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 from the 12th October 2016 are:
|Group||Relationship to Disponer||Group Threshold from 12/10/2016 to date|
|Son/daughter/minor Child of a deceased Child. Child also includes adopted children, step-children, long-term foster children (this is subject to conditions) and a child of a Civil Partner/minor Child of a deceased Child of a Civil Partner. Certain nieces and nephews may also be able to avail of group A provided certain conditions are complied with.||
|Brother/Sister/Niece/Nephew/Aunt/Uncle/Grandchild/Grandparent and a child of a Civil Partner of a Brother / Sister.||
|Relationship not covered by Group A or B. eg cohabiting partners, distant relatives and friends.||
Gifts/Inheritances received by a beneficiary above the threshold amount are subject to inheritance tax.
The current rate of tax payable by a beneficiary is:
|Gift/Inheritance||Current Rates of Tax|
|Up to Threshold amount||Nil|
|Amounts received over the Threshold amount||33% on gifts/inheritance|
The previous rate of tax payable by a beneficiary is:
|Gift/Inheritance||Previous Rates of Tax|
|Up to Threshold amount||Nil|
|Amounts received over the Threshold amount||30% on gifts/inheritance received on/after 7/12/ 2011 and 5/12/2012|
|25% on gifts/inheritance received between 08/04/2009 to 06/12/2011|
|22% on gifts/inheritance received between 20/11/2008 to 07/04/2009|
|20% on gifts/inheritance received prior to 19/11/08|
The reason the old tax rates and old thresholds are important is seen in the examples below. The rate of tax you pay is the rate of tax as and at the date of death.
Example No 1
Question : What tax would Sarah Murphy pay who received a inheritance gift from her uncle in his will in the amount of €50,000. Sarah’s uncle died on the 1st January 2017. Sarah received no previous gift from her uncle or from any other relative in relation to Group B (this is important and is dealt with below)
Answer: The group threshold that applies here to Sarah’s is Group B threshold. The amount of this threshold on the date of her uncles death is amount €30,150. The calculation of Sarah’s inheritance tax is as follows
|Tax Payable @ 33%||€5,775|
Example No 2.
Now using the same example but instead Sarah’s uncle died on the 12th February 2012. What tax is due to be paid by Sarah Murphy?
Answer : the same Group threshold applies which is Group B but the amount of €33,208 applies(thresholds change regularly) and the rate of tax is 30%
|Tax Payable @ 30%||€5,037.60**|
**interest would be due on the inheritance tax if this is only being discharged now.
Previous Years Tax Thresholds.
The tax thresholds for the last 10 years, are set out below for each group. You will notice that there has been a significant reduction in the group A tax threshold that has more than halve since 2008/2009.
|YEAR||Group A||Group B||Group C|
|14/10/2015 – 11/10/2016
05/12/2012/ – 13/10/2015
07/12/2011 – 04/12/2012
|01/01/2011 – 07/12/2011||€332,084||€33,208||€16,604|
|08/12/2010 – 31/12/2010||€332,084||€33,208||€16,604|
|01/01/2010 – 07/12/2010||€414,799||€41,481||€20,740|
|08/04/2009 – 31/12/2009||€434,000||€43,400||€21,700|
|01/01/2009 – 07/04/2009||€542,544||€54,254||€27,127|
Aggregation- receiving previous gifts.
If the inheritance or gift is received on or after 5 December 2001, then all inheritances and gifts received within the threshold group since 5 December 1991 are aggregated.
I will use the example above of Sarah Murphy to show how this rule applies:
If Sarah Murphy had also received a gift from her aunt in 2000 in the amount of 40,000. The amount received from her uncle and aunt are added together as they belong to the same Group B. As they are greater than the current threshold figure, Sarah Murphy is liable to more inheritance tax.
However, if Sarah Murphy received a gift also form her father in 1994 of £100,000 , this amount would not be added together with the other two amounts as they belong to different groups.
The information set out above is to act as a guide and is no substitute for specific advice that you would receive from us about Inheritance Tax. The law and tax law in particular is always changing and affects each person differently.