Inheritance tax v gift tax in Ireland

[Sean Luxembourg]

Hello,

I’m resident in Luxembourg for the last 40 years and have a house in Ireland (holiday home) with a market value of approximately Euro 350,000. If I sell it the Capital gain on the house is probably in the region of Euro 300,000 and the capital gains tax payable would be in the region of 33% /Euro 100,000.

I have two daughters.

If I leave the house to my daughters in my Will, as I understand it, no capital gains tax will be payable on the basis that the inheritance of Euro 350k would be covered by the thresholds of Euro 400,000 for each of my daughters or Euro 800,000 in total. (Category A capital acquisitions tax Ireland)

However, If I gift the house to my daughters using the same thresholds, The disposal is treated as a taxable event and triggers CGT and the liability explained earlier. Any suggestions on how best to manage this, bearing in mind that I would prefer to dispose of the house in my lifetime. In other words how can I mitigate the CGT payable if I dipose of the house during my lifetime?

 

[Brendan Burgess]

I am not a tax expert and anything involving different countries requires professional advice.
Where are your two daughters resident?


You are mixing up a few things here.

Capital Gains Tax and Capital Acquisitions Tax are two (almost) completely separate taxes.

If you gift the property while you are alive, you will have to pay CGT.
If you still own it when you die, the CGT disappears.

Capital Acquisitions Tax is a separate tax.
It doesn't matter much if it's a gift or an inheritance.
Assuming that they are both resident in Ireland...
Each daughter has a lifetime allowance of €400k.
If you gift them a house worth €350k now, that will use up €175k of each of their allowance.
It is the same if you leave it to them after you die.



Brendan

 

[Bank Manager]

I'm not a tax expert, but my understanding is that if you dispose of the asset (for consideration or not) the disposal event will trigger the CGT charge as you have calculated....

 

[patfert1]

How does the Irish lifetime allowance for gifts+inheritance work if a person - one of the OP's children in this case - spend only part of their lives in Ireland? For example, if they are gifted money or get an inheritance while living abroad, presumably this is subject to the tax system whereever they are tax resident (Luxembourg, or wherever they reside.) But what if they subsequently move to Ireland and become tax resident here? Is this earlier-received gift/inheritance "carried forward" into their lifetime allowance under the Irish taxation system, or they start with a "clean slate" in this respect when they become tax resident in Ireland?

 

[LarryScott]

How does the Irish lifetime allowance for gifts+inheritance work if a person - one of the OP's children in this case - spend only part of their lives in Ireland?

My understanding is that gift tax applies if the donor, or recipient is a resident in Ireland, but also for all property situated in Ireland. As long as there is at least 1 connection to Ireland, the tax is payable (by the recipient).

If the recipient has to pay tax in their country of residence on the gift/inheritance, then they can probably offset that tax payment against the CAT payment (if any). This requires a double taxation treaty though.

 

[patfert1]

My understanding is that gift tax applies if the donor, or recipient is a resident in Ireland, but also for all property situated in Ireland. As long as there is at least 1 connection to Ireland, the tax is payable (by the recipient).

Indeed, that appears to be the case. However, according to ChatGPT, past historical gifts or inheritance when the giver and receiver had no connection to Ireland, do not count to the Irish lifetime CAT non-taxable thresholds. Below I post the full summary from ChatGPT. I didn't check the sources.

In the context of the OP's original question, it appears that if the OP's daughters were not resident in Ireland and the OP was not resident in Ireland, a cash gift between them at that time would not fall under Irish CAT rules (obviously enough), but it would also not count towards the daughter's Irish lifetime CAT non-taxable threshold even if they moved to Ireland later in life. However gifting them the house would fall under Irish CAT since the property is in Ireland. Similarly upon death, if it was willed. That's my reading of it anyhow.

This question is relevant for my own personal family situation so I'm interested in any other thoughts or opinions.

Generally, no: gifts or inheritances received before a person came within the Irish CAT net do not usually reduce their Irish lifetime CAT thresholds later.

The key point is that Ireland aggregates prior taxable gifts/inheritances for CAT purposes. If an earlier gift or inheritance was outside the scope of Irish CAT at the time it was received, it normally is not carried forward into the Irish lifetime thresholds later. (revenue.ie)

Irish CAT applies if, at the relevant time, one of the following applied:

• the beneficiary was Irish resident or ordinarily resident
• the disponer (giver/deceased) was Irish resident or ordinarily resident
• the property was Irish-situated property

There are also special rules for non-domiciled individuals: someone who is non-Irish domiciled is generally treated as outside the CAT net until they have been Irish tax resident for 5 consecutive tax years. (PayLessTax)

So in practice:

• If someone received gifts from foreign parents while living outside Ireland, and neither party was Irish resident and the assets were not Irish assets, those earlier gifts would generally not count against Irish CAT thresholds later.
• But if an earlier gift already had an Irish CAT connection (for example Irish property, or an Irish-resident disponer), then it could count toward the lifetime threshold even if the beneficiary lived abroad at the time.

Example:

• Person moves to Ireland in 2026.
• In 2015, while living in Germany, they inherited €200,000 from a German parent.
• Neither person had Irish residence/domicile connections and the assets were outside Ireland.

That 2015 inheritance would generally not reduce the person’s Irish CAT Group A threshold later.

However:

• if the inherited asset had been Irish property, or
• the parent had been Irish resident/ordinarily resident,

then the inheritance may already have been within Irish CAT and could therefore count toward the lifetime threshold.

One technical detail: the Irish aggregation rules refer to benefits taken since 5 December 1991, but only taxable benefits within the Irish CAT regime are relevant. (revenue.ie)

There is some discussion of this exact issue by Irish tax practitioners and accountants online, and the consensus aligns with the above interpretation. (reddit.com)