Inheritance Tax and non-resident Beneficiaries

Inheritance Tax and non-resident Beneficiaries - Crowe Horwath Ireland

Overview of inheritance tax

Unlike in the UK, Inheritance Tax (Capital Acquisitions Tax (CAT)) in the Republic of Ireland is a tax on the Beneficiary not on the Estate of the deceased person. The tax is charged on the taxable value of the inheritance. Once the taxable value of the inheritance has been determined, the amount of tax payable will depend on whether the appropriate tax free threshold has been exceeded. The rates of tax are as follows:

Up to the threshold amount 0%
In excess of the Threshold Amount 33%

As of 12/10/2016, the threshold amounts are:

  • Group A – €310,000
  • Group B – €32,500
  • Group C – €16,250

Generally speaking, the applicable group threshold is ascertained by reference to the relationship of the Beneficiary to the deceased person. Group A relates to sons and daughters. Group B typically relates to parents, brothers, sisters, nieces, nephews and grandchildren. Group C relationships other than Group A or B.

Irish resident Personal Representatives and non-resident Beneficiaries

Special rules apply in order to ensure that non-resident beneficiaries make returns and pay their tax. Where the Personal Representative or Executor of the Estate is Irish resident, then that person is obliged to ensure that the Non-Resident Beneficiary discharges the tax and if such Beneficiary fails to do so, the Personal Representative can be personally assessed for the tax. Exposure to assessment is limited to the amount of assets under the Personal Representatives control to which the Beneficiary is entitled. In order to allow the Personal Representative to discharge this onerous obligation, Personal Representatives have the power to sell the assets to which the Non-Resident Beneficiary is entitled.

Where there is no Irish resident Personal Representative, the Personal Representatives must appoint a solicitor holding a practicing certificate in the State, as agent, prior to seeking Probate or Letters of Administration.

To address the risks relating to the payment of CAT by non-resident Beneficiaries, an Irish resident Personal Representative taking out Probate or Letters of Administration is appointed as an “Agent” of a non-resident Beneficiary entitled to a benefit exceeding €20,000. The agent is responsible for the pay and file obligations of the non-resident beneficiary but is entitled to retain sufficient funds due to the Beneficiary to meet the CAT liability.

Revenue and the Law Society have agreed certain steps to be taken to ensure a resident PR is not personally liable for the Inheritance Tax of a non-resident beneficiary. The resident PR may write to Revenue indicating that he or she is intending to distribute the assets taken by a non-resident beneficiary from the estate of the deceased within one calendar month, where that Personal Representative or solicitor is satisfied that any relevant “pay and file” obligations have been met.

If Revenue indicates within one calendar month that it is considering conducting a compliance intervention on the return, or pursuing the lack of a return, by that beneficiary, the resident Personal Representative or solicitor should take control of the assets.

Where the PR has acted honestly and in good faith and did not deliberately fail to comply with his or her obligations, Revenue will not enforce any extra CAT liability on them.

For additional information on this, or any personal tax matters, please contact a member of the tax team.