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Capital Acquisitions Tax

What is Capital Acquisition Tax

Capital Acquisitions Tax (CAT) is a tax on gifts and inheritances.

A taxable inheritance arises in any of the following situations:

  • The disponer is resident or ordinarily resident in Ireland at the date of the disposition
  • The successor is Irish resident or ordinarily resident at the date of the inheritance
  • The property is located in Ireland at the date of the inheritance

A taxable gift arises in any of the following situations:

  • The disponer is resident or ordinarily resident in Ireland at the date of the disposition (not applicable to gifts under a Discretionary Trust)
  • Where a gift is taken under a Discretionary Trust, the disponer is resident or ordinarily resident in Ireland at the date of the disposition or the date of death (if the gift is taken after the death of the disponer)
  • The beneficiary is resident or ordinarily resident in Ireland at the date of the gift.
  • Provided the settlor or beneficiary is not Irish domiciled, he is not deemed to be resident until after 1 December 2004 and then only if he has been resident in Ireland for 5 consecutive years of assessment immediately before the year of assessment in which the gift is received and is also resident at the date of the gift.

Rates
CAT is chargeable at the rate of 33% on all taxable gifts/Inheritance.

Gifts/inheritances taken on or after 5 December 1991 are aggregated with later gifts/inheritances in order to arrive at the current tax payable.

Only gifts/inheritances within the same group are to be aggregated.
 
Threshold    €
 6th Dec 2012

Parent to child 225,000
Blood relative 30,150
Others 15,075


Main reliefs from CAT below:

1. The small gift exemption

Small gift exemption of €3000 is applicable per gift, per annum.

1. Agricultural Relief

This is a relief that applies to gifts or inheritances of “agricultural property” located in Ireland.

This term is defined in the CAT legislation and includes farm land, farm machinery, livestock, farmhouse and out buildings etc.

For the relief to apply, the beneficiary’s agricultural assets (at the valuation date) must be equal to or greater in value than 80% of his/her total assets.

If this is the case, then the market value of the agricultural property is reduced by 90% and this is the amount that the beneficiary is deemed to have received for CAT purposes. CAT is then calculated in the normal manner, which is set out above.

To avoid a clawback of the relief the beneficiary must retain ownership of the agricultural property the subject of the gift/inheritance for 6 years. There is no clawback where some or all of the agricultural property is disposed of or compulsorily acquired within the 6 year period and the proceeds are reinvested in further qualifying agricultural property within a year of the disposal or 6 years of the compulsory acquisition.

Where land which had development potential at the date of the gift or inheritance and qualified for relief is disposed of by the donee in the period commencing 6 years after the date of the gift/inheritance and ending 10 years after that date, the relief granted will be clawed back in respect of the development value of the land at the date of the gift/inheritance.

2. Business Property Relief

This is a relief that applies to gifts or inheritances of “relevant business property”. This phrase is defined in the CAT legislation and would include, for instance, transfers of business assets owned by a sole trader, shares in a trading company, etc. There are strict conditions to be satisfied in order for the relief to apply including, inter alia, ownership and control tests for the beneficiary to satisfy following the gift or inheritance. Where the relief applies the taxable value of the relevant business property is reduced by 90%.

To avoid a clawback of the relief the beneficiary must retain ownership of the relevant business property for 6 years. However, where some or all of the relevant business property is sold within 6 years of the gift or inheritance and the sale proceeds are reinvested in further qualifying relevant business property there is no clawback of the relief.

Where land which had development potential at the date of the gift or inheritance and qualified for relief is disposed of by the donee in the period commencing 6 years after the date of the gift/inheritance and ending 10 years after that date, the relief granted will be clawed back in respect of the development value of the land at the date of the gift/inheritance.

To qualify for the relief the relevant business property must have been owned for a continuous period of 5 years prior to the date of the gift/inheritance. If the gift/inheritance is taken on the death of the disponer the relevant period is 2 years prior to the date of the gift/inheritance.

3. Dwelling house Relief

Under this relief a dwelling house may be gifted or inherited free of CAT provided the donee or the successor:

  • continuously occupied the dwelling house as his or her only or main residence for the three years immediately preceding gift or inheritance;
  • is not (at the date of the gift or inheritance) beneficially entitled to any other dwelling house or to any other interest in any other dwelling house;
  • (unless he or she has reached the age of 55 years at the date of the gift or inheritance) continues to occupy the dwelling house as that donee’s (or successor’s) only or main residence for 6 years following the gift or inheritance;
  • Finance Act 2007 restricted the application of this exemption in the following manner:
  • In relation to the 3 year period of occupancy, any period whereby the donee and the donor occupied the dwelling (the subject of the gift) will be disregarded for the purpose of the relief, unless they lived together due to the dependence of the donor or the donee by reason of old age or infirmity.
  • the disponer must own the dwelling house for the three year period, therefore ruling out gifts from certain entities e.g. companies or discretionary trusts.

The exemption may be withdrawn where the donee or successor disposes of the dwelling house within the 6 year period. However, the clawback will not apply where the proceeds of sale are reinvested in certain residential property and where certain conditions are met.


4. Capital Gains Tax (CGT) / Capital Acquisitions Tax Set-Off

Where CGT and CAT arise on the happening of the same event the CAT legislation provides that the CGT paid may be deducted from the corresponding CAT liability as a credit against the CAT liability. A recent change in the legislation imposes a clawback of the relief in the event that the beneficiary disposes of the property the subject of the benefit within 2 years of receiving the benefit. This relief could be availed of say, where a parent gifts an investment property to their son or daughter (and the investment property is retained by the son or daughter for 2 years from the date of the gift). The parent would have made a disposal for CGT purposes and CGT could arise. The child could have a CAT liability in respect of the gift. As the CGT and CAT arise on the same event the CGT paid may be offset against the CAT.

5. Spousal Exemption

Since 31 January 1995 all inheritances between spouses have been exempt from CAT. Since31 January 1990 all gifts between spouses have been exempt from CAT.

Should you require any further information, please contact Susan Lennon slennon@annebrady.ie