Inheritance tax, often referred to as Capital Acquisitions Tax (CAT) in Ireland, is a topic that can be complex for many individuals and families. Understanding the rules and calculations associated with inheritance tax is crucial for effective financial planning, especially when it comes to preserving your assets for future generations. In this blog, we break down the inheritance tax rules in Ireland and provide examples to help you grasp how it is calculated.
Inheritance Tax Thresholds
Before delving into the calculations, it’s important to know the key inheritance tax thresholds in Ireland.
Gifts and inheritances between spouses or civil partners are exempt from CAT. There is no threshold to apply to those transfers.
For everyone else, the tax‑free group thresholds below apply to the total taxable benefits you receive over your lifetime within each group. These figures were increased with effect from 2 October 2024:
- Group A (generally parent → child): €400,000
- Group B (siblings, grandparents, grandchildren, nieces/nephews, etc.): €40,000
- Group C (all other cases, including non‑relatives): €20,000
Note: “Child” includes adopted and step‑children, and certain foster‑child cases. Prior gifts or inheritances within the same group since 5 December 1991 count towards the relevant group threshold.
The applicable threshold depends on the date you take the benefit. Benefits taken before 2 October 2024 use the older thresholds; benefits taken on or after 2 October 2024 use the figures above.
Calculating Inheritance Tax
In Ireland, inheritance tax is based on the value of the assets you inherit and your relationship to the person who has left you the benefit. The CAT rate is 33% on amounts above the relevant tax‑free threshold.
Here’s a step‑by‑step guide to calculating inheritance tax:
Step 1: Determine the Market Value of the Inheritance
Calculate the total market value of the assets you inherit. This includes any property, cash, investments, and other assets.
Step 2: Calculate the Taxable Inheritance
Subtract any allowable liabilities, costs or expenses actually paid from the market value. Typical examples include funeral expenses, debts of the deceased, and necessary legal or administration costs.
Step 3: Apply the Appropriate Threshold and Rate
Identify the correct group threshold based on the relationship (A, B, or C). You pay CAT at 33% only on the value above that threshold after deductions.
Step 4: Calculate the Inheritance Tax Due
Multiply the taxable excess by 33% to arrive at the CAT due.
Worked Examples
Example 1: Spouse/Civil Partner Inheritance
You inherit assets with a total market value of €500,000 from your spouse or civil partner.
CAT due: €0 (fully exempt).
Example 2: Parent → Child (Group A)
You receive an inheritance of €200,000 from a parent.
Taxable amount after Group A threshold (€400,000): €0 → CAT due €0.
(If you’d already received prior Group A benefits, those would count towards your €400,000 lifetime limit.)
Example 3: Sibling (Group B)
You receive an inheritance of €200,000 from a sibling.
Group B threshold (€40,000) → taxable €160,000.
CAT due: €160,000 × 33% = €52,800.
(Prior Group B gifts/inheritances since 5 December 1991 count towards the €40,000 lifetime limit.)
Annual Gift Exemption: An Additional Tax Planning Tool
In addition to inheritances, you can reduce future CAT exposure through the Small Gift Exemption (often called the Annual Gift Exemption). You may gift up to €3,000 per donor, per recipient, each calendar year without triggering CAT and without using up any of the group thresholds. This is a simple way to pass on value gradually while staying within the rules.
Quick compliance note: You must file an IT38 return if the total taxable value of benefits you’ve taken since 5 December 1991 exceeds 80% of the relevant group threshold, even if no CAT is due. Your pay and file deadline is based on the valuation date:
- Valuation date 1 January–31 August → deadline 31 October of the same year
- Valuation date 1 September–31 December → deadline 31 October of the following year
Have Questions? Let’s Talk
Inheritance tax in Ireland can be a significant financial consideration, and understanding the rules and calculations is essential for effective estate planning. Tax law can change, so please check the current thresholds and rules before making decisions.
Get in touch with us now to discuss your options or arrange a consultation with one of our Rockwell experts at [email protected] or +353 1 296 6120.
