Unravelling the legal matrix on foreign inheritances

Q&A: Dominic Coyle answers your personal finance questions

Paying CAT on US inheritance. (AP Photo/Charles Krupa)

Paying CAT on US inheritance. (AP Photo/Charles Krupa)

 

I have a situation very similar to a recent article of yours (June 18th, 2017) and I find conflicting information on the Revenue website. The query from the reader concerned a situation where members of a family had inherited some money from a US-based relative.

In one place on the Revenue website it says if either disponer (the person transfering the property) or the beneficiary is resident in this country then tax is payable and, in another, if the disponer is resident in the US then no tax is payable (as per your article).

Does one simply choose whichever suits? Just wondering if you have any views on the matter ?

Mr PS, email

This is the sort of stuff tax lawyers love and ordinary people hate – the arcane world of tax interpretation. It’s tough enough when you are dealing with one jurisdiction but when you have the two parties in different countries, it gets even more complicated.

But one thing is certain. You certainly cannot simply choose which regime better suits you.

As my previous piece noted, when you are talking about the United States and Ireland you have two diametrically contradictory positions.

For the US Inland Revenue Service, taxes on inheritances are taken from the estate of the disponer – the person who has died – and if they are based in the US, the IRS assumes that all worldwide income and assets are taxed in the US.

In Ireland, the beneficiary pays inheritance tax – or capital acquisitions tax (CAT) to give it its formal title.

The guidance issued by Revenue also states in a thoroughly mind-bending table that where “either the disponer or the beneficiary is resident or ordinarily resident in Ireland, worldwide assets comprised in a gift or inheritance are liable to Irish CAT. If neither the disponer nor the beneficiary is resident or ordinarily resident in Ireland, at the relevant date, CAT will apply to Irish situate assets only”.

And if that is not confusing enough, it provides a grid outlining the position for liability to inheritance tax which can differ according to whether the benefactor and/or the beneficiary is either domiciled, tax resident or ordinarily resident in Ireland or abroad. If you fancy bending your brain, you can find it here: http://iti.ms/2xFjtMI

Clear? Of course not.

Reading that table, you will see that where a benefactor, or disponer, who has foreign domicile and tax residence leaves assets to a person whose domicile and tax residence is in Ireland, there is a liability to Irish CAT.

But that is before you take double taxation agreements into account.

These are designed specifically to ensure that people are not taxed twice on the same asset or income by two competing tax jurisdictions with contradictory positions on liability.

Double taxation agreements are not identical and each one is negotiated separately between the two jurisdictions involved.

In the case of Ireland and the United States, the agreement does specifically cover inheritance and it says that the Revenue Commissioners cannot tax property held outside Ireland unless the person giving the inheritance is either domiciled here or, alternatively, not domiciled in the US.

You don’t specify which two countries are involved in the case you’re talking about. I assume one is Ireland. If the other is the US and the assets being bequeathed are not based in Ireland (such as a holiday home here), then my reading is that there is no tax liability here – as long as the benefactor was domiciled in the US, which means in very simple terms that they viewed it as their permanent home country.

I received no admonition from the accounting and legal communities over the previous answer to which you refer, nor from Revenue, which bolsters my belief that I am correct. However, you should always bear in mind that I am a journalist and not a qualified investment adviser or tax specialist.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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