Irish Inheritance Tax – Which Assets Are Taxed?
With the increased globalisation of the world economy, the death of individuals leaving assets in more than one country, each with different inheritance tax regimes has become commonplace. Sometimes two countries will be considered to have taxing rights over estate assets under each of their own domestic tax rules. This article outlines the circumstances in which a deceased person’s assets will be considered as coming within the charge to Irish Inheritance Tax, before consideration of any relief from double taxation or exemption which might be available.
In Ireland, inherited property is taxed at 33% over and above a beneficiary’s unused tax-free group threshold amount in the hands of the beneficiary (if no relief or exemption applies) and the payment date depends on the valuation date.
Inherited property will come within the charge to Irish Inheritance Tax if:-
- The property (both moveable such as funds in a bank account or immovable such as land or buildings within the State) is located in Ireland1; OR
- Subject to the exception outlined at below, the deceased was resident in Ireland during any of the three years prior to his/her death2. If this is the case, inherited property located worldwide is subject to Irish Inheritance Tax;
- however, if the deceased was (1) not domiciled in Ireland at the date of death and (2) not tax resident in Ireland for five consecutive tax years immediately prior to the date of death, only inherited property located in Ireland will come within the charge to Irish Inheritance Tax3; OR
- If the person inheriting the assets was tax-resident in Ireland for any of the three years prior to the date of inheritance4;
- however, similarly to the exception at no.3. above, if the beneficiary is (1) not domiciled in Ireland at the date of the inheritance and (2) not tax resident in Ireland for five years preceding the date of death, only inherited property located in Ireland will come within the charge to Irish Inheritance Tax5.
2 See section 11(2)(a) of the Capital Acquisitions Tax Act, 2003
3 See section 11(4) of the Capital Acquisitions Tax Act, 2003
4 See section 11(2)(b) of the Capital Acquisitions Tax Act, 2003
5 See section 11 (4) of the Capital Acquisitions Tax Act, 2003
Usually a personal representative will be aware from historic tax returns made available to him/her whether or not a deceased was tax resident in Ireland in the years prior to his/her death.
In situations where both Ireland and another country have taxing rights over the same property and foreign tax arises, a personal representative may be required to obtain a Letter of Residence from the Revenue Commissioners in Ireland which would assist the estate in making a claim for double taxation relief/ refund of Inheritance Tax charged by that second country (for example, in France or Spain where tax is charged on estate assets) or vice versa. If required in Ireland the Letter of Residence will issue in a standard format and will confirm the position regarding the deceased’s tax residence from the Irish Revenue’s point of view. The Revenue has issued helpful guidelines on how to apply for such a letter and these are available at this link.
As set out above, if on the basis of the above 3 rules, inherited property does come within the charge to Irish Inheritance Tax, the provisions of the Ireland/ US or Ireland/UK double taxation treaty or a beneficiary’s unused tax-free group threshold amount or other inheritance tax reliefs may serve to reduce the liability in full or in part.
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