Capital Acquisitions Tax (CAT)
A tax on gifts and inheritances received above certain thresholds.
Sections
1. Overview of Capital Acquisitions Tax (CAT)
CAT is a tax charged on the value of a gift or inheritance received by an individual. The tax is payable by the person receiving the benefit (the beneficiary), not the person giving it. The tax is governed by the Capital Acquisitions Tax Consolidation Act 2003, as amended.
- Gifts: Transfers made during the lifetime of the donor.
- Inheritances: Transfers made upon the death of the donor.
The tax is calculated based on the value of the gift or inheritance above a certain tax-free threshold, which depends on the relationship between the donor and the beneficiary.
2. Tax-Free Thresholds
The amount of CAT you pay depends on the Group Threshold that applies to your relationship with the donor. There are three groups:
| Group | Relationship to Donor | Threshold (2023) | |-----------|----------------------------|-----------------------| | Group A | Child (including adopted child, stepchild, or foster child) | โฌ335,000 | | Group B | Sibling, niece, nephew, grandchild | โฌ32,500 | | Group C | All other relationships (e.g., friends, distant relatives) | โฌ16,250 |
- If the value of the gift or inheritance exceeds the relevant threshold, CAT is charged at a rate of 33% on the excess amount.
- The thresholds are cumulative over a lifetime. This means that all gifts and inheritances received from individuals in the same group are added together to determine if the threshold has been exceeded.
3. Exemptions and Reliefs
Certain exemptions and reliefs can reduce or eliminate CAT liability. These include:
Exemptions
- Spouse or Civil Partner Exemption: Gifts or inheritances received from a spouse or civil partner are completely exempt from CAT.
- Small Gift Exemption: You can receive gifts of up to โฌ3,000 per year from any individual without it affecting your tax-free threshold.
- Charitable Donations: Gifts or inheritances given to approved charities are exempt from CAT.
Reliefs
- Dwelling House Relief: If you inherit a house that you have lived in for at least three years prior to the inheritance, and you continue to live in it for six years after, you may qualify for relief from CAT.
- Agricultural Relief: Reduces the taxable value of agricultural property by 90%, provided certain conditions are met.
- Business Relief: Reduces the taxable value of business assets by 90%, subject to specific conditions.
4. Valuation of Assets
The value of the gift or inheritance is based on the market value of the asset at the date of the gift or inheritance. Any debts or liabilities associated with the asset (e.g., a mortgage) can be deducted to determine the taxable value.
5. Standard Procedures
To comply with CAT regulations, beneficiaries must follow these steps:
Step 1: Determine Taxable Value
- Calculate the market value of the gift or inheritance.
- Deduct any liabilities, costs, or exemptions.
- Compare the net value to the relevant tax-free threshold.
Step 2: File a CAT Return
- If the taxable value exceeds 80% of the relevant threshold, you must file a CAT return, even if no tax is due.
- Returns are filed using the Revenue Online Service (ROS).
Step 3: Pay CAT
- If CAT is due, it must be paid by 31 October of the year following the year in which the gift or inheritance was received.
- Payment can be made through ROS.
Step 4: Keep Records
- Maintain records of all gifts and inheritances received, including valuations and any supporting documentation.
6. Costs Associated with CAT
The primary cost is the tax itself, which is 33% of the taxable value above the threshold. Additional costs may include:
- Valuation Fees: If professional valuations are required for property or other assets.
- Legal Fees: If solicitors are involved in the transfer of assets.
- Accountancy Fees: For assistance with filing CAT returns.
7. Penalties for Non-Compliance
Failure to file a CAT return or pay the tax on time can result in:
- Interest: Charged at a rate of 0.0219% per day on unpaid tax.
- Penalties: Additional penalties may apply for late filing or underpayment.
8. Country-Specific Considerations
- Double Taxation Relief: If you receive an inheritance or gift from another country, you may be subject to CAT in Ireland and inheritance tax in the other country. Ireland has double taxation agreements with certain countries to prevent this.
- Non-Resident Beneficiaries: If you are not resident in Ireland but receive a gift or inheritance of Irish property, you may still be liable for CAT.
- Indexation of Thresholds: The tax-free thresholds are subject to change, so it is important to check the current limits.
9. Resources and Support
- Revenue Commissioners: The Irish Revenue website (www.revenue.ie) provides detailed guidance on CAT, including forms and calculators.
- Professional Advice: Consult a tax advisor or solicitor for complex cases, especially if reliefs or exemptions may apply.
- Revenue Online Service (ROS): Use ROS to file returns and make payments.
10. Example Calculation
Suppose you inherit โฌ400,000 from your parent:
- Group A threshold: โฌ335,000
- Taxable amount: โฌ400,000 - โฌ335,000 = โฌ65,000
- CAT payable: โฌ65,000 ร 33% = โฌ21,450
By understanding the rules and procedures for CAT, you can ensure compliance and potentially reduce your tax liability through exemptions and reliefs. Always consult with a professional for personalized advice.