How to Avoid Inheritance Tax In Ireland Legally
- Wix Admin
- Aug 6
- 5 min read
Inheritance tax is usually something that people forget about until it’s too late and it often comes as a shock during a time of heightened stress. There are many ways to ensure that you’re prepared for this Revenue bill, so it’s vital to think ahead and plan for how to avoid it as much as possible. It is also important to become informed and realise how much exactly you’ll have to pay.
What Is Inheritance Tax
Inheritance tax (or acquisition tax) is billed against the value of anything which you might inherit from a family member, e.g. a parent. Some people assume that this is a tax which affects only the wealthy, however this is not the case as this tax is triggered when a relatively low threshold is reached.
What is the Tax Threshold for Inheritance Tax?
The inheritance tax threshold is €400,000. Most inheritance is from property so it’s easy to see how the threshold is reached quite quickly. However, there are things that you can do now to manage how much tax your children will have to pay in the future on an inheritance.
What is Capital Acquisitions Tax (CAT)?
The correct term for inheritance tax is Capital Acquisitions Tax (CAT) and in Ireland this tax is set at 33%. It is a tax on inheritance and gifts.
The amount of your inheritance that will be taxed is calculated when the value of your inheritance goes over the threshold – €400,000.
So, If you inherit a property you will not have to pay tax on the full value of that property. You will only be taxed on the amount of the property value that is over the threshold of €400,000.
So if a property is worth €600,000 you will be taxed on the portion above the threshold – €200,000. The rate of tax that you will have applied to this is 33%. This is called Capital Acquisitions Tax (CAT).
It is applied to two areas:
Gift Tax
This is a tax on gifts that you receive from a parent, for example. You will be taxed on anything with a value over €3,000. You do not pay tax (CAT) if the gift is not over this value threshold.
Inheritance tax
This is a tax on gifts or inheritance received when somebody has died. This tax is applicable to both cash and assets.
Updated CAT Thresholds (Budget ’25)
Group thresholds on or after 2nd October 2024
Relationship to disponer (the person giving the gift or the inheritance)
Group A: Son/daughter: €400,000
Group B: Parent/Brother/Sister/Niece/Nephew/Grandchild: €40,000
Group C: Relationship other than two listed: €20,000
Inheritance Tax Group A: Sons and daughters
These beneficiaries must use the €400,000 tax free threshold when calculating their tax liability. It includes adopted children, step-children and sometimes *fostered children.
*This group also includes some foster children who were under the foster families care before they were 18 years of age.
Inheritance Tax Group B: family connections
This group includes family connection such as a sister or brother, a niece or nephew, a grandchild or grandparent, or any other family descendent of the person whose estate is being disposed of. The tax threshold for Group B is €40,000.
Inheritance Tax Group C: Other
This group refers to all other family or dependent connections which do not fall under either group A or Group B. Group C has a tax free threshold of €20,000
Once aware of which group you fall into then you will be able to calculate the inheritance tax threshold that is applicable to you. The most common scenario is Group A – an inheritance from parent to child.
How Do I Pay My Inheritance Tax?
You must pay your inheritance tax to Revenue in Ireland. www.revenue.ie. It is up to the recipient of the inheritance to know what to do with their tax liability.
You can get information about this if you visit revenue.ie but a financial advisor like Citywide Financial can help you with this too. There is an expectation that the tax liability is paid speedily and not drawn out. If you receive an inheritance between January and August in a given year, it is expected that you will make a payment before October 31st of that year.
How Can I Avoid Inheritance Tax Legally?
· You cannot entirely avoid inheritance tax or gift tax legally in Ireland; however there are ways in which you can reduce your tax bill. By planning in advance a person can transfer their wealth by using small gifts as a way of giving money to family members. You can deposit €3,000 a year into an account in your loved ones name. You can receive a tax free gift from anyone of up to €3,000 every year. This is often used by grandparents to grandchildren
Business Tax Relief
Business Relief reduces the taxable value of a business inheritance by 90%.
To qualify, the business must be actively trading, and the beneficiary must maintain ownership and control for at least six years.
This relief supports the continuation of family businesses.
Agricultural Tax Relief
If you receive a gift or an inheritance of agricultural property, you may qualify for Agricultural Relief. Similar to business tax relief, this relief reduces the taxable value of the property (including land) by 90%. This is subject to certain conditions. To qualify for Agricultural Relief as a farmer, the value of your agricultural property must consist of at least 80% of your total property value on the valuation date. This is known as the ‘Farmer Test’ The relief encourages the continued operation of family farms.
How Do I Plan My Estate As A Parent?
· The most important thing for parents to do when planning their estate is to ensure that you write a will. On the death of the 1st parent, transfer all assets within the estate to the 2nd parent (it is tax free for transfers between spouses or civil partners)
Exemption for Dwelling House: you won’t have to pay Capital Acquisitions Tax (CAT) if ALL of the following applies to you:
1. The house was the only or main home of the person who died (this does not apply if you are a dependent relative).
2. You have lived in the house as your main home for the three years prior to the person’s death.
3. The house is your main home for six years after you receive the inheritance. This condition does not apply if you are over the age of 65.
4. You do not own, or have an interest in any other house, including the one you acquired as part of the inheritance.
Can I Use An Insurance Policy To Pay Inheritance?
A Section 72 policy is a specific type of life insurance policy which is revenue approved in Ireland and is designed to cover inheritance tax, also known as Capital Acquisitions Tax (CAT) It’s a "whole of life" policy, meaning it provides a cash payment upon the death of the insured, intended to be used by the beneficiaries to pay any inheritance tax owed on the estate. The main benefit is that the proceeds of a Section 72 policy are exempt from inheritance tax, provided they are used to pay the inheritance tax bill
Conclusion
As an inheritance can be a life changing experience for many people it is so important that you allow the recipients to get the most benefit from it. Anyone who owns a house and is in receipt of a pension has already built up wealth that can be inherited. If you take action now to manage your estate, you are ensuring that the recipients of your estate will get the very most from it.
Need help planning your estate? We offer a free no-obligation consultation. Get in touch today
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