Will Revenue come calling with tax bill if inheritance tax threshold falls?
Q&A: Dominic Coyle
The applicable inheritance tax threshold is the one in place at the time the parent dies
Just on your recent article on inheritance, when the threshold rises that’s fine but what happens when you are within the threshold and then the threshold figure drops by €100,000 due to economic reasons? Are you then liable for inheritance tax on the sum that you have gone over or do you keep an account of the year you gifted it and what the inheritance tax was in that particular year when you gifted the amount?
Mr K.C., email
Inheritance tax in Ireland can be straightforward and complex at the same time. On the upside, the thresholds are clear: anything below that figure and there is no tax; anything above and you pay capital acquisitions tax – currently at 33 per cent.
But thresholds can change –and there is also the issue of keeping track of just what you might receive and from whom.
The good news, for you, if you were lucky enough to receive anything up to €542,544 back in 2009 when that was briefly the inheritance tax threshold, is that the Revenue Commissioners will not come calling.
The only threshold that counts is the one in existence when you receive the benefit. So, to your example, if you got €500,000 when the threshold was €542,544 and it has now fallen to €335,000, there is no retrospective tax. You were compliant at the time and that is fine.
It only becomes an issue should you receive a further gift over €3,000 or an inheritance from the other parent (remember that, apart from exceptional circumstances, this highest inheritance tax threshold applies only when assets are passing from a parent to a child). In you previously received anything above the current threshold of €335,000, you will be axed on any further large gift or parental inheritance in its entirety.
Another issue to bear in mind is if you did receive a lower sum from a parent back in 2009 – say €270,000 – it actually brings you over the 80 per cent mark of the current threshold. As a rule, you need to let Revenue know when you exceed the 80 per cent mark on any inheritance tax threshold – even if no tax is due.
Again, you don’t have to revisit a past legacy and alter them that it now puts you over the 80 per cent but you will certainly need to inform them if you receive even a smallish gift – say €5,000 – that keeps you well below the tax threshold but, naturally, still above the 80 per cent.
Obviously, thresholds can rise as well as fall – as this category A one has been doing in recent years, albeit modestly. It is worth noting that if, when a parent dies, the threshold is x but it rises before the estate is sorted, you do not benefit from the new higher threshold. The applicable threshold is the one in place at the time the parent dies.
Finally, keeping track of inheritances – or large gifts is a good idea as we have three thresholds, each of which is determined by your relationship to the person giving you the gift or inheritance. And each is taxed separately.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.