Tax free benefits (tax paid by the disponer)
Legislation - Section 87, Capital Acquisitions Tax Consolidation Act, 2003.
Where a benefit is taken free of tax, the benefit taken is deemed to include the amount of tax chargeable on the benefit. Where all or part of the tax is being paid by the disponer, that tax is deemed to be a further benefit for the purpose of calculating the final tax liability.
If a beneficiary receives a tax free benefit under a will, the tax is normally payable out of the residue of the estate and this tax is a further benefit taken by the beneficiary. The tax on a tax free benefit under a will or on a benefit where the disponer is paying the tax (gift) is calculated in the same way.
For example, if a person took a gift of €100,000 tax free, the tax payable on the gift, which is being paid for by the disponer, is deemed to be a further benefit, and the final tax liability will include the tax payable on the gift of €100,000
Assume the beneficiary has used up all his available threshold, so the tax on €100,000 at 30% is €30,000. The beneficiary is now deemed to have taken a gift of €130,000, (the original gift of €100,000 plus the tax payable on that gift - €30,000).
The tax is recalculated on €130,000 giving a final tax liability of €39,000.