Inheritance tax – why inheriting in 2013 is not as attractive as 4 years ago.
Let me put it to you like this – do you think you would pay more inheritance tax had your parent died (a) in 2009 and you alone inherited the family home worth €542,000 or (b) in 2013 and you alone inherited the family home worth €230,000? The answer is b!
CAT and how it is applied
When it comes to inheritance tax (or Capital Acquisitions Tax “CAT”) the amount of tax you pay depends on your relationship with the disponer ie. the person giving. There are three thresholds. A person giving to his or her:-
A Child/foster child/or minor child of a deceased child
B brother/sister/nephew/niece
C Other
2009 compared to 2013
So for example in 2009 you could inherit €542,544 from your mother or father without paying any tax. Anything over that was taxed at 22%. Now in 2013 you can only inherit €225,000 tax-free from your mother or father. Anything over that is taxed at 33%. So not only can you inherit less free from tax but the rate of CAT payable has also gone up 11%. The thresholds have also changed in relation to B and C above.
What about the crash in property prices?
It is as a result of the crash that we have seen these dramatic changes. So let’s take a simple example. A widow dies in 2009 with one child and the family home is valued at €600,000. That child can now subtract the threshold at the time of death (2009) say €542,544 and he or she will pay tax at 22% on the balance of €57,456 ie. €12,640. What if the widow dies in 2013 the value of the house has gone down by, say 10% each year, so after four years the value now stands at €360,000. That child can now subtract the threshold in 2013, say, €225,000 and he or she will pay tax at 33% on the balance of €135,000 ie. €44,550. This means that person inheriting now pays more tax to the tune of €31,910.
When must you pay the tax?
Where the valuation date arises between 1 January 2013 and 31 August 2013, the Pay & File deadline is the 31 October 2013. Where the valuation date arises between 1 September 2013 and 31 December 2013, the Pay & File deadline would be 31 October 2014.
What if you don’t have the means to pay the tax?
You can always disclaim your inheritance. ie. say you don’t want it. But that would not be very wise in the case of a house worth €600,000. The other option of course is to sell the house and pay the tax out of the proceeds of sale.
Niall Colgan is a Cork based solicitor with over 10 years experience.
Tags: Inheritance tax
