Capital Acquisitions Tax (CAT): Exemptions, CGT/CAT Offset, CAT Administration

Question 1

What is the Small Gift Exemption in the context of CAT and is there clawback?

Answer 1

The first €3,000 of the total taxable value of all taxable gifts taken by a donee from the same disponer in any year will be disregarded for the purposes of tax.

It is not clawed back in cases where the gift becomes an inheritance due to the death of the disponer within 2 years of the date of the gift

Question 2

How does the relationship of a deceased spouse/civil partner affect the group threshold for gifts/inheritances?

Answer 2

Where a person is deceased, the spouse/civil partner of that person takes the relationship of the deceased spouse/civil partner, enabling them to receive gifts/inheritances from their parents-in-law at the group A threshold instead of the group C threshold.

Question 3

Under what conditions is an inheritance taken by a parent from a child exempt from Capital Acquisitions Tax (CAT)?

Answer 3

An inheritance taken by a parent from a child is exempt from CAT if the child had taken a non-exempt gift or inheritance from either or both of their parents within the period of 5 years immediately prior to the death of the child.

The previous gift/inheritance does not have to match the current inheritance.

Question 4

What are the exempt conditions for payments made by a disponer for the support of children from Capital Acquisitions Tax?

Answer 4

Payments made during the lifetime of the disponer for the support, maintenance, or education of their children or the children of their civil partner are exempt if they are considered normal and reasonable.

Question 5

For whom do the exemptions on support, maintenance, or education payments apply regarding Capital Acquisitions Tax? (3 situations)

Answer 5

The exemption applies to:

1.	Children under the age of 18.
2.	Children between 18 and 25 in full-time education.
3.	Children of any age who are permanently incapacitated.

Question 6

What are the conditions for post-death support, maintenance, or education to be exempt from Capital Acquisitions Tax? (3 conditions)

“post-death support” refers to the financial support or assistance given to a person after someone else’s death.

The individual receiving this support is typically a dependent of the deceased, such as a spouse, child, or possibly another family member who was financially reliant on the deceased during their lifetime.

Answer 6

The exemption applies when these provisions are received by:

1.	A minor child.
2.	A child aged 18 to 25 who is in full-time education or training.
3.	A child of any age who is permanently incapacitated, provided the other parent is also deceased.

Question 7

What must be considered to qualify for the Capital Acquisitions Tax exemption on post-death support payments?

Answer 7

The sums provided for support, maintenance, or education must be reasonable relative to the financial circumstances of the deceased disponer.

Question 8

Under what conditions are Irish Government Securities exempt from Capital Acquisitions Tax for non-resident beneficiaries?

Answer 8

The exemption applies when:

1.	The beneficiary is neither domiciled nor ordinarily resident in Ireland at the date of the gift/inheritance.
2.	The securities or units have been held by the disponer for at least 15 years prior to the date of the gift or inheritance.

Question 9

What additional exemption conditions apply to Irish Government Securities for non-domiciled disponers and beneficiaries?

Answer 9

If both the disponer and the beneficiary are neither domiciled nor ordinarily resident in Ireland at the time of the disposition, the securities or units qualify for an exemption from CAT even if they have not been held for the fifteen-year period.

Question 10

What is the CAT exemption for Section 60 insurance policies?

Answer 10

Proceeds from Section 60 insurance policies, normally forming part of the deceased’s estate and subject to CAT, are exempt from inheritance tax if used to pay inheritance tax.

The exemption applies only to the portion of the proceeds actually used to pay the inheritance tax on the estate.

Question 11

What are the key conditions that must be met under the Dwelling House Exemption for a beneficiary to inherit a dwelling house? (4 conditions)

Answer 11

1. The disponer must have occupied the dwelling house as their only or main residence at their date of death.
2. The beneficiary must have occupied the house continuously as their only or main residence for 3 years prior to the date of inheritance.
3. The beneficiary must not be beneficially entitled to any other dwelling house or any interest in any other dwelling at the date of inheritance/valuation date.
4. The beneficiary must continue to reside in the house as their main or only residence for 6 years after the date of inheritance, unless they are aged 65 or more at the date of inheritance.

Question 12

What are the key conditions for a beneficiary to qualify for the Dwelling House Exemption when receiving a dwelling house as a gift? (4 conditions)

Answer 12

1. The beneficiary must be a dependent relative, either a direct relative of the disponer or their spouse/civil partner, and must be either over 65 years of age or permanently incapacitated.
2. The beneficiary must have occupied the house continuously as their only or main residence for 3 years prior to the date of the gift.
3. The beneficiary must not be beneficially entitled to any other dwelling house or any interest in any other dwelling at the date of the gift/valuation date.
4. The beneficiary must continue to reside in the house as their main or only residence for 6 years after the date of the gift, unless they are aged 65 or more at the date of the gift.

Question 13

What triggers a claw-back of the Dwelling House Exemption, and what are the conditions for waiving this claw-back?

Answer 13

A claw-back of the exemption occurs if the recipient disposes of the dwelling house within the relevant 6-year period. However, this claw-back can be waived if the disposal is due to the recipient requiring long-term medical care in a hospital, nursing home, or convalescent home.

A convalescent home is a facility that provides care and medical treatment for people who are recovering from illness, surgery, or injury.

Question 14

How can the claw-back of the Dwelling House Exemption be limited, and what causes it to cease altogether?

Answer 14

The claw-back can be limited if the recipient disposes of the dwelling house and reinvests some or all of the proceeds in a replacement dwelling house, and continuously occupies both for a total of 6 out of the 7 years from the date of the gift or inheritance.

The exemption ceases if the beneficiary subsequently inherits an interest in another dwelling house from the same disponer.

Question 15

What are some other exemptions that apply to gifts and inheritances? (6 exemptions)

Answer 15

1. Gifts or inheritances taken by charities.
2. Gifts or inheritances used exclusively to cover qualifying medical expenses for someone who is permanently incapacitated due to physical or mental infirmity.
3. Bona fide compensation or damages for any wrong or injury suffered by the individual, or compensation for the death of another person.
4. Bona fide winnings from betting, lotteries, sweepstakes, or prizes from games.
5. Gifts or inheritances from the disponer to themselves, such as in a trust setup.
6. Any benefit from debt write-off under the Personal Insolvency Act 2012.

Question 16

What is the tax implication when a gift or inheritance is taken free of Capital Acquisitions Tax (CAT) by direction of the disponer?

“direction of the disponer” refers to the specific instructions or stipulations set by the disponer that the recipient (the donee or beneficiary) is to receive the gift or inheritance without having to pay the CAT associated with it. Essentially, the disponer has decided to cover the cost of the CAT so that the recipient does not have to.

Answer 16

The law states that if a gift or inheritance is taken by direction of the disponer free of CAT, the benefit taken is deemed to include the amount of tax chargeable on the gift or inheritance itself, but it does not include the amount of tax chargeable on such tax.

This means that the market value of the gift or inheritance is treated as being higher because it includes the tax that was covered by the disponer.

The law specifies that the value of the gift or inheritance does not include the tax on the CAT itself. This means if there were any additional tax obligations generated by paying the CAT (a tax on the tax), these are not added to the value of the gift or inheritance. This prevents a recursive scenario where tax is continuously calculated on top of more tax, which could complicate and increase the tax liability indefinitely.

Practical Example:

Suppose a disponer leaves an inheritance of €100,000 to a beneficiary and decides to cover the CAT of €33,000 that would normally be payable by the beneficiary. In this case, for tax purposes, the inheritance is deemed to have a value of €133,000 (the original €100,000 plus the €33,000 tax paid by the disponer). However, any tax that would be due on the €33,000 itself (such as if this €33,000 were to incur further tax) does not increase the deemed value of €133,000.

Question 17

What allows for a CGT paid to be deducted as a credit against CAT?

Answer 17

When an event triggers both a charge to Capital Acquisitions Tax (CAT) and a Capital Gains Tax (CGT) on the same property or part of it, the CGT that has been paid may be deducted as a credit against the net CAT due.

Question 18

What condition leads to a claw-back of the CGT credit relief against CAT?

Answer 18

A claw-back of the CGT credit relief occurs if the property, in respect of which the relief was granted, is disposed of within 2 years following the date of the gift or inheritance.

Question 19

What are the considerations for CGT/CAT Offset when it involves more than one asset?

Answer 19

1. The same event must trigger both the CGT and CAT liability.
2. If the CAT relates to two different assets, it is necessary to establish the CAT arising on each individual asset.
3. There is no specific guidance in law on how to allocate the CAT between the assets.
4. Therefore, the most beneficial method should be used, aiming to maximize the CGT credit available.

Question 20

When is CAT due, and what are the filing deadlines based on valuation dates?

Answer 20

CAT is due and payable by reference to the valuation date. All gifts and inheritances with a valuation date in the 12-month period ending on the previous 31 August must be included in a CAT return to be filed by 31 October in that year.

For gifts and inheritances with a valuation date between 1 September and 31 December, the pay and file deadline is 31 October of the following year.

Question 21

What happens if CAT is not paid by the deadline?

Answer 21

If CAT is not paid within the required period, simple interest accrues at a rate of 0.0219% per day from the valuation date to the date of actual payment.

Question 22

What is the surcharge for tax returns filed late but within two months of the deadline?

Answer 22

A surcharge of 5% of the tax payable is levied on tax returns filed late but within two months of the deadline, subject to a maximum of €12,695.

Question 23

What is the surcharge for tax returns filed more than two months after the deadline?

Answer 23

A surcharge of 10% of the tax payable is levied on tax returns filed more than two months after the deadline, subject to a maximum of €63,485.

Question 24

Under what conditions can CAT be paid by instalments?

Answer 24

CAT can be paid by monthly instalments over a period not exceeding 5 years, but this option is only available for real property (i.e., land and buildings) and limited interests in any property.

The term “limited interest in any property” typically refers to a situation where a person holds some form of temporary, conditional, or partial rights to a property, rather than full ownership.

Question 25

What are the rules regarding interest and the types of property for which payment by instalments is not allowed?

Answer 25

Interest on an unpaid balance is added to each instalment. The facility to pay by instalments does not apply to tax on absolute interests in personal property such as cash or shares; it is applicable only to real property and limited interests in personal property.

An absolute interest in property refers to the complete and unrestricted ownership of the property.

Question 26

What happens to the instalment payments of CAT if a life tenant donee or successor dies before all instalments are due?

Answer 26

If the donee or successor, who is a life tenant, dies before all the instalments have become due (within 5 years of the valuation date), the instalments that are due after his or her death will not be payable.

a life tenant is a person who receives the right to use or benefit from property for the duration of their life.

Example:

Scenario: Let’s say Margaret inherits a property from her aunt under the terms that she is to be a life tenant of the property. The property is valued at €500,000 at the time of her aunt’s death, and based on Margaret’s age and life expectancy, the value of her life interest (the right to use the property during her lifetime) is assessed at €300,000 for CAT purposes.

CAT Calculation: Assuming the CAT rate and her relationship with the aunt (assuming a niece with a tax-free threshold significantly lower than €300,000), the CAT due might be calculated at €90,000.

Payment Terms: Margaret opts to pay the CAT in instalments over five years, as allowed under the rules for real property or life interests.

Death of the Life Tenant: Suppose Margaret, unfortunately, passes away just three years into the payment schedule, having paid a total of €54,000 in CAT (€18,000 per year).

Outcome:

•	Since Margaret has passed away, and she held only a life interest in the property, the remaining instalments that would have been due in years four and five are no longer payable.
•	The property now passes to the remainderman (the person designated to receive the property after Margaret’s death), and any obligations specific to Margaret’s life tenancy, including remaining tax instalments, cease upon her death.