Question about inheritance tax

needhelplz

hypothetical situation,

Dad dies and leaves house worth 80,000euro to son in his will. Son and daughter both agree that they will split the house 50/50.

Does the son have to pay inheritance tax?
What is the inheritance tax liability incurred by the daughter?

From this page:
revenue.ie/en/personal/circumstances/bereavement/inheritance-tax.html

I see that the threshold for the son is €310,000 and the threshold for the daughter is 32,500euro as they are receiving it as a gift from their brother as they were not the beneficiary of the will, and the tax rate for the remainder is 33%. This would mean the tax the son incurs is 0euro and the tax the daughter incurs is 2,475euro. Would this be correct?

Atlantic Dawn

A parent can pass €280k €310k to their child tax free...

http://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html

You can't decide to spread the money out from what is on the will to other people. Daughter has nothing to do with will as she is not mentioned in it.

needhelplz

But the son can agree to gift the daughter half of the value of the house? and gift tax is essentially equivalent to inheritance tax?

revenue.ie/en/tax/cat/gift-inheritance.html

Atlantic Dawn

needhelplz wrote: »

But the son can agree to gift the daughter half of the value of the house? and gift tax is essentially equivalent to inheritance tax?

They have to pay the tax on what they inherite first, they can then gift or do as they please with the proceeds after.

needhelplz

So if the son sells the house for 80,000, which is below threshold and should have no tax liability, he can then give 40,000euro to the daughter, and the daughter will not have any tax liability on that money?

Atlantic Dawn

It would be the same as handing her €40k in cash, there would be no bearing on what was received as a result of an inheritance previously. A parent can give their child €310k tax free over their lifetime.

http://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html

Peregrinus

needhelplz wrote: »

So if the son sells the house for 80,000, which is below threshold and should have no tax liability, he can then give 40,000euro to the daughter, and the daughter will not have any tax liability on that money?

Yes, she will. She has received a gift of 40,000 euro from her brother, and her tax-free threshold for such gifts is 30,150 euro.

He could pay her 30,150 straight away, and the rest at the rate of 3,000 euro a year, and that would avoid CAT. (Assuming she has received no other gifts of inheritances.)

Peregrinus

Another possibility - if a bit unrealistic - would be for the daughter to challenge the will, arguing that her father had failed in his duty to make proper provision for her, having regard to all the circumstances. If she succeeds, and if the court awards her a half-share in the house, she'll be treated as inheriting it from her father, and it will not attract CAT. But you'd need a very happy set of facts to make that viable.

Atari Jaguar

Peregrinus wrote: »

Yes, she will. She has received a gift of 40,000 euro from her brother, and her tax-free threshold for such gifts is 30,150 euro.

He could pay her 30,150 straight away, and the rest at the rate of 3,000 euro a year, and that would avoid CAT. (Assuming she has received no other gifts of inheritances.)

Ah that's ridiculous. If I want to give my brother or sister 40 grand that's my business it shouldn't involve the revenue.

Peregrinus

All your financial affairs are your business, but they involve the Revenue just the same.

Atari Jaguar

Peregrinus wrote: »

All your financial affairs are your business, but they involve the Revenue just the same.

Income taxes etc fair enough but gift tax?? Give me strength

sunshine and showers

Atari Jaguar wrote: »

Income taxes etc fair enough but gift tax?? Give me strength

The gift is extra income... your scenario lookso to me like inheritance tax for the brother, then CAT on gift to sister.

plodder

Is it not possible to change a will with the agreement of all beneficiaries here? It is possible in the UK, to deal with circumstances just like the OP's.

Mr. Incognito

plodder wrote: »

Is it not possible to change a will with the agreement of all beneficiaries here? It is possible in the UK, to deal with circumstances just like the OP's.

No.

The Will must be followed.

Marcusm

Mr. Incognito wrote: »

No.

The Will must be followed.

Are deeds of family arrangement not respected for CAT? I understood that they were.

NUTLEY BOY

I assume that the son was not resident with his father and possibly within the exemption for inheritance of a dwelling house.

See Tax Exemption for Dwelling House - CAT 10. Link http://www.revenue.ie/en/tax/cat/leaflets/cat10.html

plodder

Marcusm wrote: »

Are deeds of family arrangement not respected for CAT? I understood that they were.

From some casual googling, it looks like they help with CGT, but not CAT. Could be wrong of course, etc. etc.

Peregrinus

Marcusm wrote: »

Are deeds of family arrangement not respected for CAT? I understood that they were.

No, I don't think they are. If you acquire something under a Deed of Arrangement, the disponer is whoever had to enter into the Deed in order for you validly to acquire that thing.

Arcade_Tryer

Atari Jaguar wrote: »

Ah that's ridiculous. If I want to give my brother or sister 40 grand that's my business it shouldn't involve the revenue.

It is ridiculous. Which is why nobody complies with it.

Ireland's inheritance tax system is nothing short of a disgrace however. A great little country to be born to wealthy parents in.

Peregrinus

If you're born to wealthy parents, any country is a great little country to be born in.

CIARAN_BOYLE

here is the revenue info sheet on disclaimers of inheritance

http://www.revenue.ie/en/tax/cat/guide/disclaimer.html

coylemj

CIARAN_BOYLE wrote: »

here is the revenue info sheet on disclaimers of inheritance

http://www.revenue.ie/en/tax/cat/guide/disclaimer.html

+1 this came up in another thread recently and there is a solution but it requires that the sister in this case was the beneficiary of the residue of the father's estate.

If the brother formally disclaims his inheritance then his half of the house falls into the residue of the estate. If the sister was named as the beneficiary of the residue then she will pick up both halves of the house, the half she was bequeathed and the half left in the residue. In which case she gets the whole house and pays no CGT.

4ensic15

Peregrinus wrote: »

No, I don't think they are. If you acquire something under a Deed of Arrangement, the disponer is whoever had to enter into the Deed in order for you validly to acquire that thing.

Many section 117 cases are settled and they involve effectively re-writing the will. There is no CAT implication in such a scenario since the gift never comes to the original donee but passes straight from the executor to the new donee.

coylemj

4ensic15 wrote: »

Many section 117 cases are settled and they involve effectively re-writing the will. There is no CAT implication in such a scenario since the gift never comes to the original donee but passes straight from the executor to the new donee.

If by 'settled', you mean that without an order of the High Court, legatee A surrenders or disclaims his inheritance in favour of person B, there will be CAT implications because revenue say that in that case, A has taken the inheritance and gifted it to B. This would potentially give rise to a double CAT liability.

The principle is that you cannot give what is not yours so for A to surrender the legacy to B, he is deemed to have first accepted the legacy and then passed it on as a gift to B.....

4. A disclaimer in favour of a named person is considered as an acquisition and a subsequent disposal and therefore there is a double charge to CAT.

http://www.revenue.ie/en/tax/cat/guide/disclaimer.html

4ensic15

coylemj wrote: »

If by 'settled', you mean that without an order of the High Court, legatee A surrenders or disclaims his inheritance in favour of person B, there will be CAT implications because revenue say that in that case, A has taken the inheritance and gifted it to B. This would potentially give rise to a double CAT liability.

The principle is that you cannot give what is not yours so for A to surrender the legacy to B, he is deemed to have first accepted the legacy and then passed it on as a gift to B.....

4. A disclaimer in favour of a named person is considered as an acquisition and a subsequent disposal and therefore there is a double charge to CAT.

http://www.revenue.ie/en/tax/cat/guide/disclaimer.html

The settlement is made a rule of court which can be in either the Circuit Court or the High Court..