Tax implications of receiving gift after raised CAT thresholds

[RiskAverseGuy]

Will Revenue seek more tax on a gift to my child if tax-free thresholds fall in the future?

Will Revenue seek more tax on a gift to my child if tax-free thresholds fall in the future?

The amount you can receive tax-free in a gift or inheritance changes often making it tricky for estate planning

www.irishtimes.com

I was just reading Dominic Coyle's advice in the Irish Times today on how tax works in this article after a CAT threshold changes and his advice seems to be at odds with what an accountant informed my sibling previously.

We received a gift from a Group B relative in 2021 that exceeded the previous Group B CAT threshold of €32,500 meaning we paid 33% on everything above 32,500 except the annual 3k gift exemption. Budget 2025 increased the CAT threshold to €40,000. We subsequently received an additional gift this year and had hoped the €7,500 threshold increase meant 7500 plus the annual 3k of the new gift would be tax free but our accountant said no in that we were subject to the tax on the prevailing rate at the time and that because we already had gifts exceeding the current CAT threshold of 40K back in 2021 prior to the Budget change, we couldn't benefit from the additional threshold increase of 7500 when filing our CAT tax for 2025. We accepted his advice and paid 33% CAT on total amount minus the annual 3k exemption.

Dominic says in his example that a child received 500k from a parent when Group A CAT threshold was 350k (and hence paid 33% CAT on 150k at the time). The child subsequently received an additional 200k after threshold was increased to 400K was able to reduce the taxable amount due on gift by 50k to allow for the increased threshold.

Is our accountant or Dominic correct? Did we pay 2500 too much CAT last year when we should have been able to reduce the taxable amount by 7500? Hopefully I've explained my situation clearly but let me know if you need clarity. Any opinions would be gratefully received.

 

[AAAContributor]

Is our accountant or Dominic correct?

I don't think Dominic is correct.

The following is the format used in the CAT Return to calculate any tax due:

Step	Details	Value
1	State the Group threshold applicable (at date of current gift / inheritance)	X
2	Taxable value of aggregable prior benefits i.e. market value of prior benefits less any reliefs, liabilities, costs, expenses, consideration and the small gift exemption that applied at the time of the gift	X
3	Unused portion of threshold (subtract item 2 from item 1)	X
4	Taxable value of all current benefits within the same group threshold	X
5	Taxable excess (subtract item 3 from item 4)	X
6	Tax on current benefits (multiply item 5 by the appropriate CAT rate)	X

If we were to apply this to Dominic's example (leaving out the small gift exemption for simplicity):

Step	Value
1	400,000
2	500,000
3	0
4	200,000
5	200,000
6	66,000

Dominic is correct when he says in the article: "just because you went over the limit on the original 2024 gift does not mean that every future gift or inheritance is all liable to tax."

However, it depends on the numbers. In his example, the prior benefit exceeded the current threshold and so all of the current benefit should be liable to tax.

If the prior benefit had landed below the current threshold, there would be a benefit of an increased threshold to any subsequent benefits. See Example 4 here: https://www.revenue.ie/en/gains-gif...tes-and-aggregation-rules/cat-thresholds.aspx

 

[Brendan Burgess]

Does Example 4 in that link not back up Dominic Coyle's interpretation?

 

[Brendan Burgess]

and example 5




I have not experienced this in practice and I am not a tax advisor, so I might have it wrong.

 

[AAAContributor]

Does Example 4 in that link not back up Dominic Coyle's interpretation?

I think the examples are misleading in how they are laid out and the conclusions a reader might come to.

If you look at the second benefit in Example 4, and itemise the individual rows of the example, you'd naturally assume that the taxable excess (Row 4 - €14k) equals Row 1 (€20k) + Row 2 (€34k) minus Row 3 (€40k).

In reality, the taxable excess (€14k) is the result of 2 separate calculations:

1. Subtract Row 2 (€34k) from Row 3 (€40k). If the result is a negative number, set to zero.
2. Subtract result above (i.e. €6k) from Row 1 (€20k). If negative, set to zero.

Revenue lay things out better in Part 8 of their Guide to Completing the CAT Return which backs up my approach above and that the full €200k in Dominic's example is liable to tax where the CAT threshold has been increased.

 

[RiskAverseGuy]

Thanks @AAAContributor. My sister's accountant's advice backs up your approach and what Revenue says. I think its a little misleading for Dominic to advise otherwise as some beneficiaries could think they were in for a much bigger windfall than they would be...especially if they fall within Group A.

 

[ClubMan]

I think its a little misleading for Dominic to advise otherwise as some beneficiaries could think they were in for a much bigger windfall than they would be...especially if they fall within Group A.

If he got this wrong then it wouldn't be the first time he got something wrong.

 

[bipped]

Example 4

This example is confusing me as it looks like the excess in the initial gift is being taxed twice:

1) Gift 34000 less threshold 32500 =1500. Tax due @ 33% = 495. Presumably already paid.
2) New 20000 + 34000 is a total gift of 54000. Less current threshold of 40000 = 14000. Tax due @ 33% = 4620.

Does the Revenue calculation not take any account of the tax paid previously on the excess over the initial threshold?
Should the second gift calculation not be (20000 + 32500) - 40000 = 12500 @ 33% = 4125.



Because the amounts in the Revenue example are near to the threshold, for this example I’ve used larger gift amounts to show how this Revenue example method could result in very substantial tax on separate gifts whereas an inheritor with a single gift of the same amount would pay less tax.

Nephew A
Gift 2015…………….. 100000
Threshold…………… -32500
Taxable……………… 67500
Tax due @33%……….. 22275

Gift 2026……………….. 100000
Gift 2015……………….. 100000
Total gifts………………. 200000
Threshold 2015………….. 32500
Increase in threshold……. 7500
Total threshold @ 2026….. -40000
Taxable…………... 160000
Tax due @33%…………. 52800

Total tax paid. € 75075



Nephew B
Gift 2026………….. 200000
Threshold………… -40000
Taxable…………….. 160000
Tax due @ 33%…………… 52800

Total tax paid: € 52800


This doesn’t seem right. Both nephews received the same amount in lifetime gifts and both receive the same CAT Threshold amount. However, if the tax paid on the 2015 gift is ignored, A pays a total tax of 75075 while B pays the much lesser amount of 52800.

I can see that the gift and Threshold amounts are cumulative over a lifetime but if that’s the principal, shouldn’t the tax paid be cumulative also? What am I not understanding here?

 

[Bluefin]

Should the calculation be:

100k - 32.5k *33% = 22275

100k - 7.5k ( remaining threshold) * 33% = 30525

Total tax paid = 52800

Same for both nephews.

Or is this totally wrong way of performing calculations?

 

[Daphne]

Dominic Coyle's column is very useful however I have noted several occasions where he has been quite wrong in his advice or interpretation of facts. At one point I actually emailed the Irish Times to point out a glaring inaccuracy but never heard back and no correction was ever published!