Paying a price on inheritance when your aunt is not really your aunt?

Q&A; Dominic Coyle

When is a relative not a relative? It becomes an issue when you come to inheritance

When is a relative not a relative? It becomes an issue when you come to inheritance

 

You write regularly about inheritance and explain that the amount you can get tax free depends on the connection between you and the other person. My aunt died and left me a sum of money. She had mentioned this to me some time ago and was clear that she had set the amount so that it would not be complicated by tax.

However, it appears that because she was only my aunt because she married my uncle, the threshold is lower. I thought anything you got from an aunt or uncle was in category B (€32,500). Is that not so?

Ms B.H., email

Families can be fiercely complicated things in Ireland. And you’re right, in general we always consider our aunts and uncles to be equally related to us, regardless of whether they are siblings of our parents or simply their partners or spouses.

Life really would get complicated, and not a little tetchy, if every aunt or uncle by marriage was to be treated differently to those directly related to us by blood.

But when is a relative not a relative? And why does that become an issue when you come to inheritance?

You refer to thresholds and, as I’ve mentioned plenty of times before, there are three different tax thresholds for recipients of an inheritance or a large gift, depending on the relationship between the person making the gift or bequest and the person receiving it.

Allowing for exceptional circumstances, these are broadly: from parent to child (category A with a current threshold of €335,000); close direct relative, such as a brother or sister, a grandparent or an uncle or aunt (category B with a €32,500 threshold) and anyone else, including in laws, other more distant relations or friends (category C with a €16,250 threshold).

Most of it is fairly clear. Obviously a sibling or a grandparent is a direct blood relative, but an uncle or aunt? Not necessarily so.

The law is actually both quite specific and quite clear on this.

It states in Schedule 2 of the Capital Acquisitions Tax Consolidated Act 2003 that category B applies “where the donee or successor is on that day, a lineal ancestor, a lineal descendant (other than a child, or a minor child of a deceased child), a brother, a sister, or a child of a brother or of a sister of the disponer”.

The child (or minor child of a child) referred to in that definition are covered by category A. Otherwise it is clear that one must be a blood relation. Specifically, in relation to aunts, uncles, nieces and nephews, it clarifies that they must be a “child of a brother or a sister” of the disponer.

As your aunt married into the family, one or other of your parents would be the brother or sister of your uncle, but not of your aunt. Therefore, anything you would receive from him would be considered under category B while the money you have actually received from her falls under category C.

In your case, this means that where your aunt thought she could leave you up to €32,500 without any tax bill arising (assuming you had no previous gifts or inheritances previously from a category B relative), she could in fact leave you only €16,250 before tax kicks in.

And of course, as category C covers everyone except pretty close relatives, there is more chance that you might have used up this threshold already as it is a lifelong threshold, not a one off.

The bad news, depending on how much she left you, is that you could be facing a tax bill of up to €5,362 on this inheritance from your aunt – or €10,725 if you have already used up the category C exemption. However, even at that maximum liability, you would have an inheritance after tax of just under €22,000 so it’s not all bad news.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into

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