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.

1. The dwelling must have been the sole or main residence of the disponer;
2. The beneficiary must have been resident in the property for at least 3 years prior to the disponer’s death;
3. 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
4. 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.

3Agricultural Relief

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 deirdre@amoryssolicitors.com or your usual contact at Amorys.

How to Challenge a Will in Ireland (Part 1)

5Parties not provided for under a Will

Children & ‘Section 117 claims’

Children who believe that they have not been properly provided for in their parent’s Will may have a right to challenge it under section 117 of the Succession Act 1965 provides that where a child of the deceased person can show that the deceased person, in their Will, has failed in his or her moral duty to make proper provision for that child, in accordance with their means, then the Court may order such provision be made as the Court thinks fit. However, a child has no automatic right to a share in the parent’s estate where there is a Will and Section 117 does not apply in cases of intestacy (where there is no Will). It is important also to note that an award under section 117 shall not interfere with the legal right share of a surviving spouse (see below) and that this can affect the value of the claim considerably.

There is a strict 6-month time limit from the date of the Grant of Probate or the issue of a Grant of Representation in the estate of the deceased to make a claim under Section 117. It is therefore vital to get legal advice at an early stage. A personal representative of an estate is under no obligation to inform any child of the provisions of section 117.

When deciding to make an award under this section, a court will take the following into consideration:-

• The number of children of the deceased, their age and position in life at the date of the testator’s death
• The applicant child’s age, position in life, financial means and what was left to the applicant in the Will
• The means of the testator
• Whether the testator had made proper provision for the applicant during their lifetime

Spouses

Claiming the Legal Right Share

A surviving spouse is entitled to a legal right share of the deceased’s estate as long as they have not previously renounced their rights to the estate. A spouse’s legal right share is either:-

• one half of the estate if there are no children; or
• one-third of the estate if there are children

A surviving spouse can elect to either take the bequest under the Will, if there is one, in addition to any share s/he might take from a partial intestate estate or take his/her legal right share. If nothing is left to the spouse in the Will, the legal right share automatically vests in the surviving spouse in which case same is treated as a debt due from the estate ranking in priority to all other devises and bequests in the Will and no court application is required. In the latter situation, the legal right share has the potential to be extremely disruptive to the provisions of the Will. A court application is not required for a surviving spouse to elect to claim his/her legal right share.

Claims by Separated or Divorced Spouses

Notwithstanding the terms of a Will, divorced spouses may apply for provision out of a deceased spouse’s estate under section 18 of the Family Law (Divorce) Act 1996 on the grounds that the terms of the decree of divorce can be interpreted to mean that ‘proper provision’ for the surviving spouse in the circumstances was not made during the deceased spouse’s lifetime. A claim under this section must be made within 6 months of the date of issue of the grant of representation and a court application is required. The onus lies on the surviving spouse (and not the personal representative) to inform him/herself of the provisions of this section and to make the appropriate application. An identical application may be made by a judicially separated spouse under section 25 of the Family Law Act 1995. In many cases, an ancillary order extinguishing both spouses’ right to apply under this section is made by a court when an order for divorce or judicial separation is granted. The ancillary order in the context of a divorce is commonly called a ‘section 18 barring order’. Surviving spouses are advised to obtain independent legal advice on the terms of their divorce or judicial separation for this reason.

Cohabitants

– the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 (the “2010 Act”) introduced a redress scheme for qualifying cohabiting couples who are not married to each other or are not civil partners. To be considered a qualified cohabitant you must have been cohabiting for a period of at least five years or for two years if there are children of the relationship. A Court may, upon an application being made to it under section 194 of the 2010 Act, make such order out of the deceased cohabitant’s estate as is just and equitable in the circumstances.

A qualified cohabitant has a right to apply for provision from the net estate of a deceased qualified cohabitant under section 194 of the 2010 Act. In this respect, where the ending of the relationship arises on the death of the qualified cohabitant, the surviving cohabiting partner does not need to prove financial or economic dependence on the deceased in order to substantiate a his/her claim. However, the reverse is the case in circumstances where the relationship ended prior to the death. In either situation the right of the qualified cohabitant under this section cannot exceed that which s/he would have been entitled to if the parties were married. In general terms, this could mean that the surviving cohabitant would not be entitled to anything more than his/her ‘legal right share’ as referred to above.

It must be noted that the right to be provided for out of a deceased qualified cohabitant’s estate under section 194 of the 2010 Act is strictly subject to a surviving spouse’s succession rights under the Succession Act 1965 which in small estates, could render any such right in favour of a qualified cohabitant valueless in practical terms. A surviving spouse could be first entitled to a legal right share (if the parties are not yet divorced) out of the net estate or could have a general right for proper provision to be made for him/ her under section 18 of the Family Law (Divorce) Act 1996 (as explained above). In addition, it is noteworthy that a court is required to consider the rights of other beneficiaries and the rights of a dependent child/ children prior to making an order under section 194.

An application for provision out of the deceased’s estate under section 194 of the 2010 Act must be made within six months of the date of a grant of representation in the estate. A personal representative is not required to notify a surviving cohabitant of a potential claim under the 2010 Act. There is a positive duty on the surviving cohabitant to notify the personal representative of the proceedings and failure to do so could mean that the deceased’s assets would be distributed to the beneficiaries without notice to the surviving cohabitant.

6Failure of a benefit under a Will

It is possible to challenge part only of a Will such as a legacy or a devise of real property. For example, gifts to attesting witnesses to a Will and their spouses will be invalid pursuant to section 82 of the Succession Act 1965. In this instance, a court application may not be required.

Costs of contesting a Will are usually paid out of the estate as long as the proceedings challenging the Will are considered reasonable by the court. However, if a claim challenging a Will is found by a court to be frivolous or vexatious, the claimant can be made liable to pay the costs themselves. There is also a requirement to consider mediation before issuing proceedings for costs purposes. It is therefore vital to seek independent legal advice before challenging a Will.