It is a long held principle of capital acquisitions tax (CAT) that transfers of property between spouses are exempt. All inheritances taken by a spouse from his or her spouse since January 1985 are exempt from tax and are not to be taken into account in computing tax. A similar exemption for gifts between spouses is also in place since January 1990. The spousal exemption from gift and inheritance tax was extended to civil partners with effect from 1 January 2011. Because the tax relief operates as a full exemption spouses and civil partners are not included in any of the three tax free group thresholds and gifts and inheritances between spouses and civil partners are not counted for aggregation purposes. Thus in the case referred to by the Deputy, the individuals in question benefitted from a long standing CAT treatment of the transfer of gifts or inheritances between spouses.
For the purposes of CAT, the relationship between who provides the gift or inheritance (i.e. the disponer) and the person who receives the gift or inheritance (i.e. the beneficiary) determines the life time tax free threshold - known as the group threshold below which gift or inheritance tax does not arise. When a person receives gifts or inheritances in excess of the relevant tax free threshold (when aggregated since 5 December 1991) CAT at a rate of 33 per cent applies on the excess over the threshold. It is the beneficiary and not the disponer who is liable for CAT.
There are three group thresholds. The Group A threshold (currently €310,000) applies where the beneficiary is a child (including adopted child, step child, and certain foster children) or minor child of a deceased child of the disponer. The Group B threshold (currently €32,500) applies where the beneficiary is a brother, sister, nephew, niece or lineal ancestor or lineal descendent of the disponer. The Group C threshold (currently €16,250) applies in all other cases.
Where certain conditions are met, it is possible for a person to be exempt from payment of inheritance tax on the receipt of a dwelling house from a person who is not his or her parent. The main conditions are that the beneficiary must have lived in the house that was the sole residence of the disponer for at least three year prior to inheritance and must not have an interest in any other house. This exemption is not contingent on the relationship between the disponer and the beneficiary.
Ordinarily a beneficiary cannot avail of the Group A threshold unless he or she receives a gift or inheritance from a parent. However, certain beneficiaries who are nephews or nieces of a disponer can avail of "favourite nephew relief". A nephew or niece who has worked substantially on a full time bases for a period of five years prior to the gift or inheritance in carrying on or assisting in the carrying on of a trade, business or profession of the disponer is entitled to the Group A threshold instead of the usual Group B threshold. Other reliefs than can also apply are agricultural and business relief.
The current CAT treatment of gifts or inheritances provides for horizontal equity in that beneficiaries of gifts or inheritances are treated equally for the purposes of the application of CAT. I do not therefore consider it necessary to make any amendment to the existing CAT treatment of gifts or inheritances.
