My mother is the owner of a home in Ireland worth approximately €300,000, which according to her will, I am set to inherit. However, I’m curious to know if there’s a specific amount of time in which I’d be expected to pay the inheritance tax if she decided to bequeath it whilst she’s still alive.
My involvement with the property consists of frequent visits every 6 to 8 weeks and covering costs associated with insurance, property tax and general maintenance. I finance these charges as I have my sights set on retiring to the house in the future.
I suspect that my not being present in Ireland may complicate matters. Indeed, each country has its own set of regulations regarding gifts and inheritance taxes; for instance, in Ireland, the recipient bears taxation responsibility while in the UK, it’s the deceased’s estate which is taxable. Different nations have their distinct adaptations.
From this scenario, the good news is your already established commitment to the asset since you regularly finance substantial maintenance costs, making it less surprising that your mother wishes for you to inherit it.
Provided the limited details and confirmation of your intent to inhabit the property, I suggest I give you an overview of how an Irish tax resident would navigate the taxation process.
In Ireland, the tax obligation remains identical irrespective of whether the property is handed down now as a present or via a will upon death. Contrarily, unlike the UK’s seven-year rule in which a gift becomes non-taxable if the benefactor lives seven years after it’s given, no such law exists in Ireland.
Here, the capital acquisitions tax (CAT), applicable to both gifts and inheritances, is at a rate of 33%. However, the allowances are far more crucial. These allowances fluctuate based on the relationship between the disponer – person gifting or leaving the asset in their will – and the recipient. Also, they are cumulative which indicates that any major gifts (valued more than €3,000 received in a single year) from anyone in the same category should be added together over your lifetime.
The small gift exemption, made available to every individual, covers any gift or gifts you receive up to the amount of €3,000 from a single person within a tax year. The same sum can be received from a range of donors as the situation arises.
There are three basic categories in which gifts or inheritances fall. Category A primarily includes gifts and inheritances given from parents to their children, offering the most generous lifetime tax-free threshold of €335,000.
Category B, inclusive of the previously mentioned linear relations – great-grandparents, grandparents, uncles, aunts and siblings – offers a significantly lower lifetime limit of €32,500. Category C addresses those deemed as “strangers in blood” such as in-laws, cousins, friends, and neighbours, bearing a tax-free threshold of a mere €16,250, thereby making taxes a potential concern.
If you’re presented with a gift or inheritance from your paternal uncle, it will be grouped together with any other gifts or inheritances you garner from members within the same group.
In terms of acquiring the additional €3,000 small gift exemption, the gift-giving route could prove advantageous by reducing the impact on your lifetime Capital Acquisitions Tax (CAT) limit. However, keep in mind that the Minister for Finance has the authority to alter these thresholds, with the relevant threshold being that which was in place on the date the gift or inheritance was conferred.
In this particular situation, whether you perceive the house as a gift or inheritance, the encompassing threshold of €335,000 amply covers its value yet might potentially limit what you can receive as inheritance from your mother before a tax becomes due.
Lest you find yourself burdened with a CAT liability, expect the due payment date to be October 31st if the bill is generated within the year’s first eight months, and the same date in the following year for gifts and inheritances obtained in the year’s last four months that exceed the tax-free threshold.
If you’ve exceeded the limit due to a gift given during your mother’s lifetime, it’s important to understand you cannot delay settling the bill until her passing, as specified deadlines must be adhered to. One of the unique aspects of our system, in comparison to the British structure.
In the event that you reside outside of this jurisdiction, your situation may indeed vary greatly. Given such circumstances, it is advisable to seek the counsel of a tax professional, well-versed in the legislative requirements of your respective territory.
Feel free to transfer any questions you may have to Dominic Coyle, based in Q&A, 24-28 Tara Street Dublin 2, or by dispatching an email to dominic.coyle@irishtimes.com. Please ensure a contact telephone number is included. It should be noted that this column acts as a reading service and isn’t a substitute for skilled counsel.