Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: What is the inheritance tax for children inheriting in Ireland? Does it depend on the domicile of the deceased or the domicile of the person inheriting?
"Domicile is no longer a connecting factor for gift or inheritance tax," said John Gill, Private Client partner at Matheson law firm in Dublin.
Instead, inheritance taxes are dependent on the tax residence of the deceased and the beneficiary and where the inherited property is located, said Cormac Brennan, partner at O’Connell Brennan Solicitors, a boutique private client firm, also in Dublin.
"Domicile is where the law considers your permanent home to be whereas tax residence is based on a statutory day count test," Mr. Gill said. "They are not the same thing. It is possible to be domiciled in Ireland but not be a tax resident and vice versa."
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A tax resident is anyone who spends "183 days in Ireland in a calendar year, or 280 days in aggregate in that year and the previous year combined," Mr. Brennan said.
Any part of a day spent in Ireland counts as a day, Mr. Gill noted.
Non-domiciled individuals are liable for inheritance tax purposes only if they have been tax residents in Ireland for five consecutive years, Mr. Brennan said.
If the inheritance includes real estate in Ireland, inheritance tax is always involved, regardless of the residence of the deceased or the beneficiary. If the property is outside of Ireland, "inheritance tax will only arise where either the deceased, or the beneficiary, was/is an Irish resident for tax purposes," Mr. Brennan said.
Inheritance is tax free up to a certain threshold. The threshold is based on the relationship of the two parties. For instance, no inheritance tax is charged between spouses. "More immediate family relationships have a higher tax-free amount," Mr. Gill said. Children beneficiaries have the highest amount, €310,000 (US$366,000). For siblings and nieces or nephews, the tax-free threshold is €32,500 (US$38,300). It’s €16,250 (US$19,200) for all other beneficiaries.
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The threshold in each relationship category is a lifetime amount on inheritances from December 1991 forward, Mr. Gill said. Any value above that is taxed at 33%. For example, a €100,000 inheritance from one parent this year and a €300,000 inheritance from the other parent a few years later means tax would be owed on €90,000, the excess beyond €310,000.
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