Where does inheritance law leave stepchildren?
Q&A: Dominic Coyle answers your personal finance questions
You are free to give your stepchildren up to €3,000 a year on top of any similar sum given to them by your husband. Photograph: iStock
I have just read your article, Will our stepchildren lose out on inheritance, from last September, which was very helpful. I have an additional query; perhaps “clarification” would be a better word.
Is the current amount of €310,000 (being very low in this day and age) that a child can inherit in total from both parents in full, or can each parent leave this amount? I am a stepmother to two adult children, having been in their lives for 30 years. I am considering leaving them an apartment I own, worth circa €300,000.
Also, am I okay to give them €3,000 per annum tax free, as well as my husband’s €3,000, or is the €3,000 a maximum limit from both parents?
Regarding my stepgrandchildren, what is the highest amount I can leave to each of them without them incurring a tax liability? I’ve done a couple of “searches” on the Revenue.ie website, but can’t seem to find the answer. I’m currently revising my will.
Ms S.B., email
Inheritance tax thresholds move all the time and the current Government has said that it intends to raise the threshold on inheritances from parents to children that can be taken tax free to €500,000. However, as yet, any moves towards this target have been only marginal.
At the current rate of progress, a newborn could reach majority before that €500,000 threshold is reached and, of course, the current Government will be but a distant memory at that stage, and policy and economic circumstances may have changed.
But it is what it is and, as of now, the threshold is €320,000, having risen €10,000 in the last budget.
And yes, that is the total amount a child, or stepchild, can receive from both parents. And in the case of step-parents, you are clearly talking about more than two parents – there’ll be the two biological parents and then any step-parent. That further diminishes the room for manoeuvre in families such as yours.
The €320,000 limit is cumulative, so any inheritance received from one parent or step-parent, has to be added to any previous inheritance from a parent or step-parent to assess whether it breaches the tax-free threshold.
The child also needs to take into account any substantial gifts received from a parent or step-parent, as these two count towards the €320,000 limit.
Gift exemption provision
What is not included is gifts made under the small gift exemption provision – the €3,000 figure you mention.
Under this useful measure, a person can receive up to €3,000 in any tax year from any other person without it counting towards their inheritance/gift tax (Capital Acquisitions Tax) threshold. As that infers, there is nothing to stop each parent or a step-parent giving €3,000 to a child each year. So yes, you are free to give them up to €3,000 a year on top of any similar sum given to them by your husband.
Some might consider it strange that one element is cumulative and the other standalone but they are very different things. A person can avail of the small gift exemption not only from a parent/step-parent but from anyone – another relative or even a friend.
Not that one would wish it but, in the context of framing your new will, it is worth noting that should a stepchild predecease you, any of their children under the age of majority (18) are treated as category A under the inheritance tax regime and can receive up to €320,000 from a grandparent without paying tax.
If they are older than 18, they remain in category B, where the cumulative limit from all grandparents, siblings and aunts or uncles is currently €32,500.
That is the same position if they inherit from you while your stepchild is still alive and that threshold has not really moved in recent years.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice