Capital Acquisitions Tax in Ireland-The Essentials

capital acquisitions tax ireland

Capital Acquisitions Tax (CAT) is a tax on gifts and inheritances and comprises two taxes: gift tax and inheritance tax.

The calculation of the tax payable is based on

  • The value of the benefit
  • The relationship between donor and donee
  • Any prior benefits received by the donee.

The relevant legislation is the Capital Acquisitions Tax Consolidation Act, 2003.

Here’s an example:

Say you receive a benefit worth €50,000, and you have received no prior benefits in this group threshold, and the benefit is in Group A.

You will have a threshold of €310,000 (see thresholds further down this page)

You have an unused threshold of €310,000, therefore there is no excess on which you must pay tax of 33% as your threshold completely covers the value of the benefit.

If you had previously received a benefit in this group threshold of €300,000 then you only have €10,000 left.

So, you will pay tax at 33% on €50,000 less €10,000=€40,000 x 33%.

Taxable Value of Property

The taxable value of the property is calculated as follows:

Market value less liabilities, costs and expenses less any consideration paid is the taxable value.

Once the taxable value is ascertained, the tax payable will be determined by the relationship between the disponer (donor/testator/intestate) and the beneficiary (done/successor).

Valuation date

The valuation date is the date you establish the date on which you establish the market value of the property for CAT purposes. It can be the earliest of 3 possible dates:

  1. the date the executor or administrator can receive the inheritance to  give to you
  2. the date the executor or administrator actually receives it to give to you
  3. the date the executor or administrator actually gives it to you

Valuation date and return deadlines

The date of a gift is normally the date it is received. The date of an inheritance is normally the date the person dies. These dates dictate

  1. The group threshold to apply
  2. The rate of CAT

Where the valuation date is between 1st January and 31st August the deadline for payment of CAT is 31st October in the same year.

Where the calculation date is between 1st September and 31st December the deadline for payment of CAT is 31st October in the following year.

Rate of Tax

The current rate of tax is:

Benefits taken on or after  6 December 2012

Threshold amount                    Nil

Balance                                          33%

Pay and File

The Finance Act 2012 amended the Pay and File date for CAT from 30 September to 31 October. Therefore all gifts and inheritances with a valuation date in the 12 month period ending on the previous 31 August will be included in the return to be filed by 31 October 2012.

This means where the valuation date arises between 1 January 2012 and 31 August 2012, the Pay & File deadline is 31 October 2012. Where the valuation date arises between 1 September 2012 and 31 December 2012, the Pay & File deadline would be 31 October 2013.

Limited Interest

If you inherit less than absolute or full ownership you have a limited interest. This could be for life or a limited time and has less value for CAT purposes than absolute ownership.

The value of the interest will depend on

  • Your age and gender
  • The number of years you have inherited for

There is a table in the Capital Acquisitions Tax Consolidation Act, 2003 to be referred to in order to value limited interests.

Rights of Residence

There are 2 types of right of residence:

  1. A right to reside in a property
  2. An exclusive right to live in a property-this is a life interest

For CAT purposes the market value of a right of residence is the annual value of the right divided by the annual value of the property multiplied by the market value of the property.

Free use of property/interest free loans

Free use of property and interest free loans may give rise to a tax liability, too.

Valuation of Private Company Shares

Section 27 of the Capital Acquisitions Tax Consolidation Act 2003 sets out how shares in private trading companies are to be valued.

CAT Reliefs and Exemptions

There is a wide range of reliefs and exemptions from CAT.

These include a small gift exemption, spousal relief (no CAT on gifts/inheritances between spouses), dwelling house exemption, favourite grandchild relief, surviving spouse relief, etc.

Agricultural Relief

Agricultural relief, if applicable, can provide relief of up to 90% on gifts or inheritance so agricultural land and property.

The beneficiary must be a farmer as defined by the Capital Acquisitions Tax Consolidation Act 2003 which is not the normal definition of a farmer. A farmer for CAT purposes is not necessarily an individual who has worked as a farmer; it is a financial test.

So, for CAT purposes a farmer is an individual whose assets comprise 80% agricultural property and the property to which the “farmer” is entitled is included in this calculation. It is possible to become a “farmer” on the valuation date by disposing of some non-agricultural assets.

Business Relief

Business relief is aimed at a working business and the transfer of that business to beneficiaries who will continue to run that business.

The relief will amount to a reduction of 90% in respect of the value attributable to relevant business property taken by the beneficiary.

Certain types of business are excluded:

  • businesses dealing in currencies, securities, stocks or shares, land or buildings, or
  • making or holding investments.

The relief applies to the business of a sole trader or a partnership and where the business is run by a limited company the shares of that company.

Only relevant business property will qualify for the relief. “Relevant business property” is defined as:

“the business or an interest in the business in the case of a business carried on by a sole trader or by a partnership. “Business” is defined as one which is carried on for gain and it includes the exercise of a profession or location as well as a trade.”

Individual assets of a business, if transferred without the business, will not qualify.

To qualify for business relief, the disponer must have been the owner for

  • 2 years prior to the death of the disponer on an inheritance
  • 5  years prior to the granting of a gift.

Business relief can be clawed back

  • If there is a change of use ie the property ceases to be relevant business property and
  • If the relevant business property is sold or compulsorily acquired.

The above is an outline of CAT in Ireland and some of the major tax reliefs such as agricultural relief and business relief.

Please take legal and/or taxation advice before taking any decisions in this area as there are significant taxation consequences for the donor and done/beneficiary.

There are 3 groups of relationship for CAT purposes, with their CAT thresholds are as follows:

Group Relationship to Disponer Group Threshold from 8/4/2009 to 31/12/2009 Group Threshold from 1/1/2010 to 7/12/2010 Group Threshold from 8/12/2010 to 31/12/2010 Group Threshold from 1/1/2011 to 6/12/2011 Group Threshold from 7/12/2011 to 5/12/2012 Group Threshold from 6/12/2012
A Son/Daughter €434,000 €414,799 €332,084 €332,084 €250,000 €225,000
B Parent*/Brother/Sister/
Niece/Nephew/Grandchild
€43,400 €41,481 €33,208 €33,208 €33,500 €30,150
C Relationship other than Group A or B €21,700 €20,740 €16,604 €16,604 €16,750 €15,075

*In certain circumstances a parent taking an inheritance from a child can qualify for Group A threshold.

Group A includes where the beneficiary is a child, minor child of a deceased child or where a parent inherits from a child.

Group B is where the beneficiary is a lineal ancestor (parent, grandparent, great grandparent etc.) , lineal descendant other than a child or minor child of a deceased child (grandchildren, great grandchildren etc.), brother or sister or child of a brother or sister.

Group C is anyone else.

October 2016 Update

The new thresholds after budget 2016 are as follows:

  • The Group A threshold was increased from €280,000 to €310,000
  • The Group B threshold was increased from €30,150 to €32,500
  • The Group C threshold was increased from €15,075 to €16,250

Budget 2018 Update

There was no change to the CAT thresholds in budget 2018 so the current (28th July, 2018) thresholds are:

  • Group A: €310,000
  • Group B: 32,500
  • Group C: 16,250