Gift Tax Ireland

Inheritance Tax, UK IHT, UK Taxes, Agricultural Property Relief, Business Property Relief, Gift and Inheritance Tax

The UK Autumn Budget 2024 announced changes to the current Agricultural and Business Property Inheritance Tax regimes.  From 6^th April 2026, the combined Agricultural Property Relief and Business Property Relief will be restricted to the first £1 million on “qualifying assets.”  The Chancellor of the Exchequer delivered her Budget on 30th October 2024, announcing 100% relief for the first £1 million pounds of combined assets and 50% Relief thereafter.  Currently, Agricultural Relief offers two potential rates of Inheritance Tax Relief.  These depend on the circumstances of ownership. These rates will remain in place until 5^th April 2026.

Old Regime – Agricultural Property Relief

Agricultural Property Relief is an Inheritance tax relief for farmers and landowners.  It provides for either 50% or 100% relief on the agricultural value of land and certain buildings.

For the 100% Relief to apply:

1. the property must be in the owner’s vacant possession i.e. the owner or transferor has the immediate right to vacant possession of the property or the right to obtain it within the next twelve months.

2. the land must be let with the tenancy having commenced on/after 1st September 1995.

3. the land must be let and conditions regarding vacant possession must be complied with – This applies by concession.

4. the owner had been entitled to his interest in the property since before 10th March 1981 and has met the conditions for ‘Working Farmer Relief”.

The 50% Relief is available in circumstances where the above conditions aren’t met.

If the property is owner-occupied, it must have been owned and used for agricultural purposes for at least two years ending with the date of the transfer.  If, however, the property is let to a tenant, it must have been owned by the transferor for at least seven years, ending with the date of the transfer, and the land must have been actively farmed during that time.  The property must not be subject to a binding contract of sale on disposal.

Additional rules apply in relation to successive transfers.

Agricultural property includes agricultural land or pasture, grazing land, cottages, farmhouses, farm buildings, woodlands and buildings used in intensive animal rearing, etc.

Old Regime – Business Property Relief

Business Property Relief is a relief from IHT which applies to the transfer of relevant business property.  100% relief is available on the following assets (i) a business or interest in a business operating as a sole trade or partnership and (ii) shares in an unlisted trading company which the donor has owned for a minimum of two years

50% Relief is available on the transfer of shares in a quoted trading company where the donor has a controlling interest (i.e. 51%) in the company.  The 50% rate also applies to land and buildings, including plant and machinery, where those assets are used by the donor’s partnership or by a company they control.

With regard to lifetime gifts, Business Property Relief is only available on death provided the donee still owns the relevant business property at the time of death.

If the business owns investments, Business Property Relief is restricted to the business assets. In other words, BPR does not apply to any ‘excepted assets’ in the balance sheet. An ‘excepted asset’ is one which is not used wholly or mainly for the purposes of a trade.

New Regime

From 6^th April 2026, the combined Agricultural Property Relief and Business Property Relief will only be available on the first £1 million on qualifying assets. If the individual owns qualifying assets above this threshold amount of £1 million, the rate of the Relief will be reduced to 50% of the excess.  This means, from 6^th April 2026, an effective IHT tax rate of 20% will apply to the value of qualifying assets above £1 million.

Assets automatically qualifying for the 50% relief rate will not use up the £1 million allowance.

It’s important to keep in mind that any unused part of the £1 million allowance cannot be transferred between spouses in the way that the NIL Rate Band can.

This allowance will not apply to AIM-listed shares and other similar shares not listed on a recognised stock exchange.  Instead, they will be entitled to the 50% rate of Relief.

The new rules will apply for lifetime transfers on/after 30th October 2024 in situations where the donor dies on/after 6^th April 2026.

The Inheritance Tax liability arising on assets which qualify for Agricultural Property Relief and Business Property Relief can be paid by way of equal annual instalments, over a ten-year period, in certain circumstances.

Full exemptions for transfers between spouses and civil partners will continue to apply i.e.  any agricultural and business assets left to a surviving spouse or civil partner will be tax free.

For further information, please click:

https://www.gov.uk/government/publications/agricultural-property-relief-and-environmental-land-management

https://www.gov.uk/government/news/what-are-the-changes-to-agricultural-property-relief

Following the Inheritance Tax changes in the Autumn Budget 2024, it’s time to consider the practical consequences and what you can do to protect your family wealth.  For expert advice and assistance, please contact us on queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Close Relative Loans – Gift Tax Advice – Capital Acquisitions Tax (CAT). Inheritance Tax. Succession Planning.

Introduction

With effect from today, Capital Acquisitions Tax (CAT) rules have changed.  A new mandatory Capital Acquisitions Tax filing obligation is imposed on a person in receipt of a gift in respect of certain loans from close relatives. An interest-free loan is a gift on which Capital Acquisitions Tax must be calculated and any arising CAT must be paid. The value of the gift is the highest rate of return the individual making the loan could obtain if that person invested those same funds on deposit. It applies to existing loans as well as new loans made since January 2024, irrespective of whether or not any gift or inheritance tax is due.  So what does this means for you in terms of succession planning?

Previous CAT Legislation

Until 31^st December 2023, there was no requirement to file a Capital Acquisitions Tax Return in respect of this type of loan, until 80% of the recipient’s group class threshold had been exceeded.

What’s the aim of the new Capital Acquisitions Tax (CAT) legislation?

The aim of this new requirement is to provide the Revenue Commissioners with greater visibility with regard to loans between close relatives in circumstances where the loans are either interest free or are provided for below market interest rates.

So, what has changed?

The individual is deemed to have received the benefit on 31^st December each year which means the relevant Capital Acquisitions Tax (CAT) return must be filed on or before 31^st October of the following year.  Therefore, the first mandatory filing date will be 31^st October 2025.

What is a “Close Relative”?

A close relative of a person, includes persons in the CAT Group A or B thresholds, and is defined as follows:

• a parent of the person,

• the spouse/ civil partner of a parent of the person,

• a lineal ancestor of the person,

• a lineal descendant of the person,

• a brother or sister of the person,

• an aunt or uncle of the person, or

• an aunt or uncle of the spouse/ civil partner of a parent of the person.

What about Loans from Private Companies?

There are certain “Look Through” provisions which must be applied to such loans.  In other words, loans made to or by private companies will be “looked through” to determine if the loan is ultimately made by a close relative.  Generally private companies are under the control of five or fewer persons.  The holding of any shares in a private company is sufficient for these provisions to apply, including where the shares in the company are held via a Trust.

If someone receives an interest free loan of say €500k from a close relative’s company, the recipient of the loan would be deemed to take the loan from their close relative. As this exceeds the €335k threshold, this loan would be reportable.

These mandatory tax filing obligations apply in the following situations:

1. Where the loan is from a private company to a person in circumstances where the beneficial owner of the company is a close relative of the borrower.

2. Where the loan is from a person to a private company in circumstances where the beneficial owner of the company and the lender are close relatives.

3. Where the loan is from one private company to another private company in circumstances where the beneficial owners of both companies are close relatives.

What Loans must be Reported?

A mandatory filing obligation arises for the recipient of the loan where:

• there is a loan between close relatives,

• he/she is deemed to have taken an annual gift,

• no interest has been paid on the loan within six months of the end of the calendar year and

• the total balance on the loan and any other such loan exceeds €335,000 on at least one day during the calendar year.

Whether or not a person exceeds the €335,000 threshold would need to be considered in relation to each calendar year.

A loan is deemed to be any loan, advance or form of credit. It need not necessarily be in writing.

All specified loans must be aggregated.  Therefore, if a person has multiple loans from a number of different close relatives, the amount outstanding on each loan, in the relevant period, must be combined to determine if the threshold amount of €335,000 has been exceeded.

The first returns must be submitted by 31^st October 2025 in respect of the calendar year ending 31 December 2024.

What Information must be Reported?

The CAT return must include the following information in relation to reportable loan balances:

1. The name, address and tax reference number of the person who made the loan,

2. The balance outstanding on the loan and

3. All other such information as the Revenue Commissioners may reasonably require.

 For further information, please click: https://www.revenue.ie/en/gains-gifts-and-inheritance/filing-obligations/index.aspx

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Budget Ireland. Income Tax Changes. Business Tax amendments. CGT and CAT Reliefs and Exemptions, VAT

The Minister for Finance, Public Expenditure and Reform Paschal Donohoe T.D delivered his first Budget today, on 10^th October 2017, which concentrated more on expenditure than on tax changes.  The Minister announced a number of positive measures to assist small and medium sized enterprises prepare for “Brexit” as well as confirming Ireland’s commitment to the 12½% corporation tax rate. We are pleased to bring you our summary of the tax measures set out in Budget 2018 under (i) personal taxation, (ii) Income Tax, (iii) Capital Acquisitions Tax, (iv) Capital Gains Tax, (v) Business Taxes, (vi) VAT, etc.

PERSONAL TAXATION

Universal Social Charge

The USC has been cut for lower and middle income earners.

The 2.5% USC rate has been reduced by 0.5% to 2% and the band has been increased to €19,372 from €18,772 which will benefit employees earning the minimum wage.

The 5% USC rate has been reduced by 0.25% to 4.75%

Medical card holders and individuals aged 70 years and over whose combined income does not exceed €60,000 per annum will only be liable to pay a maximum USC rate of 2%.

For self-employed individuals with income of over €100,000 the 11% rate will continue to apply

Income Tax

The higher or marginal tax rate will remain at 40% for 2018.

The income tax standard rate band, however, will be increased by €750 to €34,550 i.e. the entry point at which the 40% income tax rate applies has been increased from €33,800 to €34,550 for a single person and from €42,800 to €43,550 for married couples with one income.

The marginal rate of tax for individuals earning between €34,551 and €70,044 will be 48.75%.

The marginal rate of tax for individuals earning in excess of €70,044 will remain at 52% for employees.

The marginal rate of tax for self-employed individuals earning in excess of €100,000 will remain at 55%.

Earned Income Credit

For self-employed individuals, the earned income tax credit will increase by €200 to €1,150.

No reference was made in today’s Budget speech as to when future increases to this tax credit would arise to bring it in line with the PAYE Tax Credit of €1,650.

Home Carer Tax Credit

The Home Carer Tax Credit will increase by €100 from €1,100 to €1,200.

The €7,200 income threshold remains

This tax credit can be claimed by a jointly-assessed couple where a spouse/civil partner cares for one or more dependents regardless of the number of individuals cared for.

Deposit Interest Retention Tax (DIRT)

The rate for Deposit Interest Retention Tax for 2018 will be charged at 37%.

PRSI

The National Training Fund Levy will be increased over the next three years and will apply to employees under Classes A and H by increasing Employer’s PRSI as follows:

a)      10.85% in 2018

b)      10.95% in 2019

c)      11.05% in 2020

Mortgage interest relief 

Mortgage Interest Relief for residential property owners which was scheduled to be abolished from the end of this year will continue until 2020.

This relates to home owners who took out qualifying mortgages between 2004 and 2012.

The relief will be reduced as follows:

a)      to 75% in 2018

b)      to 50% in 2019

c)      to 25% in 2020

Following a change in last year’s Finance Act, the amount of mortgage interest allowable against taxable rental income will increase to 85% with effect from 1^st January 2018.  However, there was no reference, in today’s Budget speech, to the expected increase from 80% to 85% mortgage interest relief on rented residential property.

As you may remember, in Budget 2017, it had been announced that100% mortgage interest relief for rental properties would be restored on a phased basis by 2020.

 Deductibility of pre-letting expenses

Expenses incurred prior to the first letting of a property are not deductible against rental income, with a few exceptions.

Following today’s Budget, property owners who rent out residential properties which have been vacant for a period of twelve months or more will be entitled to a tax deduction of up to €5,000 per property.

These expenses must be revenue in nature and not capital expenditure.

The relief will be subject to a clawback of the property is withdrawn from the rental market within a four year period.

This relief will be available for qualifying expenditure between now and the end of 2021.

Benefit-in-kind on motor vehicles

The minister announced a number of measures to incentivise the purchase of electric cars including:

a)      a 0% rate of Benefit-in-Kind for electric cars and the electricity used at to charge these vehicles while at work.

b)      a VRT Relief measure

CAPITAL ACQUISITIONS TAX

No changes were announced to the CAT tax-free thresholds in the Budget.

CAPITAL GAINS TAX

No changes were announced to CGT rates in the Budget.

Seven Year Exemption

The Minister relaxed the “Seven Year Exemption” which applied to land or buildings purchased between 7^th December and 31^st December 2014.

Disposals of qualifying assets between years four and seven will now qualify for the full Capital Gains Tax Exemption

VAT

VAT Compensation Scheme

A VAT refund scheme was introduced in order to compensate charities for input VAT incurred on expenditure.

This scheme will take effect from 1^st January 2018 but will be paid one year in arrears. In other words charities will be entitled to claim an input VAT credit in 2019 in relation to expenses incurred in 2018.

Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive.

The Minister also confirmed that a capped fund of €5 million will be available to fund the scheme in 2019.

For further information please visit:

http://www.budget.gov.ie/Budgets/2018/Documents/VAT_Compensation_Scheme_For_Charities.pdf

9% VAT Rate

The reduced VAT rate of 9% for goods and services, mainly related to the tourism and hospitality industry, has been retained.

VAT on Sunbed Sessions

 In line with the Irish Government’s National Cancer Strategy, the VAT rate on sunbed services will increase from 13.5% to 23% from 1^st January 2018.

BUSINESS TAXES

Corporation tax rate

The government has made a firm commitment to retaining the 12½% Corporation Tax rate to attract foreign direct investment.

 Capital Allowances for Intangible Assets

The Minister confirmed that he would be limiting the amount of capital allowances that can be claimed for intangible assets.

A tax deduction for capital allowances under Section 291A TCA 1997 on intangible assets and any associated interest cost will now be limited to 80% of the relevant income arising from the intangible asset in the accounting period from midnight of 10^th October 2017.

Key Employee Engagement Programme (KEEP)

The Minister announced plans for a new share based remuneration incentive for unquoted SME companies aimed at improving the ability of SMEs to attract and retain key staff.

This incentive will be available for qualifying KEEP share options granted between 1^st January 2018 and 31^st December 2023.

No income tax, PRSI or USC will be charged on the exercise of the share options. Instead gains from exercising these share options will only be liable to CGT @ 33%.

The tax becomes payable when the shares are sold.

State Aid approval will be required to introduce this scheme.

Accelerated capital allowances for expenditure on energy-efficient equipment

Following a review of the accelerated capital allowances scheme for energy efficient equipment, the current scheme is being extended for a further three years to the end of 2020.

STAMP DUTY

Stamp Duty on commercial property

The rate of stamp duty on commercial property transactions will have increased from 2% to 6% with effect from midnight of 10^th October 2017.

A stamp duty refund scheme is also being introduced for commercial land acquired for the development of housing, on condition that the development must begin within 30 months of the purchase of the land.

It is expected that further details of the relief and the conditions will be outlined in the Finance Bill.

FARMING AND THE AGRI-SECTOR

Stamp duty

The Stamp duty rate of 1% remains for inter-family farm transfers for a further three years.

The Stamp Duty exemption for Young Trained Farmers on agricultural land transactions will also be retained.

Leasing land for solar panels

The leasing of agricultural land for the use of solar panels will continue to be classified as agricultural land for the purposes of the CAT Agricultural Relief and the CGT Retirement Relief providing the solar panel infrastructure does not exceed 50% of the total land holding..

BREXIT

Brexit Loan Scheme 

A new Brexit Loan Scheme has been announced. A loan scheme of up to €300 million will be available at competitive rates to SMEs to assist them with their short-term working capital needs, with particular attention given to food industry businesses.

Details of this scheme will be provided by the Tánaiste and Minister for Business, Enterprise and Innovation, and the Minister for Agriculture, Food and the Marine.

Plans were also announced to hire over 40 additional staff across the Department of Business, Enterprise and Innovation and enterprise agencies in 2018 to respond to the issues arising from Brexit.

Increased funding

The Minister announced increased funding of €64 million to support the agri-sector. Of this, a further €25 million is to be provided to the Minister for Agriculture, Food and the Marine to develop further Brexit loan schemes for the agri-food sector in addition to the loan scheme discussed above.

OTHER CHANGES

Sugar Tax

 From 1^st April 2018 two rates of tax on sugar-sweetened drinks will be introduced subject to State Aid approval.

The first will apply at a rate of 30 cent per litre where the sugar content is above 8g per 100ml.

The second rate of 20 cent per litre will apply where the sugar content is between 5g and 8g per 100ml.

Drinks with less than five grams of sugar won’t attract a sugar tax.

Vacant site levy

The vacant site levy has been increased from the current 3% levy in the first year to 7% in second and subsequent years to encourage land owners to develop vacant sites rather than “hoarding” land.

The vacant site levy is due to come into effect in 2018.

An owner of a property on a vacant site register who does not develop their land in 2018 will be liable to the 3% levy in 2019 and a further 7% levy in 2020 and each year thereafter until the land is developed.

From 1^st January 2017, each local authority is obliged to maintain a register of vacant sites to include on the register, details of any site, which they believe, has been vacant for the previous twelve month period.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Gift and Inheritance Tax. Capital Acquisitions Tax. Dwelling House Exemption. CAT Reliefs and Exemptions

Everyone is aware that significant changes were introduced in the 2016 Budget but have you thought what they might mean for you?  From 25th December 2016, the Dwelling House Exemption from CAT (Capital Acquisitions Tax) will apply (i) to inheritances and (ii) gifts to a dependent relative.   Subject to certain exceptions, the inherited property must have been the principal place of residence of the deceased person at the date of death.  This requirement, however, will be relaxed in situations where the deceased person was required to leave their home, prior to the date of death, as a result of ill health.

Situation prior to 25th December 2016

Prior to 25^th December 2016, Section 86 CATCA 2003 provided a means of passing on a property to the next generation, either by gift or inheritance, in a tax free manner.

The exemption from Capital Acquisitions Tax for a gift or inheritance of a dwelling house or part of a dwelling house applied if the following conditions were met:

1. the donee/successor/beneficiary who received the gift or inheritance must have continuously occupied the dwelling house as their sole or main residence throughout a period of three years immediately up to the date of the benefit or
2. in circumstances where the dwelling house replaced another property, the donee/successor/beneficiary must have occupied the property as their only or main residence for a period of three out of the four years immediately before the date of the benefit  and
3. the donee/successor/beneficiary must not at the date of the gift/inheritance have been beneficially entitled to any other dwelling house or interest in any other dwelling house and
4. in circumstances where the donee/successor was aged under fifty five years, he/she must have continued to occupy the dwelling house as their sole or main residence for six years beginning on the date of the gift or inheritance.

Capital Acquisitions Tax Situation from 25^th December 2016

1. The Dwelling House Relief is available for inheritances of a dwelling house or part of a dwelling house only.  It is no longer available for gifts or gifts which convert to inheritances in circumstances where the donor dies within two years of the date of the gift.
2. The donor must have occupied the dwelling house as their sole or main residence at the date of his/her death. Please be aware that this requirement will be relaxed in situations where the deceased person could not remain in the dwelling house due to mental or physical infirmity. In other words if that individual requires specialist care in, say, a nursing home and as a result, has to leave their home, then they will be deemed to continue to occupy the property during that period.
3. The beneficiary/successor must have occupied the dwelling house as their sole or main residence for a continuous period of three years preceding the date of the inheritance. In other words, the house must be occupied by both the person making the gift at the date of death and the beneficiary receiving the gift at the date of the inheritance. Please be aware that this requirement does not apply in the case of a gift of a dwelling house to a “Dependant Relative.”
4.  The beneficiary/successor must not have an interest in any other dwelling house or part of a dwelling house at the date of the inheritance and
5.  The beneficiary/successor must continue to occupy the dwelling house as his/her main or sole residence for six years from the date of the inheritance.   Please be aware that this requirement will be relaxed in situations where the beneficiary/successor cannot remain in the dwelling house due to mental or physical infirmity or because the terms of their employment requires them to live elsewhere.
6.  The Dwelling House Relief will however be available on a gift of a dwelling house which is made to a “Dependant Relative.”   This is defined as a direct relative of the person making the gift or their spouse/ civil partner, and who is permanently and totally incapacitated by reason of mental or physical infirmity or is over the age of sixty five years.

What does this mean?

The amendment to Section 86 CATCA 2003 (Exemption relating to certain dwellings) has removed a valuable tax planning opportunity and will lead to unforeseen Capital Acquisitions Tax liabilities for individuals who receive gifts.

To most it seems like an excessive way of addressing the problem of wealthy families using this exemption as a means of transferring property to the next generation tax free.   For many families in Ireland the “Dwelling House Relief” was used by parents to help their children get on to the property ladder.   Some, however, welcome this amendment stating that it will ensure that family members who genuinely want to live with and care for elderly parents will inherit the family home tax free providing the conditions are met.

It is also important to keep in mind that since the conditions for this Relief are based on mental or physical infirmity then medical proof will be required to avoid a claw-back of the relief.

 In summary

1. Section 86 CATCA 2003 Dwelling House Relief is only available for inheritances unless a gift of a dwelling house is taken by a Dependant Relative who is permanently or totally incapacitated or aged over sixty five years.
2. The age at which a beneficiary/successor can take a property without being liable to the claw-back provisions has been increased from fifty five years to sixty six years.
3. The house must be occupied by both the disponer and the beneficiary at the date of the inheritance except where the property was gifted to a dependent relative.
4. The property is the only residential property that the beneficiary/successor is beneficially entitled to.

For further information, please click:

http://www.revenue.ie/en/practitioner/ebrief/2017/no-042017.html

For all your Irish or cross-border gift or inheritance concerns under Inheritance Tax, Gift Tax, Estate Tax and Capital Acquisitions Tax,  please contact us on queries@accountsadvicecentre.ie.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.