Inheritance Tax & Tax Relief - Make My Will SolicitorsMake My Will Solicitors

Form IT38S

Filing a Self-Assessment Gift or Inheritance Tax Return this October – what you need to know

Do I have to pay tax on the Gift/Inheritance I received?

If you received a gift of €3,000 or lower during the year from anyone, you are entitled to a Small Gift Exemption and there is no requirement to file a return. This Small Gift Exemption does not apply to inheritances received. For gifts or inheritances over €3,000, you need to see which Tax Free Threshold Category you fall into.

Group A: parent to child – the Threshold is €225,000 (amended to €280,000 in Budget 2016)

Group B: siblings, nieces, nephews, grandchildren – the Threshold is €30,150

Group C: strangers-in-blood – the Threshold is €15,175

If you received a gift or inheritance during the period 1^st September 2014 and 31^st August 2015 and the total aggregable value of gifts or inheritances received within the same Group Category since 5^th December 1991 exceeds the Group Threshold applicable, you may be liable to pay Capital Acquisitions Tax (commonly known as Gift or Inheritance Tax) at a rate of 33%, and must file a Tax Return by 31^st October 2015. The Revenue might already be aware that you have a tax liability and may have sent you a personalised IT38 Form (A Gift/Inheritance Tax Return Form). However even if you did not receive an IT38 Form from Revenue, the obligation to submit a Tax Return rests with you, the beneficiary; this is a Self-Assessment Return.

Tax Reliefs and Exemptions

There are three main Tax Reliefs that may apply to your gift or inheritance:

Agricultural Relief

The beneficiary must satisfy 4 conditions:

He or she must qualify as a “farmer”, that is, they must show that over 80% of their assets (including the gift or inheritance) could be deemed “agricultural” assets;
They must have farmed or leased the agricultural property for at least 6 years prior to the date of the gift or inheritance;
They must have an agricultural qualification or farm the land at least 50% of his or her normal working hours; and
The property must be farmed on a commercial basis with a view to making a profit.

If you qualify for agricultural relief, the market value of the property you are receiving is reduced by 90% (e.g. for a farm worth €800,000, the taxable value is €80,000)

Business Relief

If you are receiving a gift or inheritance of “relevant business property”, you may qualify for business relief. 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. “Relevant business property” is defined by Revenue 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.” Certain types of businesses are excluded from this relief, for example businesses dealing wholly or mainly in currencies and securities. The relevant business property must have been owned by the disponer (the person giving the gift or inheritance) for a continuous 5 year period prior to the date of the gift, or a 2 year period in the case of an inheritance.

Similar to agricultural relief, if you qualify for business relief the value of the business property you are receiving is reduced by 90% for tax purposes.

Favourite Niece/Nephew Relief

If an uncle or aunt has given you their business, you may fall into the Group A Category where the tax free threshold is €225,000 (amended to €280,000 in Budget 2016) provided you have worked for him or her substantially on a full time basis for the 5 years immediately preceding the gift or inheritance. This relief only applies to assets used in connection with the business.

Also, certain gifts or inheritances may come with a tax exemption, such as:

Dwelling-house Exemption

If you are receiving a property that has been your main residence for over 3 years immediately prior to the gift or inheritance, and you are not beneficially entitled to an interest in any other property, you may qualify for the Dwelling-house Exemption. This means the entire value of the property is deducted from the amount taxable.

Other tax exemptions include Heritage Property Exemption, Exemption in relation to Retirement Benefits, and Exemption of certain transfers following a marriage dissolution. For more information on exemptions you can visit the Revenue website at www.revenue.ie or contact Susan Murphy at MakeMyWill Solicitors.

Clawbacks

The tax reliefs and exemptions mentioned above may be withdrawn in certain circumstances. For example, where you qualify for dwelling-house relief, you must continue to occupy the property for a further 6 years. Likewise if you qualify for agricultural relief or business relief and sell the property within 6 years of the date of the gift or inheritance, the tax relief will be clawed back.

How do I file a Gift/Inheritance Tax Return?

Most tax returns are now filed on-line through the Revenue’s ROS system, which is their preferred method. It can take up to two weeks to register for ROS, so if you are not yet registered it would be advisable to ask your solicitor or accountant to file the return on your behalf.

You can only file a paper short form IT38 if you are getting the gift or inheritance from one person and it is not part of a series of benefits, if you are not claiming any relief or exemption, and if the gift or inheritance is not subject to any conditions.

Penalties for late payment

A surcharge applies for the late filing of a tax return, and the amount differs depending on how late the return is. If you file within 2 months of the deadline, the surcharge is 5% of the total tax payable, subject to a maximum fine of €12,695. If you file later than 2 months after the deadline, i.e. after 31^st December, the rate increases to 10% subject to a maximum fine of €63,485.

If you have any questions about filing a tax return for a gift or inheritance you received between 1^st September 2014 and the 31^st August 2015, you can contact me, Susan Murphy, principal solicitor at MakeMyWill Solicitors www.makemywill.ie