Is Irish tax due on US inheritance?

Q&A: Dominic Coyle

There is a double taxation agreement between the United States and Ireland that specifically covers the issue of inheritance tax.  Photograph: Eric Luke

There is a double taxation agreement between the United States and Ireland that specifically covers the issue of inheritance tax. Photograph: Eric Luke

 

I’m just enquiring do I have to pay tax on inheritance of over $50,000 from my uncle who moved to America when he was 16. He died and was buried there. I’m living in Ireland.

Ms P.W., email

With the flow of emigration to the United States from Ireland down the years, the issue of Irish residents receiving a bequest from a relation stateside is all too common. Perhaps, that is why there is a double taxation agreement between the United States and Ireland that specifically covers the issue of inheritance tax.

And there would need to be because the two countries have a contradictory approach to taxing inheritance. in the United States, as in Britain, it is the dead person’s estate that is taxed if it is over a certain size: in Ireland, tax liability falls on the beneficiary.

As a general rule. you are liable for Irish capital acquisitions tax – inheritance tax – if either the person making the bequest or receiving it is resident in Ireland. Obviously, there are rules in place that give an exemption against capital acquisitions tax for inheritances below a certain level.

In the case of an uncle – a linear relative to you and so falling within category B as far as you are concerned – the current threshold is €32,500. This is a figure for all inheritances received by you from category B relatives since December 5th, 1991.

There are procedures in place with most of the main jurisdictions affected that allow for any tax bill in Ireland to be reduced by any amount of tax already deducted on the inheritance elsewhere – such as the country where the person who has died lived. This is known as double taxation relief.

Essentially, the agreement in place between the United States and Ireland in inheritance limits the situations in which Ireland can claim tax on an inheritance received from someone resident in the US, like your uncle.

It states that Ireland can only tax “property”that is located abroad if the person giving the inheritance is domiciled in Ireland or is not resident in the United States.

It is actually possibly to live most of your life in a country and still be domiciled elsewhere. Typically, domicile will be the country where you are born but in cases, like your uncle, where the man left here at 16 and lived the rest of his days in the US, it is reasonable to assume that his domiciles is in the US.

You’ll have seen that I put property in quote marks above. This is because, in the context of this agreement, property is wider than a physical building. It includes financial bequests such as the one you received, or even stocks and shares.

In relation to cash, for inheritance tax purposes, its “situs” or location, is deemed to be the place it was held at the time of death. In your case, for your uncle, the cash inheritance you have received was based in the UK.

As such, it will have been assessed for tax as part of US estate tax you should not have any further tax liability here.

Please 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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