Returns
Liable Person
A person who takes a gift or a benefit by way of inheritance is potentially liable to pay capital acquisitions tax. The primary obligations rest on the donee, the transferee or successor.
Any person who is liable to pay capital acquisitions tax, whether inheritance tax, gift tax or discretionary trust levies must deliver a full and true return of all gifts or inheritances in respect of which he is accountable with details of the assets comprised in the gift, an estimate of the market value and such other particulars as are relevant to the assessment.He must assess the tax to be charged and paid on the valuation date to the best of his information, knowledge and belief and pay the tax so assessed.
The tax is recoverable from the recipient or his personal representative if a notice is served. The donee’s successors, transferees or personal representatives may raise the tax by means of sale or by charging the property even if it is not vested in them.
Non-Resident’s Representative
Formerly, personal representatives and certain other persons were secondarily liable and could be pursued if the beneficiaries did not pay. This is now applicable only to a non-resident beneficiary.
Where a non-resident takes an inheritance of more than €20,000 and there is no personal representative resident in the State, the representatives must appoint a solicitor who is practising in the State to act in the administration. The solicitor may be charged with the inheritance tax in respect of a beneficiary who is non-resident under a will, intestacy or Succession Act benefits.
The personal representatives or solicitors are not liable if the non-resident beneficiary has not disclosed prior gifts or inheritances and the personal representative or solicitor has made reasonable enquiries regarding the same and acted in good faith.
A resident personal representative or solicitor is only liable to pay the CAT on behalf of a non-resident beneficiary to the extent that property or assets are within his control or which but for his neglect or default would be under his control.
The personal representative or solicitor has the power to retain the asset as is required to make payment. He may raise the tax by sale or mortgage.
Self-Assessment
CAT is managed by the Revenue in common with the other principal taxes. A CAT return is made through the Revenue Online Service. It is necessary to register with the Service.
The general obligation to file arises once the gift or inheritance exceeds 80% of the relevant group threshold.
The obligation to return arises if tax would arise but for certain exemptions and reliefs. This includes agricultural relief and business relief. Revenue indicate that certain exemptions and reliefs should be claimed on the return, including the dwellinghouse exemption.
Finance Act 2020 requires the delivery of a return where a gift or inheritance comprises agricultural property or relevant business property where agricultural relief or business relief, respectively, apply. A return must be delivered in respect of such gifts or inheritances irrespective of whether the taxable value of such agricultural property or relevant business property, when aggregated with the taxable value of previous gifts or inheritances since 5 December 2001, exceeds 80% of the relevant group threshold.
FA 21 provides that where requested by the Revenue Commissioners, the disponer of a gift which comprises agricultural property (where agricultural relief applies) or relevant business property (where business relief applies), must deliver a return to the Revenue Commissioners in respect of such gifts. This is irrespective of whether the taxable value of such agricultural property or relevant business property, when aggregated with the taxable value of previous gifts or inheritances since 5 December 2001, exceeds 80 per cent of the relevant group threshold.
Interest Free Loans
Finance Act 2023 provides for the introduction of a mandatory reporting requirement in relation to interest- free loans. Where a person receives an interest free loan for less than full consideration, he or she is deemed to take a gift for CAT purposes. The gift is the interest free element of the loan, rather than the loan itself.
There is a requirement for the beneficiary to deliver a CAT return to the Revenue Commissioners in respect of such loans where they are between close relatives and the total amount outstanding on the loans exceeds €335,000 in the reporting period.
Tax Return
There were formerly manual return forms. Formerly, gifts or inheritances were to be the subject of a return made within four months of the valuation date.
IT38S (shorter) was used where no relief or exemptions was claimed apart from the general small gift exemption and where what passed was an absolute interest, without conditions or restrictions from a single disponer. The longer IT38 form was required in other cases.
The system of collection of capital acquisitions tax was radically reformed in 2010. In broad terms, it moved to an annual tax, largely returned by way of self-assessment through the Revenue Online Service.
The Finance Act 2012 changed the pay and file date for CAT from 30 September in each year to 31 October. Where the valuation date is in the first eight months of the year, the return must be filed by 31st October in that year. In relation to gifts and inheritances in the last four months, they must be included in the return in the following year.
As with other taxes, an accountable person may make a return and make an expression of doubt. Provided it is accepted as genuine, any additional CAT is payable within 30 days of the assessment without additional interest.
The CAT return must be signed in writing or electronically confirming that the declaration of liability is correct to the best of the person’s information, knowledge and belief. The Revenue may accept an unsigned return on return signed by an agent. The Revenue can require an additional return to be sworn before a Peace Commissioner, Commissioner for Oaths, Notary Public etc., on oath.
Discretionary Trust Tax
The four-month period from the relevant date continues to apply to Discretionary Trust Tax. The return must be made within that period.
Separately, person who is resident in the State and makes a disposition under which property becomes subject to a discretionary trust must make a return within four months of the disposition setting out the terms of the trust, the address in the State of the trustees, address of the potential beneficiaries and an estimate of the market value.
The same applies in respect of a foundation. The obligation in respect of the creation of a discretionary trust or foundation does not apply to persons who have been residents for less than five years and are not domiciled.
Required Return
The Revenue may require a return from a beneficiary by giving notice at any point. Where a notice is given in the relevant period, the relevant filing return must be made by 31st October.
The Revenue may give notice at any time on a person requiring a return to be submitted within 30 days of every taxable gift or inheritance taken during the period referred to in the notice. The return must give details of the gift, estimated market value and other factors relevant to the assessment. He must respond even if there is no liability.
In any case, where an incomplete or defective return is made, Revenue may require a corrective return which may require payment of additional tax and interest. Where the return is defective in a material respect, an obligation to make an additional self-assessment return and pay the outstanding tax arises within three months of the person becoming aware of the material defect.
If a person has failed to deliver a return et cetera, or an additional return, the failure to comply is subject to a penalty of €5,000. In addition, the general criminal and civil penalties set out in the section on enforcement of taxes apply.
Revenue Assessment
The Revenue retains the power to make assessments notwithstanding the self-assessment obligation. They may require further or corrective assessments.
Revenue may serve a notice of assessment on a person who is accountable for tax or his agent or his personal representative if he is deceased. It may assess an accountable person even if his address is not known by publication in the official journal.
An assessment must be made within four years unless there are reasonable grounds for believing that there has been fraud or neglect.
Interest
Interest arises at the rate specified on arrears of tax from the due date. Interest rates run from the day after the due date. Interest is not compounded.
The rate of interest is specified from time to time at a daily rate, which was formerly an annual rate. In certain cases, a lower rate of interest is allowed where CAT is being paid under an instalment arrangement. The general rate since 2009 check is 0.219% per day.
Where exemptions are clawed back because a subsequent condition does not apply, interest is not charged retrospectively. It arises from the date of clawback. However, if paid within 30 days, interest is not charged. Payment on account on part payment is treated as the payment of the tax rather than interest.
Instalments
In certain cases, payments are allowed in instalments over five years. Where instalments are paid, a reduced (non-penal) rate of interest arises.
This applies to gifts and inheritances of real property and a limited interest in real property and non-movable property. Where non-real property is taken absolutely, instalments are not available on the basis, that it is assumed to be liquid.
Instalment arrangements are available in respect of property receiving, qualifying for business property and agricultural property relief. This applies to movables and not just real property.
Where property is subject to an instalment arrangement and is subsequently sold or otherwise realized, unpaid instalments become immediately due in most cases. This is unless there is reinvestment within the period of year as required generally within a year or for other periods in other cases.
Where the beneficiary is a life tenant and dies within the instalment period, the balance of instalments is not paid.
Revenue Mitigation
The Revenue may if they are satisfied that payment of tax when otherwise due cannot be paid without excessive hardship, may allow for payment to be postponed on such terms as they think fit. Each case is looked at separately.
Where interest exceeds the amount of unpaid tax, Revenue may cap interest at 100% if it sees fit. This is a discretionary power.
Payment Source
Certain categories of government security may be used to pay inheritance tax. It must have formed part of the estate at least three months prior to the death. There is a very limited category of such stock available.
There is special capital gains tax relief in respect of the repurchase of the company’s shares for the purpose of payment of inheritance tax. See the separate sections on capital gains tax. The relief applies to trading companies which are unquoted.
One of the conditions is that the proceeds are used to pay inheritance tax in the relevant year or a debt incurred in discharging inheritance tax which must itself be repaid or redeemed. The relief requires that the person could not have discharged the tax without undue hardship.
Heritage Items & Tax
Where a gift is made of a heritage item to an approved body, its market value may discharge liability to arrears of current and future taxes, including CAT. It is applicable only to items worth more than €150,000. Where it is part of a collection, at least one item must be worth a minimum of €50,000. The maximum that can be gifted in total across the State is €6,000.000 annually.
A heritage item must be a cultural item, including an archaeological item, archived book, estate record, manuscript, painting or collection, which the selection committee of a relevant body considers to be an outstanding example of its type, preeminent in its class and the export of which from the State would constitute a diminution of the accumulated cultural heritage of the State or whose import would constitute a significant enhancement and it must be suitable for acquisition by the relevant body. The relevant bodies are the National Archives, National Library, National Gallery, National Museum and certain other institutions.
The relief must be specifically applied for and approved by a relevant committee. There is a credit of 80% of the market value against most taxes, including arrears and it may be carried forward.