Capital Acquisitions Tax Consolidation Act 2003 Section 87

Exemption of certain benefits

Section 87 deals with the tax treatment of gifts or inheritances that are taken "free of tax" by direction of the disponer, and how the taxable value of such benefits is calculated.

• Where a disponer directs that a gift or inheritance is to be taken "free of tax", the recipient's benefit is deemed to include the amount of CAT chargeable on that gift or inheritance.
• The grossing-up does not extend to tax on tax — only the first layer of tax is added to the benefit to arrive at the taxable value.
• The tax arising on the grossed-up benefit is payable out of the residue of the disponer's estate, not by the beneficiary.
• The calculation involves three steps: computing the initial tax, adding that tax to the benefit to find the taxable value, and then applying the CAT rate to the grossed-up amount after deducting the relevant group threshold.