FAQ - Capital Acquisitions; Inheritances and Gifts

Inheritances and Gifts Tax - Main Areas

I) General Terms and Procedures?

II) What should I do as a Personal Representative?

III) What should I do as a Beneficiary?

IV) What are the main exemptions and reliefs for surviving spouses? 

V) What I should do as a trustee?

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I) General Terms and Procedures

Before considering the tax issues arising on a death, it is useful to look briefly at some of the key terms used to describe the ways in which property is distributed to the beneficiaries and at the procedures that must be followed before assets are handed over.

1. What is an estate?
2. How is the estate distributed to the beneficiaries?
1. Examples of assets distributed under a will or intestacy
2. Examples of assets distributed outside of a will or intestacy
3. The personal representative
4. Beneficiary
5. Trustee
6. Before assets are distributed to the beneficiaries
1. assets distributed outside of the will or intestacy
2. assets distributed under the will or intestacy
3. Special additional procedures relating to money in joint names

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1 What is an Estate?

A deceased's estate is the portfolio of whatever assets (e.g. bank accounts, stocks and shares, house, land, livestock, jewellery, car, etc.) can be inherited by the beneficiaries following the deceased's death.

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2 How is the estate distributed to the beneficiaries?

The assets, which make up the deceased's estate, can transfer on death in a number of ways. Assets can transfer to the beneficiaries in accordance with the terms of the Will of the deceased. If there is no Will (that is intestacy), assets will pass instead under special rules laid down by the Succession Act 1965. Assets can also transfer outside of the instructions of a will or rules of intestacy.

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2.1 Examples of assets distributed under a will or intestacy

• Assets owned in the deceased's sole name.
• Assets owned by the deceased but placed in the name of another person for convenience or some similar reason.
• Assets placed by the deceased in the joint names of the deceased and another person without the intention of benefiting that other person.

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2.2 Examples of assets distributed outside of a will or intestacy

• Assets transferring by nomination, e.g. the deceased may have instructed a financial instritution to pay the capital from a savings account upon his or her death to a particular named person.
• Death benefits passing under a life insurance policy or pension scheme where the beneficiaries are particular family members named in the policy.
• Assets, which transfer under an earlier Will which granted the deceased an interest for the remainder of his or her life only.
• Assets held by the deceased in the joint names of the deceased and another person with the intention of benefiting that other person on the deceased's death.

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3 The Personal Representative

The Personal Representative is the person who is responsible for organising and sorting out the deceased's affairs.

The Personal Representative is obliged, within a reasonable time, to  gather the assets, to pay the outstanding debts and distribute the remaining surplus assets to the beneficiaries under the terms of will or the rules of intestacy.

If there is a will, the Personal Representative is appointed by being named in the will as its executor. If there is an intestacy (no will), the Personal Representative will probably take on the responsibility simply because he or she is the deceased's spouse or one of the next-of-kin. A Personal Representative who has not been appointed by will is called an administrator.

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4 Beneficiary

A Beneficiary is a person who inherits either the whole or part of the deceased's estate whether passing under the will or intestacy or outside of the will or intestacy.

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5 Trustee

Instead of providing for property to be given directly to the beneficiary, the deceased's will may provide that, for a specified period, the property is to be held on trust on behalf of the beneficiary by trustees named in the will. Trusts may arise because the beneficiary concerned is very young, or because the deceased wishes the property to be held for the benefit of one person for life and, on the death of that person, to be transferred to another beneficiary. The trustees will take over the management of the trust property only after the estate has been administered by the personal representative. The trust will then continue until the time specified in the will for the ultimate handing over of the property.

The same person can have more than one role; for example, a Personal Representative can also be a Beneficiary.

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6 Before assets are handed over to the beneficiaries

Certain procedures must be gone through as follows:

6.1 Assets distributed outside of a will or intestacy

In the case of an asset being distributed outside of the terms of a will or rules of intestacy, production of a death certificate by the beneficiary is often all that is required to establish the beneficiary's entitlement to receive the asset in question.

6.2 Assets distributed under a will or intestacy

In order to get legal confirmation of his or her appointment, the Personal Representative must apply to the Probate Office of the High Court for a Grant of Representation. The Grant of Representation acts as an assurance to financial institutions (e.g. banks, building societies, credit unions, etc.) and to others that they can safely place the deceased's assets in the hands of the person named as Personal Representative in the grant. The Grant of Representation is also known as a Grant of Probate (where there is a will) or Letters of Administration (where there is no will).

The application for the Grant of Representation will normally be made by a solicitor acting on behalf of the Personal Representative. In straight forward cases, it may be possible to make a personal application for the grant through the Personal Application Section of the Probate Office.

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6.3 Special Additional procedure relating to money in joint names

In the absence of a letter of clearance from the Revenue Commissioners, banks, building societies and other financial institutions are prohibited by law from releasing monies (other than current accounts) lodged or deposited in the joint names of the deceased and another person or persons. This applies if, at the date of death, the total of all the amounts standing with the institution in the joint names of the deceased and that other person or persons exceeds €31,750. It does not apply, however, to monies which have only been held in the joint names of the deceased and his or her surviving spouse.

Applications for letters of clearance for production to financial institutions should be made to the the relevant CAT operational area.

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II) What you should do as a Personal Representative?

1. Notifiying the deceased's tax office
2. Sorting out the deceased's pre-death tax affairs
3. completing the Revenue affidavit
4. What information is looked for in the affidavit
5. What happens to to the affidavit
6. Income and capital gains arising during the administration period

A shortlist of what a Personal Representative should do.

Here is a shortlist of what you should do about tax - and when you should do it.

What you should do	When
Notify the deceased's accountant and they will notify the tax office of death and new address	As soon as possible after death
Ask the accountant to sort out any outstanding tax issues up to the date of death	As soon as possible after death
Make sure tax is paid on any income or capital gains arising during the period when the estate is being administered	During the administration period

It should be noted that, in addition, the personal representative has a secondary liability for the payment of any Inheritance Tax due by the beneficiaries in respect of the benefits they take under the will or intestacy. This means that the personal representative should ensure that all amounts due by a beneficiary are paid.

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1 Notifying the Deceased's Tax Office

Contact the the deceased's accountant so that they can make arrangements with the tax office for them to recognise the date of death and the name and address of the personal representative. The accountant will ensure that correspondence will be addressed to the personal representative until such time as the administration of the estate is finalised.

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2 Sorting out the deceased's pre-death affairs

The personal representative is responsible for settling any outstanding tax matters for the period up to the date of death. Depending on the circumstances, you may be required to pay additional taxes or claim a repayment.

Note that:

• if you distribute the estate without paying any outstanding tax liabilities, you may have to pay the tax out of your own pocket.
• if you fail to claim a tax rebate due to the estate, you may have to make good the loss to the estate.

If the deceased was self-employed, you will most likely get the deceased's accountant to file any outstanding Income Tax returns and business accounts with the deceased's tax office. As well as Income Tax, you will also need to ensure that any outstanding VAT, employer's PAYE/PRSI, or other taxes in respect of the period up to the date of death are fully paid.

If the deceased was an employee, there may be a PAYE tax rebate due as the deceased's tax credits for the year of death may not have been fully used up. The deceased's employer will send Form P45 to the tax office which dealt with the deceased's tax affairs. Any tax rebate will form part of the deceased's estate. As personal representative, it is your responsibility to file any outstanding tax return on behalf of the deceased.

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3 Completing the Revenue Affidavit

The Revenue Affidavit is an account of the deceased's estate (assets and liabilities) that has to be completed and sworn by the personal representative in order to get a Grant of Representation from the Probate Office. Before being presented to the Probate Office it must be submitted to the Capital Taxes Office for certification.

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4 What information is looked for in the Affidavit?

The Revenue Affidavit looks for:

• a full account of the deceased's assets and liabilities at the date of death;
• information on assets passing outside of the will or intestacy; and
• details of the beneficiaries and of the value of the benefits taken.

In order to complete the Affidavit, you will be required to establish whether or not the beneficiaries have received any other gifts or inheritances, either from the deceased or from any other person at any time on or after 5 December, 1991.

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5 What happens to the Affidavit?

The Revenue Commissioners Office will examine the Affidavit and will certify it once they are satisfied that it is in order and any tax due will be paid.  A copy of the certified Affidavit will then be returned to your solicitor or, if you are making a personal application for the Grant of Representation, to the Probate Office or to the appropriate District Probate Registry. The certified Affidavit is part of the documentation required by the Probate Office when processing the application for the Grant of Representation.

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6 Income and Capital Gains during the administration period

It may take the personal representative some time to administer the estate during which time income may be earned or capital gains may be made. Broadly the position is as follows.

Income Tax

• The personal representative is liable to pay Income Tax at the standard rate on income earned during the administration period. The estate is not entitled to personal credits or to any of the reliefs that are available to individual taxpayers.
• In certain circumstances, the tax office may concessionally agree to treat the beneficiary as succeeding to the inheritance from the date of death. In such circumstances, the beneficiary will take full responsibility for paying Income Tax on the post-death income as if he or she had been entitled to the asset - and the income - from the date of death.

Capital Gains Tax

• Death does not give rise to a Capital Gains Tax liability. The capital gain earned by the deceased between the date of purchase and date of death is ignored.
• If the personal representative sells any assets during the administration period, there may be a liability to Capital Gains Tax - but only to the extent that the value of the assets has increased between the date of death and the date of sale.
• The distribution of assets by the personal representative to the beneficiaries does not give rise to a Capital Gains Tax liability.

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III) What you should do as a Beneficiary?

1. What is Inheritance Tax?
2. How will I know if I have to pay Inheritance Tax?
3. Whar rates of Tax apply?
4. When do I have to pay the tax?
5. How do I pay the tax?
6. Are there any reliefs and exemptions?
7. What assets are liable to Irish Inheritance Tax?

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A summary of what the Beneficiary should do.

This is a summary of what you should do about Inheritance Tax. 

What you should do	When
Pay any Inheritance Tax due on the benefits received from the deceased	Within 4 months of the Valuation Date

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1 What is Inheritance Tax?

Inheritance Tax is a tax which can arise where a beneficiary receives an inheritance as a result of someone dying. The beneficiary is responsible for paying the tax. As outlined earlier, an inheritance can be taken under a will or intestacy - or in some other way such as, for example, where an asset in the joint names of the deceased and another person is taken, on the death of the deceased, by that other person as survivor.

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2 How will I know if I have to pay Inheritance Tax?

In this regard a distinction is made between surviving spouses and other beneficiaries.

Surviving Spouse

If you are a surviving spouse taking an inheritance from your deceased spouse, the inheritance is completely exempt and, no matter how valuable, will not be liable to Inheritance Tax.

Other beneficiaries

In the case of other beneficiaries, whether or not Inheritance Tax may be payable on your inheritance depends on whether:

• the total value of all gifts and inheritances
• received by you - the beneficiary
• from the deceased and from anybody else to whom the same group threshold applies
• in the period from 2nd December 1988 up to (and including) the date of the inheritance

exceeds a tax-free element called the "tax-free amount".

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3 What rates of Tax Apply?

The following rates of Inheritance Tax apply:

Between zero and the 'tax-free" upper limit	Nil
Taxable Remainder	20%

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4 When do I have to pay the tax?

You have to pay the tax within 4 months of the Valuation Date, which is the date at which the assets are valued for Inheritance Tax purposes.

The Valuation Date for assets passing under the will or intestacy is normally the date on which the Grant of Representation issues from the Probate Office or District Probate Registry.

If assets are being distributed outside of the terms of a will or the rules of intestacy, the Valuation Date will normally be the deceased's date of death.

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5 How do I pay the tax?

You should, with the assistance of your accountant, complete an Inheritance Tax Self-Assessment Return and send it with the tax to the relevant Capital Acquisitions Tax operational area. In straightforward cases, a short version of the return can be used. You should be aware that you will be charged interest from the valuation date if you are late paying the tax.

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6 Are there any reliefs and exemptions?

As well as the exemption for a surviving spouse, there are a number of other important exemptions and reliefs available.

Reliefs include a 90% exemption for agricultural and business property and an exemption for certain dwelling-houses. Where agricultural or business relief applies, the reduction is 90% of the market value of the property for Inheritance Tax purposes. Where the dwelling-house exemption applies, the market value of the dwelling-house is completely exempt.

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7 What assets are liable to Irish Inheritance Tax?

An asset will be subject to Irish inheritance tax:

(a) if the asset is located in Ireland, or
(b) if the asset is located abroad, and the deceased or beneficiary is resident or ordinarily resident in Ireland.

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IV) What are the main tax exemptions and reliefs for surviving spouses

1. Main tax exemptions and reliefs for surviving spouses
2. Surviving spouse exemption from ineritance tax
3. Probate tax relief
4. Income tax for the year in which your spouse has died
5. Special allowance for surviving spouse with a dependent child

1 Main tax exemptions and reliefs for surviving spouses

In summary these are:

• a total exemption from Inheritance Tax for benefits taken by the surviving spouse;
• a complete relief from the 2% Probate Tax for the part of the deceased's estate that is transferred to the surviving spouse;
• the special Income Tax rules that apply for the year of death;
• if you have dependent children, the special Income Tax allowance available for the 3 years after death.

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2 Surviving spouse exemption from Inheritance Tax

If you take an inheritance from your late spouse, you do not have to pay Inheritance Tax on that inheritance. The exemption is unlimited - it doesn't matter how much you inherit, it is entirely exempt. There is no necessity to claim this exemption and you don't have to fill in any Inheritance Tax forms.

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3 Probate Tax relief

There is also a complete relief from the 2% Probate Tax for the part of the deceased's estate that is transferred to the surviving spouse. The personal representative will claim this relief when sending in the Probate Tax return together with the Revenue Affidavit to the Capital Taxes Office.

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4 Income Tax for the year in which your spouse has died

Your Income Tax treatment for the tax year in which your spouse has died will depend on how you and your spouse were taxed before your bereavement. Your accountant will help you to do the calculations and make sure you have the right tax-free allowances. Broadly, the position is as follows:

• if your late spouse was the assessable spouse", i.e. the person responsible for making a joint tax return on behalf of both of you, then you will be entitled to a special increased widowed person's allowance from the date of your spouse's death up to the following 31st December. The single person's rate bands will apply for this period.
• if you yourself were the "assessable spouse", you will continue to get the married person's allowance and double rate bands for the remainder of the tax year. You will be taxable on your own income for the full tax year in which your spouse died plus your late spouse's income from the beginning of the tax year to the date of death.
• if you were both taxed as single persons, you will get the special increased widowed person's allowance and single rate bands for the year.

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5 Special allowance for surviving spouse with a dependent child

If you have any dependent children you may be entitled to a special Income Tax credit, which is known as the "widowed parent's tax credit", for the 3 tax years after the year of your spouse's death. You may also be entitled to the "one-parent family tax credit" for as long as you have any dependent children.

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V) What should I do as a Trustee?

• Notifying the tax office
• Paying income tax
• Paying capital gains tax
• Paying discertionary trust tax

Here is a summary of what you should do about tax - and when you should do it

What you should do	When
Ensure that the deceased's tax office knows about the trust	As soon as you take over the trust property
Make sure that tax is paid on any income or capital gains arising during the period when the trust is being administered	During the lifetime of the trust
Pay any Capital Gains Tax arising on the appointment of trust assets to the beneficiaries	By 1st November following the end of the tax year in which the appointment was made
If there is a Discretionary Trust, pay Discretionary Trust Tax as follows: the immediate once-off 6% charge the annual 1 % charge	Within 4 months of the Valuation Date By 5th July each year (during the lifetime of the trust)

You should be aware that the trustees have secondary liability for the payment of any Inheritance Tax due by a beneficiary as a result of the appointment of trust property to him or her. This means that if a beneficiary should fail to pay, the trustees will have to do so.

Notifying the Tax Office

Upon taking over from the personal representative, the assets over which you were appointed trustee by the deceased's will, you should inform the deceased's tax office about the trust in the event that the personal representative has not already done so.

Paying the Income Tax due

The income generated on assets in trust is liable to Income Tax at the standard rate. Beneficiaries are taxed on any income which is passed on to them and are entitled to claim a credit for the Income Tax paid by the Trust.

Any income, that is not distributed by the trustees within 18 months of the end of the year of assessment, is surcharged at the rate of 20%.

Paying Capital Gains Tax

No Capital Gains Tax arises when the deceased's assets are transferred by the personal representative to the trustees.

However, a subsequent sale of the assets by the trustees or their transfer to a beneficiary may give rise to a Capital Gains Tax liability. The tax is calculated by reference to the increase in the value of the asset between the date of death and the date of sale or transfer.

Paying Discretionary Trust Tax

When the trust is a discretionary trust and there is no immediate benefit under the trust, the trust assets are subject to the following Discretionary Trust Tax charges:

• a once-off 6% charge,
• an annual 1% charge arising on 5th April* in each year (to be paid by 5th July the same year). (* Other than the 5th April occurring in the twelve months immediately following the date on which the 6 % charge arose.)

However, where the deceased left young children as prospective beneficiaries of the trust, the 6% and 1% charges will not arise during the lifetime of the trust while the youngest of these children remains under the age of 21.

The exemptions from the Discretionary Trust Tax charges include trusts that set up exclusively for persons with certain disabilities and charities.

Self-Assessment returns for the 6% and 1% Discretionary Trust Tax charges, which your accountant will prepare for you, must be completed and sent, together with the tax due, to the Capital Taxes Office. If this is done within the specified time-limits no interest will be charged.

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Current Class Tresholds

Group	Relationship to Disponer	Group Threshold
		2004(after indexation)	2005(after indexation)	2006(after indexation)
A	Son/Daughter	€456,438	€466,725	€478,155
B	Parent*/Brother/Sister/ Niece/Nephew/Grandchild	€45,644	€46,673	€47,815
C	Relationship other that Group A or B	€22,822	€23,336	€23,908

The tax rate applicable to gifts and inheritances is 20%.