Ireland Fact-File Part 4:
Personal Business Tax-Efficient Structures
4.5 Ireland Personal Estate and Inheritance Planning
Gift and inheritance taxes
Individuals are subject to Capital Acquisitions Tax at 25%
from April 2009 (the rate was previously 22% between November
20, 2008 and April 7, 2009, and 20% between December 1, 1999
and November 19, 2008) on gifts and inheritances, if either
the donor of the gift/the testator or the recipient of the
gift/the heir is an Irish resident.
Updated in December 2010
The threshold at which such a levy kicks
in varies according to the relationship between the parties
involved. In 2011, a child, stepchild, adopted child or parent)
must pay the tax on gifts/inheritances over EUR332,084 (decreased
by the December 2010 austerity budget from EUR414,799 previously);
a parent who does not take complete ownership of an inheritance,
a grandparent, a grandchild or great-grandchild, a sibling,
a nephew or a niece will pay on sums of over EUR33,028 (down
from EUR41,481 previously); and any other type of recipient
will face Capital Acquisitions Tax on acquisitions of over
EUR16,604 (down from EUR20,740 previously).
Gifts and inheritances between married couples are exempt,
however.
Arrangements (such as trusts) can sometimes be put in place
to minimise the impact of Capital Acquisitions Tax on your
inheritance, and potentially to minimise the CAT liability
– related to your business – which could be faced by your
descendents, but as in other countries, such matters can be
complicated, and expert advice is recommended.
It is also worth being aware that the rules governing the
taxation in Ireland of offshore (or indeed any foreign trusts)
are complex for Irish residents, and income and capital gains
accruing to trusts (and non-resident companies) are likely
to be assessed to the Irish-resident settlors and/or beneficiaries
and/or owners of the trusts or companies, whether or not they
are distributed.
By way of exception, however, an offshore trust established
by a husband and wife who are excluded from benefitting under
it, and whose trustees are not Irish-resident, is taxed only
on Irish-source income, meaning that if the beneficiaries
are, for example, children or grand-children, the assets contained
in the trust will only be taxed in Ireland if they
are remitted to the Republic.
Changes to inheritance tax, gift tax and capital gains tax
relief in Ireland were recommended in the Commission on Taxation’s
report,
published in September 2009; as of late 2010, there had been
no visible changes in this area.
Among other measures, the Commission suggested that generous
tax breaks on family transfers of businesses should be phased
out by the Irish government.
Traditionally, full exemption from CGT has been available
on the transfer of assets to children provided that the current
owners qualify for "retirement relief" (a pretty
significant relief afforded to qualifying shareholder directors,
whereby up to EUR750,000 (if the transfer is being made to
a third party; there is no threshold for transfers to a child)
can be disposed of tax-free by said shareholder, provided
he/she is over 55 years of age on the disposal of business
assets, that the assets have been owned for a period of 10
years or more prior to disposal, and the individual in question
was a working director in the business during this period
(if the transfer is being made within a family business),
and a full-time working director for at least 5 of those years).
It is worth noting that provided the criteria listed above
are satisfied, the director in question is not required to
be 'retiring' as such to qualify for the relief, despite the
name.
Children can also take a lifetime gift totaling EUR414,799
from a parent tax-free. If the gift comprises shares in a
family trading company or trading assets, and the children
qualify for “business property relief”, the value of those
assets may be reduced by up to 90% for CAT purposes.
Combining business property relief and the lifetime gift
exemption, qualifying business assets totalling EUR4m may
be transferred without exposure to CGT or CAT. The transfer
of business assets would trigger stamp duty at 1% (on the
transfer of shares) or at an effective rate of 3% on the transfer
of assets other than shares to family members.
The Commission on Taxation recommended in its report that
CGT retirement relief should apply only to asset values up
to EUR3m and that CGT should be payable on the excess over
this amount. It also recommended that CAT business property
relief be reduced to 75% of the value of the business subject
to an overall monetary limit of EUR3m.
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