Inheritance Tax for step-children

ttenneb

Is there any way round the problem of strangers-in-blood having to pay inheritance tax. We have 6 children, 3 each from previous marriages. We want to leave each an equal share of the estate when we die, but the thresholds are different for children and stepchildren. At present the house deeds are owned by one parent. Is there any advantage in changing to tenancy-in-common? No matter what scenario is considered there appears to be no way of avoiding the stepchildren paying tax. The only one situation I can imagine is if both die together.

nompere

Someone has misinformed you - step-children are treated exactly the same as any other children for CAT purposes.

This is a brief extract from the IT 39, Revenue's leaflet on completing an IT38 return:

Group A

The Group A threshold applies where the beneficiary is -

a child, or a minor child of a deceased child of the disponer.

The term “child” includes a stepchild or an adopted child (under the Adoption Acts).

Minor means under the age of 18.

A foster child will also qualify for the Group A threshold in respect of a benefit taken on or after 6 December 2000 if he/she had
been cared for and maintained, at the disponer’s own expense, from a young age up to the age of 18 for period(s) amounting to at
least five years and has also resided with the disponer. The 5 year requirement will not apply in the case of a formal fostering under
the relevant Child Care Regulations where the foster child inherits on the death of a foster parent.

Claims for the relief by a foster child will have to be supported by the testimony of two witnesses.

Parents taking an absolute inheritance from a child have a Group A threshold. However, if the child took a non-exempt gift or
inheritance from either parent in the previous five years, any inheritance taken by a parent from that child is exempt.

pathway33

nompere wrote: »

Parents taking an absolute inheritance from a child have a Group A threshold.

So if a single man dies and leaves an estate of €400,000 to his parents, they pay no inheritance tax?

Delancey

pathway33 wrote: »

So if a single man dies and leaves an estate of €400,000 to his parents, they pay no inheritance tax?

No , what is being said is that his parents pay the same tax as he would if his parents left 400,000 to him.
To my knowledge ( and I'm happy to stand corrected ) the only circumstances where CAT is not payable is when the assets are being passed Spouse to Spouse.

pathway33

delancey42 wrote: »

No , what is being said is that his parents pay the same tax as he would if his parents left 400,000 to him.
To my knowledge ( and I'm happy to stand corrected ) the only circumstances where CAT is not payable is when the assets are being passed Spouse to Spouse.

But if his parents left him €400k he would pay no tax as it would be under the Group A threshold which I think is about €440k. Or am I getting mixed up with gift tax?

Delancey

pathway33 wrote: »

But if his parents left him €400k he would pay no tax as it would be under the Group A threshold which I think is about €440k. Or am I getting mixed up with gift tax?

I thought the threshold was considerably lower

Hopefully someone here will know for sure.

nompere

delancey42 wrote: »

I thought the threshold was considerably lower

Hopefully someone here will know for sure.

In general, parents are within Class A in respect of inheritances received from children. There are some exceptions.

This is an extract from Capital Acquisitions Tax Consolidation Act 2003, with a little emphasis added:

1. In this Schedule—
‘‘group threshold’’, in relation to a taxable gift or a taxable inheritance
taken on a particular day, means—
(a) €381,000, where—
(i) the donee or successor is on that day the child, or
minor child of a deceased child, of the disponer, or
(ii) the successor is on that day a parent of the disponer
and—
(I) the interest taken is not a limited interest, and
(II) the inheritance is taken on the death of the
disponer;

The amount has changed but the principle hasn't.

nompere

Just to add to my previous post, pathway's surmise is correct - if a son dies and leaves €400,000 to his parents then there is no CAT as the current threhold is €414,799. Indeed, if both parents are alive then they may inherit that amount each without having to pay any CAT.

But it's only inheritances - and the class B threshold of €41,481 applies to gifts.

There is actually an exemption provided for in S.79 of the Act, so that an inheritance received by a parent from a deceased child is exempt from tax if the child had taken a non-exempt gift or inheritance from either or both of his parents within the period of 5 years immediately prior to the date of death of the child. Never seen it in practice!

ttenneb

Thanks nompere. I had a look at IT 39, it would appear there's no discrimination between natural-born and step children in relation to CAT. I'm led to believe that there would be no advantage in the legal adoption of the 3 step children.