using up allowances

john luc

Registered User
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A family member who inherited 100% from a deceased child was able to apply category A allowance and did not use all the allowance. Now a second child has died and they are to receive a portion from this child's will. This would mean that cat B would only apply. As the second child is leaving a house that exceeds the cat B allowance can the balance of of the first inheritance be applied instead as it is larger than the cat B allowance.
Cat A allowance €225K and used €125K of this.
Cat B allowance is €30K.
 
Is the parent taking an absolute or limited interests?

Class A should apply to an absolute interest or it may be exempt!

Group thresholds
Gifts and inheritances can be received tax-free up to a certain amount. The tax-free amount, or threshold, varies depending on your relationship to the person giving the benefit. There are three different categories or groups. Each has a threshold that applies to the total benefits you have received in that category since 5 December 1991.

Group A applies where the beneficiary, the person receiving the benefit, is a child of the person giving it. This includes a stepchild or an adopted child.

It can also include a foster child if the foster child resided with and was under the care of the disponer and they provided the care, at their expense, for a period or periods totalling at least 5 years before the foster child reached the age of 18. This minimum period does not apply in the case of an inheritance taken on the date of death of the disponer. In this case the Group A threshold will apply provided that the foster child had been placed in the care of the disponer prior to that date.

Group A also applies to parents who take an inheritance from their child but only where the parent takes full and complete ownership of the inheritance. If a parent receives an inheritance where he or she does not have full and complete ownership of the benefit, or if a parent receives a gift, then Group B applies.

If a parent inherits from their child, and have full and complete ownership of the inheritance it is exempt from tax if, in the previous five years, the child took an inheritance or gift from either parent and it was not exempt from Capital Acquisitions Tax. In this case, no tax needs to be paid even if the inheritance from the child is over the threshold.

Group B applies where the beneficiary is the:

  • Parent - see also Group A above
  • Grandparent
  • Grandchild or great-grandchild - see below
  • Brother or sister
  • Nephew or niece of the giver - see below
If a grandchild is a minor (under 18 years of age) and takes a gift or inheritance from his or her grandparent Group A may apply if the grandchild's parent is deceased.

Group A may apply to a nephew or niece if he or she has worked in the business of the person giving the benefit for the previous five years and meets the following criteria:

  • The nephew or niece must be a blood relation rather than a nephew or niece-in-law
  • The gift or inheritance consists of property used in connection with the business, including farming, or of shares in the company.
  • If the gift or inheritance consists of property then the nephew or niece must work more than 24 hours a week for the disponer at a place where the business is carried on, or for the company if the gift or inheritance is shares. But if the business is carried on exclusively by the disponer, their spouse and the nephew or niece then the requirement is that the nephew or niece work more than 15 hours a week.
  • The relief does not apply if the benefit is taken under a discretionary trust.
Group C applies to any relationship not included in Group A or Group B.

If you receive a benefit from a relation of your deceased spouse or civil partner, you can be assessed with the same group as your spouse or civil partner would be if they were receiving the benefit from their relation. For example, if you receive a benefit from the father of your spouse or civil partner, the group threshold would be Group C. But if you receive a benefit from the father of your spouse or civil partner and your spouse or civil partner is deceased, then the group threshold that applies to you would be the same as for a child receiving a benefit from a parent, Group A.



Current CAT thresholds (from 5 December 2012)
Group A: €225,000
Applies where the beneficiary is a child (including adopted child, step-child and certain foster children) or minor child of a deceased child of the disponer. Parents also fall within this threshold where they take an inheritance of an absolute interest from a child.
Group B: €30,150 Applies where the beneficiary is a brother, sister, niece, nephew or lineal ancestor or lineal descendant of the disponer.
Group C: €15,075 Applies in all other cases.


Historical CAT thresholds
2009 (up to 7 April 2009)

2009 (on or after 8 April 2009)

2010 (up to 7 December 2010)

2010 (on or after 8 December 2010) and up to 7 December 2011

2011 (on or after 7 December 2011) and 2012 (up to 5 December 2012)
Group A
€542,544 €434,000 €414,799 €332,084 €250,000
Group B €54,254 €43,400 €41,481 €33,208 €33,500
Group C €27,127 €21,700 €20,740 €16,604 €16,750


Valuation
The valuation date is the date on which the market value of the property comprising the gift/inheritance is established.
In the case of a gift, the valuation date is normally the date of the gift.

In the case of an inheritance, the valuation date is normally the earliest of the following dates:

  • The date the inheritance can be set aside for or given to the beneficiary
  • The date it is actually retained for the benefit of the beneficiary
  • The date it is transferred or paid over to the beneficiary
The valuation date will normally be the date of death in the following circumstances:

  • Gift made in contemplation of death (Donatio Mortis Causa)
  • Where a power of revocation has not been exercised. This could arise where a person makes a gift of property but reserves the power to revoke, or take back, the gift. If he or she dies and this power ceases, the recipient then becomes taxable as inheriting the benefit. If the beneficiary had free use of the benefit before this, he or she will be taxed as receiving a gift of the value of the use of the property.
Taxable value
The gift or inheritance is valued as the market value at the time you become entitled to the use or benefit of it.

The value that is taxable is the market value minus the following deductions.

You can deduct 'any liabilities, costs and expenses that are properly payable. This would include debts that must, by law, be paid and that are payable out of the benefit or because of it. With an inheritance, these may be funeral expenses, the costs of administering the estate, or debts owed by the deceased. For a gift, they could include legal costs or stamp duty.

If you make a payment for the benefit or some other contribution in return for it, this may also be deducted. This is known as a 'consideration' and could be, for example, a part payment, an amount paid annually to the donor or other person, or a payment of debts of the donor.

If you do not receive full ownership but instead receive a benefit for a limited period, then a number of factors are taken into account to calculate the value. The calculation of the value of a limited interest is explained in Revenue Guide IT 39 (pdf) (Appendix 7).

Tax rate
Capital Acquisitions Tax is charged at 33% on gifts or inheritances made on or after 5 December 2012 (the rate was formerly 30%). This only applies to amounts over the group threshold. For example, if you have received gifts from your parents with a taxable value of €550,000, you only pay tax on the amount over the appropriate group threshold (Group A threshold from 5 December 2012: €225,000). So €325,000 is taxed at 33%.

Exemptions
The following are exempt from Capital Acquisitions Tax:

  • Gifts or inheritances from a spouse or civil partner
  • Payments for damages or compensation
  • [broken link removed]
  • Benefits taken for charitable purposes or received from a charity
  • Winnings from a lottery, sweepstake, game, or betting
  • Retirement benefits and pension and redundancy payments are not usually liable to Gift Tax
The first €3,000 of the total value of all gifts received from one person in any calendar year is exempt. This does notapply to inheritances.

If you receive a gift or inheritance of a house that has been your main residence, it may be exempt from tax if you do not own or have an interest in any other house. There are conditions on how long you must be resident in the house before and after receiving the benefit. More information is available on this website - see Dwelling-house exemption below - or Revenue's leaflet CAT 10.

If a parent receives an inheritance from his/her child, and takes full and complete ownership of the inheritance, it usually taxable under Group A. But it is exempt if, in the previous five years, the child took an inheritance or gift from either parent and it was not exempt from Capital Acquisitions
 
Is the parent taking an absolute or limited interests?

Class A should apply to an absolute interest or it may be exempt!

The parent received the total inheritance from their first child and this was 3 years ago. the inheritance from the first child was approx €125K so with the Cat A allowance of €225K it meant that a balance of €100K was still available.
Now that a second child has died that second child has left the parent their house and contents in which the parent lives with the second child. The parent has lived in this house since it was built for the second child approximately 7 years ago and has being a carer for this second child. The second child has willed other assets to other people so I am concerned that the parent might have a tax bill on the house value.
 
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