Mixed messages over tax liability on inheritance from my aunt

Q&A: what are the tax rules when family in US and UK inherit from Ireland?

 

My aunt in Ireland died in January 2020. I live in the US and was informed via a letter that she left me some money in her will. My two sisters and brother and my parents who live in England are also named as beneficiaries.

I asked him to forward a copy of the will and he said I’m not entitled to see it. But office also told my sister we have to pay 33 per cent tax.

Everything I’ve read said because we are blood nieces and nephews etc. and never been named in a will before that we have an exemption of $32,500. Can you please shed some light on this matter for us?

It has been 17 months and until I got a response today with my questions we didn’t know what was going on.

Ms J.K., USA

There seem to be several crossed wires here...and a little lack of clarity. Broadly, there are three issues – sight of the will, taxation and delay.

You don’t make clear who exactly you asked for a copy of the will. I am assuming it is the executor of your aunt’s estate – a solicitor or close family member generally. Whoever it is, what they have told you is not necessarily incorrect but does not address the question you asked.

In Ireland, no-one bar the executor has the legal right to see the will until probate has been granted. Thereafter, wills are publicly available to anyone through the probate office.

However, just because you don’t have a legal entitlement to see it does not mean you cannot see it. It is entirely open for an executor to grant you sight of the will. And I would argue that, unless there are very good reasons to do so, depriving family/beneficiaries sight of a will is a recipe for discord and lack of trust.

I simply do not understand why it arises so often. It creates an atmosphere of suspicion. The will is the will. It is a legal document. Whether someone sees it or not in no way changes the job of the executor or the outcome for the beneficiaries.

Legal challenge

Transparency can also be useful in a scenario where it can take some time to sort out the affairs of a person. An executor has a year to do so and to distribute the dead person’s assets in accordance with the terms of the will. During this time – commonly referred to in Ireland as the “executor’s year” – they are protected under law from any legal challenge on failure to distribute the assets of an estate.

But, beyond that, they are open to challenge and it can be very useful to all concerned to have clarity as to what is happening and who is in line for what.

You say this process has now dragged on for around 17 months so I think the executor is asking for trouble in being absolutist and legal on sight of the will.

Mind you, it is worth noting that, in general, the costs an executor incurs in legal action in relation to an estate will be taken from the estate. Pursuing a legal course will likely mean diluting the estate, with less available for all beneficiaries unless the executor can be shown to have acted beyond their powers or negligently.

I doubt any Irish court would accept, on the very limited facts presented above, that such is the case here.

Wills can take an inordinate amount of time to sort out, especially where the executor is not a legal person and therefore is likely unfamiliar with a process, which is very specific and occasionally cumbersome.

Patience is required by all concerned and that’s why clear and open communication can be so helpful.

Taxation

And that includes on tax. Irish inheritance tax law will generally consider that tax is due here where either the donor (your aunt) or the beneficiaries are resident in Ireland.

Capital acquisitions tax, as inheritance tax is formally known in Ireland, is a self-assessed tax. It is up to the taxpayer to ensure they file a return and pay any tax due. However, there are obligations on the executor to ensure that beneficiaries like you, who are not resident in Ireland, make their returns and pay their tax. If a beneficiary dodges their tax, the executor can find themselves with a tax bill to discharge personally.

As a result, an Irish executor will likely not release any funds due to you, your sisters, brother or your parents ( I assume from your question that they all live in the UK) unless they are comfortable that any tax liability has been met.

There is, as you say, a tax free threshold in Ireland for people inheriting from others. How much this is depends on your relationship with the deceased. In this case, all bar one of your family are in category B which, as you note, has a tax free threshold of €32,500.

Category B applies to nieces and nephews (i.e. you, your sisters and brother) and siblings (i.e. whichever of your parents is the brother or sister of your aunt). The exception is the other parent, who is, under inheritance tax law, a “stranger” and so entitled to a tax exemption of only €16,250 under category C if anything is left specifically to them.

The thing is that this exemption is a lifetime one so any previous inheritance or gift worth more than €3,000 under this category is aggregated and once you top the €32,500 threshold, you’re liable to tax – which as you have been told is levied at 33 per cent.

You say you and your brothers and sisters have never been named in a will before. That being so, as long as what you receive under this will is less than €32,500, there is no tax bill. The executor here might require a formal statement to that effect witnessed by a notary or some such in case the Revenue come calling to them but there is no tax bill for you.

And, under the double taxation agreement between Ireland and the US, no tax is liable in the US either in your case. Different inheritances are taxed in different jurisdictions under the double taxation agreement but “tangible movable property” like cash – which is what I understand you will receive – is taxable “where it is located at the time of death” according to the Irish Revenue Commissioners.

You will need to check inheritance tax at the state level over there. The double taxation agreement covers only federal taxes and some states do levy inheritance tax.

I cannot see your UK-based family – apart from your parents – being liable to any tax on this inheritance either as, again, it appears any tax would be due in Ireland and, aside from your parents, none seems to have breached the tax free threshold.

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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