to inheritance tax does not apply where the donor dies within 2 years of making a gift to a dependant relative.
In the case of gifts and inheritance, the property transferred to a dependent relative need not be a principal private residence of the disponer in order to qualify for the exemption.
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