Dáil Éireann Debate, Thursday - 8 September 2022
340. Deputy Colm Burke asked the Minister for Finance if consideration will be given to increasing the group C and group B capital acquisition tax inheritance tax thresholds to support those whose next of kin are not their own children and ensure a higher tax-free threshold applies to these inheritances; and if he will make a statement on the matter. [42433/22]
Amharc ar fhreagraFor capital acquisitions tax (CAT) purposes, the relationship between the person giving a gift or inheritance (i.e. the disponer) and the person who receives it (i.e. the beneficiary) determines the maximum amount, known as the “Group threshold”, below which CAT does not arise. Any prior gift or inheritance received by a beneficiary since 5 December 1991 from within the same Group threshold is aggregated for the purposes of determining whether any tax is payable on a benefit. Where a person receives gifts or inheritances that are in excess of the relevant Group threshold, CAT at a rate of 33% applies on the excess. There are three Group thresholds:
- the Group A threshold (currently €335,000) applies, inter alia, where the beneficiary is a child (including adopted child, stepchild and certain foster children) 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 descendant of the disponer;
- the Group C threshold (currently €16,250) applies in all other cases.
The Group thresholds do not apply to gifts and inheritances between spouses / civil partners, which are exempt from CAT.
Accordingly, where a person gives an inheritance to a person who was his or her next of kin, but that person was not their child (including adopted child, stepchild and certain foster children), spouse or civil partner, either the Group B threshold of €32,500 or the Group C threshold of €16,250 will apply. CAT will be payable by the beneficiary at a rate of 33%, to the extent that the benefit received, when aggregated with any prior gift or inheritance received since 5 December 1991, exceeds the applicable Group threshold.
However, where a person leaves the family home to his or her next of kin, the beneficiary may be in a position to avail of the dwelling house exemption. To qualify for the exemption, the inherited property must have been the deceased person’s principal private residence at the date of death. This requirement is relaxed in situations where the deceased person left the property before the date of death due to ill health; for example, to live in a nursing home. The beneficiary must also have lived in the house for 3 years prior to the date of the inheritance and must continue to live in the house for 6 years after that date. In addition, the beneficiary must not have a beneficial interest in any other residential property. Detailed guidance on the dwelling house exemption is available on the Revenue website at: www.revenue.ie/en/tax-professionals/tdm/capital-acquisitions-tax/cat-part24.pdf.
Where the beneficiary was the disponer’s niece or nephew, the niece or nephew may qualify for ‘favourite’ niece or favourite nephew relief in respect of gifts or inheritances of business assets. The relief allows a niece or nephew who qualifies for the relief to avail of the Group A threshold. Qualifying nieces or nephews are those who have worked substantially on a full-time basis for a period of five years prior to the gift or inheritance being given in carrying on, or assisting in the carrying on, the trade, business or profession, of the disponer. For the nephew or niece to be deemed to be working substantially on a full-time basis in the business he or she must work:
- more than 24 hours per week at the place where the business, trade or profession is carried on; or
- more than 15 hours per week at the place where the business, trade or profession is carried on exclusively by the disponer, any spouse or civil partner of the disponer and the nephew or niece.
Furthermore, changes to the CAT group thresholds come at a cost to the exchequer. Recent Revenue estimates indicate that the cost of increasing the Group B and Group C thresholds, to align with the Group A threshold, would be €221m and €70m respectively.
