Capital Acquisitions Tax (“CAT”)
A charge to Irish CAT arises where a person receives any benefit, or asset, for less than it is valued at. The current rate of Irish CAT is 33%. CAT is most often payable by the recipient of a gift/inheritance.
Group Thresholds
Group Thresholds may reduce the Capital Acquisitions Tax liability arising for an individual. Depending on the relationship between the person making the gift/inheritance and the beneficiary, a certain level of benefits can pass to an individual before a charge to Capital Acquisitions Tax will arise. The level of benefits is known as a person’s “Group Threshold” and is not specific to gifts made from person to person, rather it is utilised where a person receives gifts from a certain class of persons. These group thresholds are lifetime limits and all gifts or inheritances from each class since 5th December 1991 need to be included in deciding how much of a group threshold a person has used.
The particular groups and the associated tax-free thresholds are as follows:
- Group A €335,000
- Group B €32,500
- Group C €16,250
Group A: A son or daughter of the person giving the gift or inheritance (the disponer).
Group B: A parent, brother, sister, niece, nephew or grandchild of the disponer.
Group C: People with a relationship to the disponer not already covered in Groups A or B.
Annual Gift Exemption
In addition to the above tax-free threshold current tax legislation also provides for an exemption known as the annual gift exemption. The exemption applies in respect of the first €3,000 of gifts received by a person during the year. An annual gift of up to €3,000 will not impact on the CAT tax free amount which a person is entitled to receive, and an individual can receive the €3,000 tax free gift from any number of different people. This exemption only applies to gifts and does not apply to inheritances.
The most common uses for the small gift exemption are in relation to tax planning whereby:
- Adult children can financially assist their parents by each gifting them €3,000 per annum. This will not be included against the parents Group B threshold.
- Both parents could gift €3,000 each to their children and also their children’s partners, so a gift of €12,000 can be given by 2 parents to their child and his/her partner in any calendar year. Separately grandchildren, nieces, nephews and other family members can receive €6,000 each year from a couple.
- Grandparents, parents, aunts and uncles can gift money to a child on an annual basis. Gifts can be accumulated by a child to meet future expenditure like education or for a deposit on the purchase of a house.
The small gift exemption can be used as part of an Estate Planning process to reduce future inheritance tax liabilities for children and grandchildren.
Summary
You can see from the above, that in certain circumstances, substantial amounts of money/assets can be passed to the next generation free from tax. In addition to the above, there may also be a number of tax reliefs that may apply to your particular circumstances, which could further reduce any taxes payable on passing assets to the next generation. Tax planning is a vital step in managing your tax affairs and ensuring that the maximum amount of value passes to your children or your extended family.
If you would like more information or if you would like to set up a free consultation to discuss your tax planning needs, please do not hesitate to get in contact with us here at Keogh’s.