For the purposes of Capital Acquisitions Tax (CAT), the relationship between the person 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. Where a person receives gifts or inheritances in excess of their relevant tax free threshold (when aggregated since 5 December 1991) CAT at a rate of 33% applies on the excess over the tax free threshold.
There are, in all, three separate Group thresholds based on the relationship of the beneficiary to the disponer.
Group A: tax free threshold €310,000 – applies where the beneficiary is a child (including adopted child, stepchild and certain foster children) or minor child of a deceased child of the disponer. Parents also fall within this threshold where they take an inheritance of an absolute interest from a child.
Group B: tax free threshold €32,500 – applies where the beneficiary is a brother, sister, a nephew, a niece or lineal ancestor or lineal descendant of the disponer.
Group C: tax free threshold €16,250 – applies in all other cases.
Where two people, irrespective of their relationship share a home owned by one of them, and where the homeowner dies leaving that home to the other person, they can in certain circumstances be exempt from the payment of inheritance tax in respect of the inheritance of that dwelling house. The main conditions attaching to this exemption are that the person who inherits the dwelling house must have lived there for a minimum of three years prior to the inheritance and must not have had an interest in any other dwelling-house. The dwelling house passing by inheritance must also be the sole or main residence of the disponer. In addition, with the exception of persons who are aged 65 years or over at the date of the inheritance, he or she must continue to live in that dwelling-house, as his or her only or main residence, for a period of six years commencing on the date of the inheritance. This exemption ensures that what may be the family home for many people will not be liable to inheritance tax when it is the subject of an inheritance.
Where a couple is cohabiting, rather than married or in a civil partnership, each partner is treated for the purposes of tax as a separate and unconnected individual. Cohabitants do not have the same legal rights and obligations as a married couple or couple in a civil partnership which is why they are not accorded similar treatment to couples who have a civil status that is recognised in law. From a practical perspective a CAT regime for cohabitants which would be the same as for married persons or civil partners would be difficult to administer and is likely to be intrusive. It would be time consuming to confirm declarations by individuals that they were cohabitating or when cohabitation started and ceased.
As regards the treatment of individuals with no children, gifts or inheritances from them are subject to either category B or C thresholds irrespective of their individual status. There would be a significant Exchequer cost with the extension of the Category A threshold to individuals with no children and it would be likely to give rise to tax planning opportunities.
Finally, I would say that the current CAT structure is a long standing feature of the tax system which has been agreed by the Oireachtas. The system promotes horizontal equity in that all individuals with similar circumstances are treated in a similar manner. I therefore have no plans to amend the rules applying to CAT in the manner sought by the Deputy.
