Inheritance Tax
- Inheritance Tax
- Calculation of the Tax-Free Amount
- Examples of Inheritance Tax Calculations
- Examples of Income Tax calculations for the year of death
- Where can I get further information?
What is Inheritance Tax?
Inheritance Tax is a tax which can arise where a beneficiary receives an inheritance as a result of someone dying. The beneficiary is responsible for paying the tax. An inheritance can be taken under a will or intestacy - or in some other way such as, for example, where an asset in the joint names of the deceased and another person is taken, on the death of the deceased, by that other person as survivor.
How will I know if I have to pay Inheritance Tax?
In this regard a distinction is made between surviving spouses and other beneficiaries.
Surviving Spouse
If you are a surviving spouse taking an inheritance from your deceased spouse, the inheritance is completely exempt and, no matter how valuable, will not be liable to Inheritance Tax.
Other Beneficiaries
In the case of other beneficiaries, whether or not Inheritance Tax may be payable on your inheritance depends on whether:
- the total value of all gifts and inheritances
- received by you - the beneficiary
- from the deceased and from anybody else to whom the same group threshold applies
- in the period from 5th December 1991 up to (and including) the date of the inheritance exceeds a tax-free element called the "tax-free amount".
What rates of Tax Apply?
The following rates of Inheritance Tax apply:
| Up to the "tax-free" amount | Nil |
|---|---|
| Remainder | 25% |
When do I have to pay the tax?
You have to pay the tax within 4 months of a date known as the Valuation Date. The Valuation Date is the date at which the assets are valued for Inheritance Tax purposes. The Valuation Date for assets passing under the will or intestacy is usually the date on which the Grant of Representation issues from the Probate Office or District Probate Registry. If assets are passing outside of the will or intestacy, the Valuation Date will normally be the deceased's date of death.
How do I pay the tax?
You should complete an Inheritance Tax Self-Assessment Return and send it with the tax to your Tax Office. In straightforward cases, a short version of the return can be used. You should be aware that you will be charged interest from the valuation date if you are late paying the tax.
Are there any reliefs / exemptions?
In addition to the exemption for a surviving spouse, there are a number of other important exemptions and reliefs available, including reliefs for agricultural and business property and exemption for certain dwelling-houses. Where agricultural or business relief applies, the market value of the property for Inheritance Tax purposes is substantially reduced by 90%. Where the dwelling-house exemption applies, the market value of the dwelling-house is completely exempt.
What assets are liable to Irish Inheritance Tax?
An asset will be liable to Irish inheritance tax :
- if the asset is located in Ireland, or
- if the asset is located abroad, and the deceased or beneficiary is resident or ordinarily resident in Ireland.
Probate Tax - Indexed Exemption Thresholds*
Table I
| Year of Death | Exemption Threshold |
|---|---|
| 1993 | €12,700 |
| 1994 | €12,890 |
| 1995 | €13,195 |
| 1996 | €13,550 |
| 1997 | €13,750 |
| 1998 | €13,950 |
| 1999 | €14,290 |
| 2000 | €50,790 |
* Indexation is by reference to the consumer price index
Inheritance Tax Table II
| Year of the Inheritance (Usually year of death of the deceased) | Relationship of Person taking the Benefit to the Person who provided the Benefit | ||
|---|---|---|---|
| GROUP* A Child; minor child(i.e. under 18) of a deceased child | GROUP* B Lineal ancestor /descendant (e.g. parents+, grandparent, grandchild); brother/sister; child of brother/sister |
GROUP* C All others(excluding spouses) |
|
| 1982-1989 | €190,500 | €25,500 | €13,000 |
| 1990 | €198,100 | €26,500 | €13,500 |
| 1991 | €204,950 | €27,500 | €14,000 |
| 1992 | €211,250 | €28,200 | €14,100 |
| 1993 | €218,100 | €29,100 | €14,600 |
| 1994 | €220,950 | €29,500 | €14,800 |
| 1995 | €226,300 | €30,200 | €15,100 |
| 1996 | €232,000 | €30,950 | €15,500 |
| 1997 | €236,000 | €31,500 | €15,800 |
| 1998 | €239,500 | €32,000 | €15,950 |
| 1999 | €245,000 | €33,000 | €16,350 |
| 1999* (from 1.12.99) | €381,000 | €38,100 | €19,050 |
| 2000 | €381,000 | €38,100 | €19,050 |
| 2001 | €402,253 | €40,225 | €20,112 |
| 2002 | €422,148 | €42,215 | €21,108 |
| 2003 | €441,198 | €44,120 | €22,060 |
| 2004 | €456,438 | €45,644 | €22,822 |
| 2005 | €466,725 | €46,673 | €23,336 |
| 2006 | €478,155 | €47,815 | €23,908 |
| 2007 | €496,824 | €49,682 | €24,841 |
| 2008 | €521,208 | €52,121 | €26,060 |
| 1/1 - 7/4/2009 | €542,544 | €24,254 | €27,127 |
| 8/4 - 31/12/2009 | €434,000 | €43,400 | €20,700 |
| 2010 | €414,799 | €41,481 | €20,740 |
* Before 1 December 1999 the groups were known as classes and different rules for calculation of tax applied.
+ Exception: A parent qualifies for the GROUP A tax-free amount when he/she takes an immediate, absolute inheritance on the death of a child.
Note: For inheritances taken in future years, indexed exemption thresholds and tax-free amounts will be available from the Taxpayer Information Service. Phone Lo Call 1890 20 11 04
Calculation of the Tax-Free Amount
This section shows how to work out the tax-free amount referred to in Other Beneficiaries above.
Note Changes to the thresholds and rules for calculating the tax were introduced with effect from 1 December 1999.
Where no other benefits have been taken by the beneficiary
This is a very straightforward situation. It arises where the beneficiary takes an inheritance and no other gifts or inheritances have been taken the by the beneficiary from the deceased or any other person within the same class threshold from 5th December 1991 onwards. In these cases, the tax-free amount that applies to the inheritance is arrived at by a simple application of Table II above.
In the Table, beneficiaries are divided into three groups, A, B and C, according to their relationship to the person who provided the inheritance. The Table shows a separate tax-free amount for each of the three groups of relationship and that the amounts vary according to the year in which the inheritance is taken. Opposite the year in which the inheritance was taken, you will see three tax-free amounts, one for relationships in group A, one for those in group B and one for those in group C. The tax-free amount you require is the one that is under the appropriate relationship heading. For instance, provided no other gift or inheritance is involved, a quick glance at the table will show that the tax-free amount for an inheritance taken by a child from a parent in 2004 is €456,438.00.
Where other benefits have been taken by the beneficiary but they are not within the same group threshold
This situation is similar to that outlined above. It arises where the prior gift/inheritance, although taken on or after 5th December 1991, had not the same group threshold as the current inheritance.
A separate threshold applies for each group and prior gifts/inheritances to which a different threshold applies are not taken into account when calculating the tax on the current inheritance.
For example:
Mary takes the following benefits
* gift of €51,000 from her brother in 1995
* inheritance of €508,000 from her father in 2000
The tax on the inheritance is calculated using the group A threshold and the prior gift is not taken into account.
Where other benefits including benefits to which the same group threshold apply have been taken by the beneficiary
It arises where the prior gift/inheritance, taken on or after 5th December 1991, had the same group threshold as the current inheritance.
The method of calculating the tax-free amount for the group of benefits in this situation is set out in the following example.
Example: Assume Brian takes the following benefits:
* a gift of €20,000 from his aunt (group B) in 1992
* an inheritance of €20,000 from his uncle (group B) in 1993
* a gift of €10,000 from his cousin (group C) in 1995
* an inheritance of €95,250 from his father (group A) in 1998
* an inheritance of €25,400 from his sister (group B) in 2004
Only the gifts / inheritances in the same group are taken into account for the purpose of calculating the tax payable on the latest inheritance. The total taxable value of all gifts / inheritances to which the group B threshold applies is €65,400 (i.e. €20,000+ €20,000+€25,400).
The relevant tax-free amount to be used for this inheritance in the Table is the group B amount in 2004, i.e.€45,644. (See Table II above.)
As the tax-free amount (€45,644) for the group B benefits is exceeded by the total value (€65,400) of the benefits in the group it is necessary at this point to do a tax calculation to establish the Inheritance Tax liability, if any. This is illustrated in Example 3 below.
Examples of Inheritance Tax Calculations
The rates of Inheritance Tax are as follows:
| Up to the "tax-free" amount | Nil |
|---|---|
| Remainder | 25% |
Example 1 - Where no other benefits have been taken by the beneficiary
Calculating the tax due is straightforward when the inheritance was the only benefit taken by the beneficiary in the period from 5th December 1991 onwards. Assume that the inheritance is an inheritance of €508,000 taken in 2010 from a parent (group A). It will be clear from Table II above that the tax-free amount for a group A inheritance taken in 2010 is €414,799. In this situation, the tax is calculated as follows (using the above rates):
| Tax on the tax-free amount of €414,799 | Nil |
|---|---|
| Tax on balance of €91,201 at 25% | €23,300 |
| Total tax due (on €508,000) | €23,300 |
Example 2 - Where other benefits have been taken by the beneficiary but they are not within the same group threshold
The prior benefit is ignored and tax is calculated on the same basis as (i) above.
Example 3 - Where other benefits including benefits to which the same group threshold apply have been taken by the beneficiary
The following are the steps involved in calculating the tax due on the inheritance where, on or after 5 December 1991, the beneficiary has taken prior gifts/inheritances to which the same group threshold applies :
- Group Threshold €41,481
- Taxable Value Prior Benefits €40,000
- Unused Portion of Threshold €1,481
- Taxable value all Current Benefits within same group Threshold €25,400
- Taxable Excess €23,919
- Tax on all Current Benefits €5,979
Examples of Income Tax calculations for the year of death
Example 1 - Joint assessment where the deceased is the "assessable spouse"
John and Mary are both working. They are taxed under joint assessment and John is the "assessable spouse". John dies on 12 June, 1997. He has earned £19,100 between 6 April, 1997 and the date of death. Mary has earned £5,000 between 6 April, 1997 and the date of John's death. She is expected to earn a further £9,000 between then and 5 April, 1998
Tax liability up to the date of John's death.
John's Income £19,100
Mary's Income £5,000
Total £24,100
Less :
Married Personal Tax Credit £7,500.
PAYE Tax Credit (x 2) £2,100 £9,600
Taxable Income £14,500
Tax liability £14,500 @ 26% £3,770
John and Mary will more than likely have paid more tax than this under the PAYE system. Whatever they paid over and above £3,770 will be refunded.
Mary's tax liability from the date of death to the following 5 April.
Mary is entitled to the increased widowed person's tax credit (£8,000) for the period 13 June, 1997 to 5 April, 1998 against her expected earnings of £9,000 for the remainder of the tax year. She will get the single rate bands.
Example 2 - Joint assessment where the surviving spouse is the "assessable spouse"
John and Mary are taxed under joint assessment. John is the "assessable spouse". Mary dies on 12 June 1997, having earned £8,000 from 6 April, 1997 to the date of her death. John earns £26,000 for the year to 5 April, 1998. As John is the "assessable spouse", he is taxed on his own income for the tax year plus Mary's income for the period to the date of her death.
John's Liability - 1997/98
John's Income £26,000 Mary's Income to date of death £8,000
Total £34,000
Less :
Married Personal Tax Credit £8,000
PAYE Tax Credit (x 2) £2,100 £10,100
Taxable Income £23,900
Tax liability £23,900 @ 26% £6,214
Where can I get further information?
The Capital Acquisitions Tax - Taxpayer Information Service can be contacted by telephone at Lo Call 1890 20 11 04. For personal callers, the Capital Acquisitions Taxpayer Unit is located on the 1st Floor, CRIO, Cathedral Street, Dublin 1.
In the Contact section you will find a full list of Revenue's Offices throughout the country together with addresses, telephone number, fax numbers and e-mail addresses.