“In this world nothing can be said to be certain, except death and taxes”

By Caroline Browne, Partner

Benjamin Franklin once said “In this world, nothing can be said to be certain, except death and taxes”. Neither is pleasant, but it is important to ensure that on our death our affairs are dealt with in the most efficient and effective tax manner as possible.

The single best way to ensure that your wishes are carried out on your death is to make a Will. The importance of a Will cannot be under estimated but it is equally important to highlight that you should keep your Will updated. When attending with a solicitor to make your Will, it is important that you give them as much details as possible about your assets and liabilities. We sometimes have a mistaken belief that those who we leave behind can sort out things amongst themselves. You should not leave this to chance. If you don’t make a Will the rules of intestacy apply. This means your estate is distributed in accordance with the law and can often result in those who you wish to provided for being left out.

Inheritance Tax is a tax which can arise where a beneficiary receives an inheritance as a result of someone dying. The beneficiary is responsible for paying the tax. An inheritance can be taken under a will or intestacy. Inheritance tax may arise when a beneficiary exceeds an inheritance which exceeds their threshold.  A threshold is the amount a beneficiary is allowed receive without having to pay tax. Your threshold is determined by your relationship to the person from whom you are receiving your inheritance. The inheritance a person receives is taxed if its value exceeds a threshold. Different tax thresholds apply depending on the relationship between the deceased person and the beneficiary. There are also a no of reliefs from inheritance tax available. Inheritance tax is also known as Capital Acquisition Tax (CAT).

The amount of tax payable by a person on receipt of a gift/inheritance depends on the amount, the relationship between the parties and whether the person received a previous gift from someone in the same threshold group. The amount of a gift/inheritance that can be received tax free is known as the threshold.

Where you receive a gift/inheritance from your spouse or from a Civil Partner no inheritance tax is due. The gift/inheritance is free from tax.

The current thresholds for 2013 are:

Gifts/Inheritances received by a beneficiary above the threshold amount set out above are subject to inheritance tax.

The current rate of tax payable by a beneficiary is:

You will be happy to know that there are a number of inheritance tax relief’s available. It is important to have an understanding of the tax relief’s available so that when you are drafting your Will you can ensure that certain relief’s can be availed of.

The following are a list of some of the tax relief’s available:

• Business Relief; This is a relief from inheritance tax for all gifts/inheritance of a relevant business property. The relief is not a full relief from inheritance tax. It is in the form of a deduction of 90% from the market value of the relevant business property.  The beneficiary can reduce the value of the relevant gift/inheritance of business property by 90% of its value for the purposes of calculating inheritance tax.

• Agricultural Relief;This is a relief from inheritance tax for all gifts/inheritance of a relevant agricultural property. The relief is not a full relief from inheritance tax. It is in the form of a deduction of 90% from the market value of the agricultural property.  The beneficiary can reduce the value of the relevant gift/inheritance of agricultural property by 90% of its value for the purposes of calculating inheritance tax. For a beneficiary to qualify for this relief certain criteria need to be complied with. The property comprising of the gift/inheritance must be agricultural property at the date of the gift /inheritance and the beneficiary must be a ‘farmer’ at the valuation date .

• Dwelling House Relief; This is a relief, from inheritance tax  that applies to a dwelling house regardless of the value of the dwelling house.  The dwelling house relief applies only to the part of the building used as a dwelling and includes grounds up to one acre. It is a full relief from inheritance tax, if the relief applies and conditions are complied with .

• Favourite Nephew/Niece relief; This is a relief, from inheritance tax where a nephew/niece can be treated as if they were a child of the individual for inheritance tax purposes.There are conditions attached to the relief. In order to qualify for the relief, the nephew or niece must have worked on a full-time basis in the business/farm for a minimum period of five years prior to taking over the interest in the business/farm. This would require 15 hours per week where the business is small and 24 hours per week where the business/farm is large.

• Heritage Property & Heritage Property of Companies;There are exemptions form inheritance tax for certain objects listed as “any pictures, prints, books, manuscripts, works of art, jewellery , scientific collection or other thigns not held for the purposes of trading”. It also applies to a house or garden situate in the state where it is established to the satisfaction of the Revenue Commissioners to be of national , scientific or artistic interest.

For further information about making your Will, Inheritance Tax and Inheritance Tax Reliefs click on the links below. The information provided above is no substitute for specific advice about you personally, therefore if you are thinking about making your Will and planning ahead to ensure that your affairs are dealt with in an efficient and effective tax manner, contact us on 061 599033 or visit our office at 64 O’Connell Street, Limerick.

Related Links:

Why make a Will 

How to make your Will 

What happens to my Estate if I have made no Will?

Inheritance Tax

Inheritance Tax Reliefs