Capital Acquisitions Tax (CAT)

Capital Acquisitions Tax (CAT) is a tax levied on the receipt of gifts and inheritances. CAT comprises two separate taxes - a Gift Tax payable on lifetime gifts and an Inheritance Tax payable on inheritances received on death. It is the person receiving the gift or inheritance who is liable to CAT and not the person or estate providing the benefit.

Basis of Charge

With effect from 1st December 1999, a charge to CAT will arise where either the disponer or the beneficiary is resident or ordinarily resident in the State at the date of the Gift or Inheritance. Where both the disponer and the beneficiary are not resident or ordinarily resident in Ireland, a charge to tax would only arise in relation to Irish property.

CAT Rates

For new gifts and inheritances received on or after 5th December 2001 tax is calculated according to the total of all gifts and inheritances received from all sources since 5th December, 1991. The following CAT Tax Table currently applies:

Source CAT Consolidation Act 2003 (as updated by subsequent Finance Acts).

The Group threshold amounts vary depending on the relationship between the beneficiary and the disponer, i.e. the person providing the gift or inheritance.

The threshold amounts are those applying with effect from 9th October 2019. Source CAT Consolidation Act 2003 (as updated by subsequent Finance Acts).

Aggregation

Under the current aggregation rules all benefits from Group 1 will be added together with an overall threshold of €335,000. Benefits from Group 2 members (brother, sister, grandparent etc) will be added together for the purpose of the €32,500 threshold, and benefits from Group 3 members (strangers) for the purpose of the €16,250 threshold. So in effect a beneficiary can potentially receive up to €383,750 tax-free if the benefits come through different "groups".

Relief’s and Exemptions

Certain reliefs and exemptions apply to certain types of assets. These have been introduced over the years primarily to encourage private enterprise and to avoid the forced sale of a family farm, business or the family home in certain circumstances.

The main reliefs and exemptions are:

All reliefs are highly qualified; details of the conditions that apply in relation to reliefs are contained in the Appendices.

Making a Will

A valid Will, reflecting your current wishes, is a vital part of the estate planning process. If the provisions of your Will are not in line with the intentions outlined in the information given, this report may not be appropriate. If you die without leaving a Will your estate will be divided in accordance with the Succession Act (see Appendix I).

You should talk to a solicitor if you do not have a valid Will or if your Will needs to be updated.

While our recommendation is based on our understanding of current legislation and Revenue practice we recommend you seek professional legal and tax advice to ensure that any arrangement you decide to put in place is appropriate to your individual circumstances.

When a person dies all their property devolves to their “personal representatives" to transfer to the individual’s successors. The way property is transferred will depend on whether or not the deceased had made a Will. If there is a valid Will the personal representatives "the executors" distribute the assets in accordance with the terms of the Will.

If there is no Will the individual is said to have died “intestate” and the property is distributed by the personal representatives “administrators” in accordance with the provisions of the Succession Act 1965.

The Succession Act provides a legal spouse, a registered civil partner and children with certain minimum legal entitlements as follows:

NO Will - where a person dies "intestate"

Where an individual dies "intestate" leaving neither spouse, civil partner nor children, his assets will pass to parents, if his parents are deceased to his brothers and sisters, otherwise to wider family - the Act provides a hierarchical list.

Will -a "testate" death (Entitlement regardless of provisions of will)

An individual can make a Will any way he wants, but Sections 111 and 111A of the Succession Act give a surviving spouse or civil partner certain legal rights regardless of what the Will provides.

Children do not have a right to a particular share of the estate under a Will. However, Section 117 of the Act gives a child the right to apply to the Court for a share of the estate under a Will if in the Court’s opinion “the testator has failed in his moral duty to make proper provision for the child in accordance with his means.”

It is worth mentioning that while this right of the child to apply to the Courts will not affect the portion of the estate to which a legal spouse has a statutory right, it could impact on the amount of the estate to which a registered civil partner is entitled.

The value of a "dwelling house" taken on or after 1st December 1999 may be exempt from Inheritance Tax, in the hands of the beneficiary provided certain qualifying conditions are met. "Dwelling House", for the purpose of this exemption, means a building or part of a building with up to one acre of land that was used or was suitable for use as a dwelling. To obtain the exemption from inheritance tax the disponer and the beneficiary must meet certain conditions. The disponer must have occupied the "relevant dwelling house" as his or her only main residence at the date of his or her death, subject to limited exceptions as outlined below. The beneficiary must satisfy all of the following conditions:

1. He or she must have occupied the “relevant dwelling house” as his or her only or main residence continuously throughout the 3 year period immediately prior to the date of the inheritance,
2. He or she must not be beneficially entitled to any interest in any other dwelling house at the date of the inheritance. This includes the inheritance of a second property as a result of a specific bequest in the Will of the disponer,
3. He or she must continue to both own and occupy the dwelling house as his or her only or main residence throughout the period of 6 years following the date of the inheritance*.

Where the dwelling house directly or indirectly replaced other property owned by the disponer, the 3 year period in condition a) will be satisfied if the beneficiary occupied both properties for a total of 3 of the 4 years prior to the date of the inheritance. In the case of both the disponer and the beneficiary if either party ceased to occupy the dwelling house as a result of his or her mental or physical infirmity, this period will be taken into account for the purposes of the 3 / 6 year rule.

* the exemption will not be withdrawn where condition c) above is breached in the following circumstances where the beneficiary:

1. Does not occupy the house as a result of his or her mental or physical infirmity. This infirmity must be certified by a registered medical practitioner, or
2. does not occupy the house as a result of working abroad by consequence of any condition imposed by his or her employer requiring the beneficiary to work abroad to carry out the duties of his or her employment, or
3. was aged 65 at the date of the inheritance, or
4. replaces the house and reinvests the proceeds in another dwelling house, and occupies both properties for at least 6 years of the 7 years from the date of the inheritance.

For gifts and inheritances taken on or after 23rd January 1997 the taxable value of “relevant business” property is reduced by 90%.

Company Shares:

The definition of “relevant business property” includes unquoted shares and securities of Irish incorporated companies subject to certain conditions.

The company

The company’s business must not consist wholly or mainly of any of the following excluded activities - dealing in currencies, securities, stocks or shares, land or buildings, or making or holding of investments.

The beneficiary

For the relief to apply the beneficiary must meet one of the following ownership/control tests:

1. The shares themselves or together with other shares in the company held in the absolute beneficial ownership of the beneficiary, give the beneficiary control of 25% of the voting power over all matters relating to the company,

or

2. the beneficiary controls the company or the company is controlled by the beneficiary and his relatives*,

or

3. the beneficiary holds at least 10% of the issued capital of the company and has worked full time in the company for 5 years prior to the gift/inheritance.

* Relatives of a person include his spouse, civil partner, children, mother, father, aunt, uncle and any children, grandchildren of any the forgoing. In addition all spouses of relatives are included for the purposes of determining control. Control includes - having over 50% of the voting power, or owning more than 50% of the shares or being in a position to control the board of directors.

Business Relief - unincorporated business.

Relevant business property also includes property consisting of a business (Sole trader) or an interest in a business (share in a partnership). A business which is wholly or mainly concerned with dealing in land, shares, securities or currencies or the making or holding of investments is excluded. The relief will apply where the business or part of the business is transferred and not simply where an asset that had been part of the business is subject to CAT.

General

So far we have concentrated on the conditions that apply to the business and the beneficiary in order to qualify for Business Relief. There are some other general conditions worth noting:

Disponer

The property must have been owned by the disponer for a period of 5 years prior to a gift or 2 years in the case of an inheritance.

Clawback of Relief

If within 6 years of the gift or the inheritance of business property:

1. the business ceases to qualify, or
2. the property is sold or compulsorily acquired and not replaced within one year with other business property the entire relief will be clawed back.

This is a special relief given in respect of certain agricultural property taken by a "farmer". The relief is given by reducing the market value of the agricultural property by 90% for gifts and inheritances taken on or after 23rd January 1997.

The market value of the agricultural property as so reduced is then termed "agricultural value" in the Act and is substituted for market value in the calculation of tax.

There are certain conditions attaching to this relief:

• The relief only applies to "agricultural property" which is defined as "agricultural land, pasture and woodlands situated within a Member State and crops, trees and underwood growing on such land and also includes such farm buildings, farm houses and mansion houses (together with lands occupied therewith) as are of a character appropriate to the property." The relief also applies to stock and farm machinery. With effect from 25th December 2017 land under solar panels, where the solar panels are not installed on more than half of the land comprised in the gift or inheritance, will also qualify as ‘agricultural property’.
• Any milk quota attaching to lands will also qualify for reduction as part of the market value of the lands.
• The relief only applies to agricultural property acquired by an individual, who after taking the agricultural gift or inheritance not less than 80% of his gross assets are represented by the value of agricultural property, including livestock, bloodstock, farm machinery and land under solar panels where the acreage of such land does not exceed more than 50% of the land comprised in the gift or inheritance. A donee is allowed to offset borrowings for the purchase, repair or improvement of on an off farm principal private residence against the value of the property for the purpose of the 80% test.
• For gifts or inheritances received after 1st January 2015 the beneficiary must have

1. a relevant agricultural qualification or attain such a qualification within four years of the date of the gift or inheritance, and must farm the agricultural property for a period of not less than six years on a commercial basis with a view to realising a profit, or
2. the beneficiary must spend not less than 50% of their normal working time farming the agricultural property for a period of not less than six years on a commercial basis with a view to realising a profit . Normal working time approximates to 40 hours per week.

Where the beneficiary leases the agricultural property the individual to whom the property is leased must satisfy either condition a. or b. above.

The relief is withdrawn in certain circumstances:

If within 6 years of the ‘valuation date’ the beneficiary ceases to qualify as a farmer as outlined and does not lease the land to a lessee who will farm the land for the remainder of the 6 year period.

Or if within six years after the date of the gift or the inheritance lands are sold or compulsorily acquired in the lifetime of the donee or successor, and the agricultural property is not replaced within a year following a sale, or within 6 years following a compulsory acquisition where the land was compulsorily acquired on or after 25th March 2002.

If the gift or inheritance consists of development land and is disposed of in the period commencing 6 years after the date of the gift / inheritance and ending 10 years after the date there will be a partial claw back of the relief.