In Ireland, inheritance tax is charged on estate assets payable by beneficiaries of an estate.
Below are five of the most frequently availed-of reliefs to reduce an inheritance tax liability:-
1Dwelling House Exemption
By far the most frequently availed-of relief by beneficiaries is the Dwelling House Exemption (DHE). If the criteria for DHE is met, a beneficiary will inherit the relevant property tax-free. There is no limit on the value of the property on which relief may be claimed and so this is potentially a very valuable relief. The qualifying criteria for the DHE are set out below.
- The dwelling must have been the sole or main residence of the disponer;
- The beneficiary must have been resident in the property for at least 3 years prior to the disponer’s death;
- The beneficiary must not own an interest in any other property including another property inherited from the same estate to qualify for this relief; and
- The beneficiary must occupy the property as his sole or main residence for six years after the deemed inheritance (usually the date of death or grant of probate).
Of interest to non-resident beneficiaries, this relief applies whether or not the dwelling house is located in Ireland or abroad – see the final page of Revenue guidance notes here.
In order for the DHE to apply a claim in that regard must be made by filing an inheritance tax return. A personal representative is required to ensure a non-resident beneficiary files an Irish inheritance tax return claiming DHE before formally transferring the foreign dwelling to him/her.
We would refer you to the very helpful information on this relief on the Revenue website available at this link.
2Business Property Relief
A beneficiary who inherits an interest in a business may qualify for Business Property Relief (BPR). This relief operates to reduce the taxable value of an inheritance by 90% and if it applies, will either reduce tax liability substantially or reduce it to NIL, after taking one’s unused tax-free group threshold amount into account. Like with DHE, conditions apply to this relief. Property inherited must consist of assets capable of being operated as a business: the inheritance of a commercial building without the business operated from it, for example, might not come within the definition of ‘relevant business property’ under the legislation1 and the position will need to be examined further with reference to the facts – please see Revenue Guidance Notes on this relief here.
Importantly, businesses which deal completely or mainly in land and buildings, currencies, securities, or stocks will not qualify as ‘relevant business property’ under the terms of the legislation.
However, of interest to beneficiaries cross-border estates, the relevant business does not need to have a presence in Ireland: a business operating in another jurisdiction would qualify as relevant business property under the legislation. This was confirmed in the detailed Revenue Guidance notes on the BPR available here.
An inheritance of ‘agricultural property’2 (which includes houses and farm buildings on land) may qualify for agricultural relief. This relief reduces the taxable value of the property, including land, by 90%. The qualifying criteria are quite strict and as a result, unless the property acquired is farmed for commercial gain for 6 years after the deemed inheritance, the relief will not apply. However, according to data collected by the World Bank, the Republic of Ireland consisted of 65% of agricultural land in 2016 and as a result, this relief is no doubt of relevance to a considerable number of beneficiaries. Agricultural property located in the European Union qualifies for relief under the relevant legislation.
For further detail in relation to this relief, we would refer you to the dedicated section of the Revenue website here.
4Favourite Nephew Relief
Favourite nephew relief allows a nephew or niece to be treated as a disponer’s ‘child’ when s/he receives an inheritance of relevant business property3. Where the relief applies, a niece or nephew may use the Group A tax-free threshold (€335,000 as of May 2020) instead of the group B threshold (€32,500 as of May 2020). The relief only applies to business assets (eg. licenced premises, stock in trade, or shares in a private company owning same) and the niece or nephew must have worked substantially on a full-time basis in the business for five years prior to the inheritance.
In circumstances where non-resident beneficiaries meet all relevant criteria, they are capable of claiming this relief. For further information in relation to this relief, we would refer you to the helpful Revenue page at this link.
5Double Taxation Relief
If you inherit a property from someone who died leaving assets in both Ireland and another country it is quite possible that tax will apply in both jurisdictions on the same event (ie by reason of death). In Ireland, there are two ways in which one may claim a credit for double taxation.
- Relief under a Double Taxation Treaty – UK or United States
Despite the many countries with which Ireland has negotiated double tax treaties, it is only those with the UK and the US which deal with inheritance tax and both provide the same relief. Very broadly, Ireland will give a credit for tax paid on UK property. Further detail on the operation of the UK/Ireland DTA is available here.
Relief under the Irish – US double tax treaty is less simple. Broadly, Ireland will give a credit for US inheritance tax applied on foreign property. However, Ireland may only impose inheritance tax on foreign property (which is also subject to US inheritance tax) where the deceased person died domiciled in Ireland and was not a US resident. Further detail about the operation of this relief is available here.
In a majority of cases, due to the relevant payment dates, UK and US inheritance tax is paid in advance of Irish inheritance tax becoming payable by the beneficiaries. Beneficiaries must still be aware that UK/US tax must actually be paid in order to claim a credit in Ireland.
A claim for double taxation relief can be made at the same time as filing an online IT38/ Inheritance tax form in Ireland. Beneficiaries will need to make sure that the UK/ US tax has been paid prior to claiming relief.
- Unilateral Relief – all other countries
For all other countries exercising taxing rights on inherited property, Ireland will offer a credit for tax paid on foreign situated property. For further detail on the operation of Unilateral Relief, we would encourage you to visit the helpful information on the Revenue website here.
Non-resident personal representatives are required to instruct a solicitor in Ireland to ensure that non-resident beneficiaries pay correctly charged Irish inheritance tax due. An experienced solicitor in probate & tax can assist a personal representative in identifying reliefs which may be availed of by these beneficiaries at an early stage thus giving as much advanced warning as possible of the tax that needs to be paid and the financial arrangements that need to be put in place by the tax due date.
If you have been named as executor of a Will yet to be admitted to probate or are the next of kin of someone who died without a Will and would like a quote for a solicitor to administer the estate please contact firstname.lastname@example.org or your usual contact at Amorys.
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