Charge to tax

You may be liable to capital acquisitions tax if you acquire property gratuitously, i.e., without paying for it, for example, if you receive a gift (s 4) or an inheritance (s 9).

The person who provides you with the property is the disponer (or donor in the case of the gift), and the disposition is the method by which he passes the property to you. If you inherit property under a will, the testator (i.e., the person who made the will) is the disponer. If you inherit property on intestacy (i.e., from a person who died intestate, i.e., without making a will), the deceased is the disponer.

The term disposition is very widely defined to include not only a will or intestacy, but any method (including, for example, any trust covenant, agreement or arrangement) by which property can be passed from one person to another. The date of the disposition is the date of death of the disponer in the case of property passing by will or intestacy, and in other cases it is the date on which the disponer provided the property (or bound himself to provide it).

To be chargeable, you must receive a taxable gift (s 6) or taxable inheritance (s 6).

You are subject to tax on the entire amount of a gift if:

(a) the disponer was resident or ordinarily resident in the Republic of Ireland at the date of the disposition, or at the date of the gift, or

(b) you were resident or ordinarily resident in the Republic of Ireland at the date of the gift.

Otherwise, only the part or proportion of the property situate in the Republic of Ireland at the date of the gift is taxable.

You are subject to tax on the entire amount of an inheritance if:

(a) the disponer was resident or ordinarily resident in the Republic of Ireland at the date of the disposition, i.e., the date of death, or

(b) you were resident or ordinarily resident in the Republic of Ireland at the date of the inheritance.

Otherwise, only the part or proportion of the property situate in the Republic of Ireland at the date of the gift is taxable.

If you are non-Irish domiciled, you are regarded as resident or ordinarily resident in the Republic of Ireland for CAT purposes if you have been continuously resident in Ireland for the five year period ending on the date of the gift or inheritance.

You are chargeable to tax on the property’s taxable value (s 28), which is computed as:

Market value

less liabilities, costs and expenses payable out of the gift or inheritance

= incumbrance free value

less consideration paid by acquirer in money or money’s worth

= taxable value

You are charged to tax on the valuation date. In the case of a gift, this is the date of the gift. In the case of an inheritance, it is generally the date of death of the deceased, or the earliest date on which his personal representatives can retain the inherited property for you (s 30).

Rates of tax

Inheritance tax

The rates of tax applicable to gifts and inheritances are as follows:

Threshold amount: Nil

The balance: 25% (since 7 April 2009; previously 22%).

Discretionary trust tax

Assets placed in discretionary trusts are subject to:

(a) A once-off charge of 6%, which is due within four months of the valuation date (s 18).

(b) An annual charge of 1%, which is due on 31 December each year, and payable four months later each year during the trust’s lifetime (s 23).

Exemptions

Exemption thresholds

For 2011, the group thresholds (Schedule 2 para 1) are:

(a) €332,084 (Group 1), where your relationship to the disponer is: son or daughter, minor child of a predeceased son or daughter, parent (in the case of a non-limited interest taken on the death of a child). Child includes a foster child (since 6 December 2000) and an adopted child (since 30 March 2001).

(b) €33,208 (Group 2), where your relationship to the disponer is: lineal ancestor, lineal descendant (not within (a)), brother or sister, nephew or niece.

(c) €16,604 (Group 3), where your relationship to the disponer is: cousin or stranger.

For gifts and inheritances taken since 5 December 2001, only prior benefits received since 5 December 1991 from the same person within the same group threshold are aggregated with the current benefit in computing tax payable on the current benefit.

Other exemptions

The main exemptions from capital acquisitions tax are:

(a) Spouses’ exemption: Property you receive from your spouse is exempt from gift tax (s 70), inheritance tax (s 719), and probate tax (FA 1993 s 115A).

The exemption also applies in the case of separated or divorced couples where the property passes by Court order (s 88).

(b) Principal private residence. To qualify, you must have lived:

(i) for three years ending on the transfer date in the residence, or

(ii) for three of the four years ending on the transfer date in the residence and the residence which it has replaced.

In addition, you must not have any other private residence and you must not dispose of the residence for six years after the transfer to you (s 86).

(c) An inheritance taken by you from your pre-deceased child (s 79).

(d) The first €3,000 of gifts taken in each calendar year (s 69).

(e) A gift or inheritance taken for public or charitable purposes (s 76).

(f) Objects of national, scientific, historic, or artistic interest, which the public are allowed to view (s 77). This relief also extends to heritage property owned through a private company (s 78).

(g) Pension lump sums (s 80).

(h) If you are not domiciled or resident in the Republic of Ireland, securities acquired by you from a disponer who held them for at least three years (s 81).

(i) Personal injury compensation or damages, and lottery winnings. This exemption also covers reasonable support, maintenance, or education payments received by your minor child if you and the child’s other parent are dead (s 82).

(j) Property acquired under a self-made disposition (s 83).

Reliefs

The main reliefs from capital acquisitions tax are:

(a) If you are a widow or widower, you may take the place and relationship status in respect of property acquired by your predeceased spouse (Schedule 2 para 6).

(b) Agricultural relief. To qualify, you must be a farmer – on the valuation date, at least 80% of the gross market value of your assets must consist of agricultural property (i.e., farm land and buildings, crops, trees and underwood, livestock, bloodstock, and farm machinery). You do not need to be domiciled in the Republic of Ireland on the valuation date (since 2 February 2006). Since 20 November 2008, agricultural land in another EU State also qualifies.

The relief is a 90% reduction of the full market value. The relief is withdrawn if you disposed of the property within six years of the date of the gift or inheritance and you do not reinvest the proceeds within one year of the disposal (six years in the case of a compulsory acquisition) (s 89).

(c) Business relief. To qualify, the property must be relevant business property, i.e., a sole trade business, an interest in a partnership, and unquoted shares in an Irish incorporated company.

The relief is a 90% reduction of the taxable value. The relief is withdrawn if the property is disposed of within six years of the date of the gift or inheritance and you do not reinvest the proceeds within one year of the disposal (s 92).

(d) Favorite nephew (or niece) relief (Schedule 2 para 7).

(e) Double taxation in respect of US and UK equivalent taxes (s 106, 107).

(f) The proceeds of a life assurance policy taken out to pay inheritance tax or gift tax (s 72).

(g) If the same event gives rise to a liability to both CAT and CGT, you may take a credit for the disponer’s CGT charge up to the amount of your CAT charge (s 104). The credit ceases to apply if you dispose of the property within two years of its acquisition.

Self assessment

If you are a primarily accountable person (i.e., if you are the recipient of a gift or inheritance), you must file a return of the gift or inheritance within four months of the valuation date.

If you are a secondarily accountable person (i.e., if you are the disponer, or the trustee, guardian, committee, agent or personal representative of the donee or successor), you must file a return if requested to do so by the Revenue (s 46).

Revenue powers

Administration

The Revenue Commissioners are responsible for the administration of capital acquisitions tax (s 117).

Audit

The Revenue may inspect any gifted property, and the books and records of the donor (s 46(7)).

Anti-avoidance

If you receive a transfer of voting power attaching to private company shares without an actual transfer of shares, you are taxed on the value of the transferred rights (s 44).

Information

The Revenue may use information acquired in relation to any tax or duty in connection with any other tax or duty for which they are responsible (TCA 1997 s 872).

The Revenue gather information for capital acquisitions tax from inland revenue affidavits (s 48) and if they feel the tax is at risk, they may refuse to issue a certificate of probate in respect of an estate until the tax is paid (s 108.

Collection

Tax

You must pay tax on the valuation date (s 51(1)). You may opt to pay in five equal yearly instalments, inclusive of interest, the first of which is due 12 months after the due date. The instalment option is not available in respect of property taken by way of limited interest (s 54).

The Revenue may take court proceedings against you if you do not pay any tax, interest, or penalties (s 63). Unpaid tax is a charge on the property to which it relates (s 60).

The Revenue may issue a clearance certificate to you after you pay the tax (s 61).

Interest

If you do not pay the tax, you are liable to interest at 0.0219% for each day the tax remains unpaid (s 51(2)).

If you overpay tax, you may be entitled to interest at 0.011% for each day or part of a day the tax is overpaid (s 57).

Surcharge

If you understate the value of an asset in your in self assessment return, you are liable to a surcharge (s 53 of):

(a) 10% if the market value you declared was between 50% and 67% of the true value,

(b) 20% if the market value you declared was between 40% and 50% of the true value,

(c) 30% if the market value you declared was less than 40% of the true value.

Penalties

If you fail to file a return you are liable to a penalty of €2,535.

If your failure is negligent, the penalty is €6,345 plus the difference between the correct liability and the tax paid. If your failure is fraudulent, the penalty is €6,345 plus twice the difference between the correct liability and the tax paid (s 58).

See INCOME TAX (Penalties) as regards enforcement of penalties.

Appeals

If you are aggrieved by a Revenue decision as to the value of land or buildings, you may appeal to the Land Values Reference Committee (s 66).

If you are aggrieved by an assessment, you may appeal to the Appeal Commissioners (s 67).