In this article, we outline the main compliance considerations for individuals who have received gifts or inheritances in Ireland in 2023.
1. Capital Acquisitions Tax (“CAT”)
Irish Capital Acquisitions Tax (“CAT”) is a tax payable by a beneficiary who takes a gift or an inheritance. Items that are regarded as a gift or inheritance include:
- Cash
- House or lands
- Household contents
- Paintings, Jewellery or Cars
- Stocks and shares
- The free use of property and interest free loans
- A limited interest or a right of residence in a property
- A benefit received out of a discretionary trust
- A further share in jointly held property that was inherited from another joint owner
The Capital Acquisitions Tax Consolidation Act (“CATCA”) 2003 imposes a self-assessment system in respect of CAT whereby the beneficiary is the accountable person and is responsible for paying the CAT on the gift/inheritance and for filing the CAT return.
2. Capital Acquisitions Tax Filing Obligations
A disponer is a person who provides a gift or an inheritance while a beneficiary is a person who receives a gift or inheritance. Generally, any beneficiary who receives a gift/inheritance taken on or after 5 December 1991 must file a CAT return where such benefits are in excess of 80% of the relevant CAT group threshold. CAT is not payable where the value of the gift or inheritance is below the relevant CAT group thresholds, on a cumulative basis, over the lifetime of the beneficiary. In effect, you do not pay tax on a gift or inheritance if its taxable value is below a particular threshold, being:
- Group A Threshold of €335,000 (gifts/inheritances to children of the disponer),
- Group B Threshold of €32,500 (gifts/inheritances for close relations of the disponer like parents, brothers, sisters, aunts, uncles etc) or
- Group C Threshold of €16,250 (for gifts or inheritances from strangers-in-blood or everyone else who isn’t in Group A or B).
The value of gifts/inheritances received by the beneficiary over the group thresholds will be liable to Capital Gains Tax at 33%.
The relevant form is Form IT38 and it must show the following information:
- The PPS numbers of both the disponer and the beneficiary. Where a beneficiary does not have a PPS number, e.g. a non-resident beneficiary, one must be applied for. Where a disponer or beneficiary has a *W*PPS number, a new one must be applied for. A *W*PPS number is one that used to be allocated to a wife;
- All relevant gifts/inheritances;
- All property comprised in the benefits received;
- An estimate of the market value of the property; and
- Any other particulars relevant to the assessment of tax.
3. Capital Acquisitions Tax Filing Deadline
The filing deadline for the Form IT38 will depend on when the valuation date falls. In the case of property transferring from a deceased disponer, the valuation date is typically later than the date of the inheritance (date of death) and in most cases is the date of the grant of probate.
If the valuation date on a gift or inheritance falls in the period 1 September 2022 to 31 August 2023, the CAT pay and file deadline is 31 October 2023.
For inheritances received in the period 1 September – 31 December 2023, the CAT pay and file deadline is 31 October 2024.
4. Penalties for non-compliance
Failure to file a CAT return on time will result in a surcharge being imposed on the total CAT liability due as part of the return. The surcharge is based on a percentage increase in the total tax payable for the year for which the return is late. The surcharge is subject to a grading by reference to the length of the delay, but there is an overall cap on the amount of the surcharge.
A 5% surcharge applies, subject to a maximum of €12,695, where the return is delivered within two months of the filing date (between 1 November 2023 – 31 December 2023 for the year of assessment 2023).
A 10% surcharge, up to a maximum of €63,485, applies where the return is not delivered within two months of the filing date.
In addition, failure to pay the CAT liability on time by 31 October will result in interest being charged at a daily rate of 0.0219% per day (circa 8% per annum) from the 1st November in the year of assessment.
For gifts or inheritances received in July or August 2023, there is a quick turnaround for the CAT pay and filing date of 31 October 2023. This filing date could easily be missed by individual taxpayers and could result in significant penalties being imposed on top of their CAT liabilities.
If you have received gifts or inheritances in 2023, be sure to speak to a tax advisor to confirm when your tax filing obligations are and also how much you have to pay.
