Inheritance Tax Consultants

Inheritance Tax (IHT), UK Taxes, Capital Acquisitions Tax.

The 2024 Autumn Budget announced a series of changes to UK Inheritance Tax.  As you’re aware, in the UK, Inheritance Tax is a tax payable on the value of a deceased person’s estate.  This differs to Irish Capital Acquisitions Tax where the beneficiary pays CAT on gifts and/or inheritances.

Current Rules

Currently, UK IHT is charged at 40% on the value of an estate above the tax-free allowance i.e. the Nil Rate Band of £325,000. This tax-free allowance can be further increased by a Residential Nil Rate Band of £175,000 providing you leave your home to direct descendants i.e. children, step children, grandchildren, etc.  As a result, this brings up the total tax-free allowance to £500,000 per person.  In certain circumstances, this could potentially equate to £1 million for a couple.  These thresholds were fixed until April 2030 in the Autumn Budget.  If, however, your estate is worth less than £325,000 when you die, then any unused amount up to the threshold limit can be added to the surviving spouse’s/partner’s threshold amount.

New Rules

From 6^th April 2025, the rules for taxing non-UK domiciled individuals will be replaced by a tax residence-based system.  This will apply to long-term residents owning non-UK property who were previously outside the scope of UK Inheritance Tax.  UK assets will always remain within the scope of inheritance tax.  Therefore, from 6th April 2025 onwards, individuals who have held non-domicile status will no longer be exempt from Inheritance Tax on their foreign assets. Instead tax will be based on the individual’s residency status.

Non-UK assets will be within the scope of UK Inheritance tax if an individual qualifies as a long-term resident.  This means that anyone who has been resident in the UK for ten out of the last twenty years will be subject to Inheritance Tax on their worldwide assets.  This is assessed using the same statutory residence test currently applied for Income Tax and Capital Gains Tax purposes.  It’s important to keep in mind that where an individual ceases to be UK resident after 6th April 2025, there will be an “IHT tail.”  This effectively means that an individual can remain within the scope of UK Inheritance Tax, on their worldwide assets, for a period of up to ten years after ceasing their UK residence.

In summary, from 6th April 2025, the concept of domicile will no longer determine exposure to inheritance tax.  Instead, it will be replaced with the concept of a long-term resident.

For further information, please click:

https://www.gov.uk/inheritance-tax

https://www.gov.uk/government/publications/2024-non-uk-domiciled-individuals-policy-summary/changes-to-the-taxation-of-non-uk-domiciled-individuals

For all your Irish or cross-border gift or inheritance concerns, 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.

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.