Calculation of Tax

Calculation of Capital Acquisitions Tax

Capital Acquisitions Tax, whether gift or inheritance tax, is paid on the taxable value of the gift or inheritance. The taxable value is the market value reduced by deductible costs, liabilities and expenses and by consideration paid in money or money’s worth.

The incumbrance-free value is the market value on the valuation date less than liabilities, costs and expenses properly payable out of it.  These may include, for example, a mortgage debt where the asset is given subject to a mortgage or charge.  It also includes incidental expenses such as stamp duty for the donee, legal fees etc.

Where the donee pays in part for the benefit, there is only a gift to the extent of the underpayment.  The consideration may be money paid.  Alternatively, it may be the taking over an existing liability or payment of an existing liability such as a mortgage debt.

Deductions

The general principle in the administration of an estate is that when a loan is secured on a particular property, it should be deducted and payable from that property insofar as possible.  Accordingly, where a benefit is taken subject to a mortgage, it is presumed to be referable to that property.  This follows from the principles of interpretation of gifts and benefits.

Where an asset is taken the subject of an obligation or liability to a third party, its value is reduced accordingly. The principle applies generally.

Out one of the best-known examples is the common occurrence of the benefit of property subject to a right in favour of a third party, such as a right of residence.  The right of residence is valued in accordance with the principles applicable to such a right.  This is the proportion represented by the annual value of the right divided by the annual value of the property (without the right) of the value of the entire property.

A right of residence should be distinguished from a life interest.  In this case, there is no benefit to the holder of the future interest until the life interest terminates.

Disallowed Deductions

Certain deductions are specifically disallowed.  Deductions, liabilities, costs and expenses, which are recouped by a third party, are not allowed. Liabilities created by the beneficiary or recipient, such as its own mortgage, whensoever created, are not deductible.

Interest and penalties are not deductible, nor are costs incurred in funding them.

Liabilities or encumbrances incurred in relation to property exempt from CAT, such as ones situated abroad in the case of a non-national, are not deductible in calculating the taxable value of Irish property.

Where the asset is situated in Ireland, and the disponer and recipient are non-resident, liabilities and expenses due to a foreign non-resident, except where specifically charged on the property, are disallowed.  Foreign tax on which credit is given is not deductible. The credit is, however, usually more valuable.

Where the charge relates to Irish property only, a deduction is permitted for consideration payable to a non-resident but is limited to the consideration that is attributable to the Irish situate asset.

Limited Interests

In the case of limited interest, such as a life interest, deemed valuation rules apply.  The schedule to the legislation sets out the percentage of the entire market value referable to a life interest for a person of a specified age and sex.

There are provisions in respect of a single life, the shorter of two lives or longer of two lives. These percentages are applied to the value of the whole interest.

There are also provisions in a schedule to the legislation for the valuation of an interest for a particular term of years.  They apply, and the interest is not valued actuarially.

Contingencies

The general principle is that contingencies or benefits other than a right of revocation are ignored.  If the contingency happens, the tax is recalculated, and a refund may be available.

If, for example, an asset is granted but may revert to the donor on the occurrence of an event, the benefit is taxable on the full value.  If it later ceases, the value is recalculated on the basis of an interest for the actual period with repayment.

There is a four-year time limit from the cessation to claim the repayment from the cessation or happening of the contingency.

Making a Return

The obligation to make a CAT return arises automatically.  It is a self-assessment tax.  See the separate chapters in that regard.

The Revenue may serve a notice on any person or accountable agent.  The Revenue has extensive powers to obtain information.  There is a maximum period of four years in which to make an assessment in the absence of fraud or neglect.

Class Thresholds / Zero Allowances

Formerly, the class threshold rules were very complex and involved a merger of benefits under different classes.  Since 2000, there have been three groups, Group A, B. and C.

Group A applies where the donee is a child, a minor child which is a deceased child of the disponer; It includes a

• a child of the civil partner of the disponer or minor child of a deceased child of a civil partner;
• a minor child of a civil partner or the deceased child of the disponer;
• adopted children, stepchildren and some foster children.
• a parent of the disponer and the interest taken is not limited interest and is taken on the death of the disponer.

Group B threshold applies where the donee is a lineal ancestor, descendant (other than the above, brother, sister, or child.

The Group C threshold applies to all other persons.

Other Group A Beneficiaries

This so-called favourite niece or nephew may benefit from the Group A threshold.  Benefits taken by grandchildren on certain marriage settlements are subject to the Group A threshold.

A child who is in respect of whom the disponer is in a loco parentis is entitled to the Group A threshold. A child has always included an adopted child, and the Finance Act 2012 aligned the definition of ‘‘child’’ with that in the Adoption Act 2010;

On making a claim to the Revenue, a Group A threshold may apply where an adopted child takes a benefit from his or her natural mother or father.

Social Parents 2022 Act

Finance Act 2022  made a number of amendments to the Capital Acquisitions Tax Consolidation Act 2003 to take account of the Birth Information and Tracing Act 2022. These amendments provide that a person affected by an incorrect birth registration (an “affected person”) will, in addition to his or her existing right of succession in relation to his or her birth parents, have succession rights in relation to his or her “social” parents.

Any existing right or obligation that applies in the Succession Act 1965 based on the relationship between a person and his or her birth parents, siblings and extended family also applies based on the corresponding relationships between the affected person and his or her social parents, siblings and extended family. The affected persons  have the same rights of inheritance vis-à-vis their social family as they have vis-à-vis their birth family.

The definition of ‘child’ is amended and other new definitions in the context of ‘social families’ are inserted. Schedule 2 of the Capital Acquisitions Tax Consolidation Act 2003 was amended to provide for an election as to the relationship to apply for Capital Acquisitions Tax purposes where a person takes a taxable benefit from his or her birth parents or from his or her social parents.

Fostering and Informal Adoption

Finance Act 2023 makes provision for the computation of CAT on gifts and inheritances received by a beneficiary from a person who cared for the beneficiary under a formal or informal fostering arrangement. CAT on the gift or inheritance is computed as if the beneficiary was a child of the person providing the foster care, such that the beneficiary may claim the Group A CAT threshold when computing the CAT payable.

This extends the relief to gifts and inheritances received from the wider family members of the person providing the foster care. The  enables a beneficiary of a gift or inheritance received from these persons to avail of the Group B CAT threshold (available to siblings, aunts, uncles, grandparents, etc.) when computing the CAT payable.

Finance Act 2023 amends the changes made the Finance Act 2022 to ensure that the provisions will operate as intended. Section 75 of the Finance Act 2022 made provision for persons who have been the subject of incorrect birth registrations, by amendments to the CATCA 2003 to provide that the relationship between such a person and his or her social mother and social father is to be treated as the same as the relationship between the person and his or her birth mother and father for CAT purpose

Aggregation of Past Gifts & Inheritances

All gifts or inheritances from persons in the same class are aggregated since 5 December 1991.  Formerly, the date was 1982 and prior to that 1969.  There had been an expectation that the date would be uplifted periodically.

However, due to the combination of the low rates in the 2000s, followed by the economic crisis, there has been no bringing forward of the commencement date for the threshold.

Thresholds FA 2011

FA Act 2011 reduced the tax-free thresholds.  It reduced

• the Group A threshold to €332,084,
• the Group B threshold to €33,208; and the
• the Group C threshold  to €16,604.

The filing and payment date in respect of benefits of the period, 1 January to 31 August was amended from 31 October to 30 September.  Filing and payment date for benefits taken in the period 1 September to 31 December was moved to 30 September in the following year.

Threshold & Rates FA 2012

The Group A tax-free threshold was reduced from €332,084 (after indexation) to €250,000.

In addition, the Group B and C tax-free thresholds (after indexation) were rounded from €33,204 and €16,602 to €33,500 and €16,750 respectively. The Act  abolished the indexation of the tax-free group thresholds. The amendment applied to gifts and inheritances taken on or after 7 December 2011.

The  the rate of CAT was increased from 25 per cent to 30 per cent.

Thresholds FA 2013

The general inheritance tax rate is increased by Finance Act 2013 to 33%.  The group thresholds are reduced to €235,000, €33,500 and €16,750.  In respect of gifts or inheritances taken after 6 December 2012 claims for overpaid CAT must be made within four years.

Relief for policies to fund CAT payments is extended to so-called capital redemption policies issued by life insurance companies.

The exemption from CAT for approved retirement funds and approved minimum retirement funds is extended to cover vested PRSAs.

Thresholds FA 2015

The Finance Act 2015 amends the Class A threshold to €280,000. This applies to all gifts and inheritances taken after 14 October 2015.

Thresholds FA 2016

The thresholds for CAT are advised upwards to.

• Group A €310,000 Euro.
• Group B €32,500 Euro.
• Group C €16,250 Euro

as from 12 October 2016.

Thresholds FA 2018

The Finance Act 2018  amends Schedule 2 to the Capital Acquisitions Tax Consolidation Act 2003. That Schedule deals with the computation of gift tax and inheritance tax. The amendment gives effect to the Budget announcement to increase the Group A tax-free threshold from €310,000 to €320,000.

This is the group threshold that applies primarily to gifts and inheritances from parents to their children. The increased threshold applies to gifts and inheritances taken on or after 10 October 2018

 

Thresholds FA 2019

Finance Act 2019 increased the Group A tax-free threshold from €320,000 to €335,000. This is the Group threshold that applies primarily to gifts and inheritances from parents to their children. The increased threshold applies to gifts and inheritances taken on or after 9 October 2019.

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