Assuming a parent gives a child their inheritance of say \u20ac500,000 in 2024 while the parent is still living, and CAT is paid to Revenue by the child for the amount over the \u20ac335,000 threshold for the year that the gain (advance inheritance) was made (2024), if the threshold were to fall by the time the parent died, would that child owe more tax to Revenue? <\/p>\n
For example, say the parent lived another 20 years and died in 2046 and that, by then, the CAT inheritance tax threshold had fallen to say, \u20ac100,000, would that child be governed by the new threshold for a gain made 22 years earlier?<\/p>\n
AH<\/p>\n
This is something that confuses a lot of people. They fear that moving goalposts on tax-free thresholds can leave them or their loved ones exposed to further tax on previous inheritances or gifts … or, on the flip side, wonder whether they might be due refunds.<\/p>\n
The answer is neither. Capital acquisitions tax \u2013 the formal name for inheritance or gift tax \u2013 is determined by when the tax liability arises.<\/p>\n
So, in your case, if you had chosen to give your child a sum of \u20ac500,000 as a gift or \u201cadvance inheritance\u201d before October 2024, it would be assessed against the capital acquisitions tax (CAT) threshold on gifts (or inheritances) from a parent to a child at that time \u2013 which stood at \u20ac350,000.<\/p>\n
As a result, assuming they had no other gifts of more than \u20ac3,000 from a parent in any given year and no other parental inheritance by that time, \u20ac150,000 of this gift would be liable to CAT at 33 per cent, meaning the child would have paid \u20ac50,000 in inheritance tax. <\/p>\n
Had the gift come later in that year, after October when the parent-to-child threshold rose to \u20ac400,000, the tax bill would have fallen to \u20ac33,000.<\/p>\n
Now, if they were to further inherit, say \u20ac200,000, on your death, what happens is that this sum is added to the previous lifetime gift and measured against any higher threshold in place when you die.<\/p>\n
For illustration, let\u2019s assume the threshold is still at the current \u20ac400,000 at that time. Your child\u2019s \u20ac200,000 inheritance and \u20ac500,000 lifetime gift are added to give them \u20ac700,000. <\/p>\n
In fact, everything a person receives after December 5th, 1991 is aggregated in this way.<\/p>\n
They are entitled to \u20ac400,000 tax free and, because they only have available \u20ac350,000 of that thus far, \u20ac50,000 of the inheritance will be tax free, meaning that just \u20ac150,000 of the \u20ac200,000 will be taxed.<\/p>\n
As you can see, just because you went over the limit on the original 2024 gift does not mean that every future gift or inheritance is all liable to tax. <\/p>\n
Let\u2019s take the other scenario you raise. You live for another 20 years, dying in 2046. Over that time, the tax threshold has fallen to \u20ac100,000. Do they go back and reassess this lifetime gift of 22 years previously?<\/p>\n
No, they don\u2019t. The child paid what was due at the time and is thus fully compliant with no additional tax liability.<\/p>\n
What about if they inherit this extra \u20ac200,000 at a time when the threshold has fallen to this \u20ac100,000?<\/p>\n
Well, Revenue will note that the child has already received \u20ac350,000 free of tax in line with prevailing thresholds – which is higher than the illustrative \u20ac100,000 now in place – so all of the \u20ac200,000 will be subject to tax. But, again, there will be no clawback against the amount given in 2024.<\/p>\n
As to the threshold rising or falling down the line, it is impossible to say what will happen in the future but Irish governments are generally loath to increase tax burdens given their policy perspective very rarely extends beyond the date of the next election.<\/p>\n
Certainly over the last 40-plus years, the only time the threshold has fallen was in the aftermath of the 2008 financial crash. Between 2009 and 2012, the Category A threshold governing gifts and inheritance between a parent and a child was slashed from \u20ac542,544 to \u20ac225,000. As you know, it has since risen back to \u20ac400,000.<\/p>\n
The big thing is not to overthink it. If 2024 was when the money would be of most use to your child, then that was the time to act given you had the financial firepower to do so. Many would not.<\/p>\n
But if there is no great need for the money – to fund a first home or a fledgling business for instance – then, in general, thresholds are more likely to rise in future than to fall.<\/p>\n
Ironically, even though the average amount inherited in Ireland is slightly over \u20ac100,000, the pressure will inevitably be on politicians to raise the threshold rather than lower it \u2013 at least in line with property prices. <\/p>\n