Inheritance Tax Advisors Dublin Ireland

Inheritance Tax. Estate Tax Planning. Ireland, US and UK Inheritances. Capital Acquisitions Tax. Double Taxation Agreements

When making a Will, few of us consider the tax implications of leaving property and assets in more than one country.  Problems often arise where more than one jurisdiction has taxing rights in relation to those assets, therefore Estate and Succession Tax Planning is essential.  Many countries impose taxes on the death of an individual, usually, in the form of inheritance or estate taxes. In Ireland inheritance tax, currently at 33%, is charged on the taxable value of all taxable inheritances. Section 11, Capital Acquisitions Tax Consolidation Act 2003 is the relevant legislation.   The Capital Acquisitions Tax rules state that where the person either making the inheritance or receiving the inheritance is tax resident in Ireland, at the time of the inheritance, then Capital Acquisitions Tax is due on the value of the assets. In other words, an inheritance will be brought within the charge to Irish tax in the following situations:

1. the disponer is Irish resident/ordinarily resident at the date of the disposition or
2. the beneficiary is Irish resident/ordinarily resident at the date of the gift or inheritance or
3. the asset, which is subject of the gift or inheritance, is situate in Ireland.

U.K. Tax

UK Inheritance Tax is payable directly from the Estate, not by the individual Beneficiaries.  In Ireland, the beneficiaries are personally liable to pay Capital Acquisitions Tax on their inheritance. Complications can often arise because the United Kingdom’s calculation of inheritance tax is based on the market value of the property at the date of death.  The Irish CAT, on the other hand, is computed on the market value at the “valuation date” which is often much later, as it would generally be the date of the grant of representation. This timing mismatch can lead to differences in both the asset valuations for tax purposes as well as the applicable currency conversion rates.

Currently, in the United Kingdom inheritance tax of 40%, is payable on the worldwide estates of UK domiciled or deemed domiciled individuals, that exceed the nil rate band threshold of £325,000. HMRC levies inheritance tax on UK-situs property and includes (a) property, (b) business, (c) cash, (d) investments, (e) pay-outs from life insurance policies, (f) jewellery, (g) antiques, etc.  Inheritance Tax also applies to certain lifetime transfers of assets.  Private Pensions, however, are not normally liable for inheritance tax as they are outside the estate.

If your estate includes your home or principal private residence then you may be entitled to an extra allowance (the RNRB) of £125,000.

U.S. Tax

In the USA, a federal estate tax of 40% is imposed on the net value of an individual’s taxable estate at the time of death, exclusive of any exemptions or credits. The tax is payable by the estate itself before the distribution of assets to the beneficiaries.  The USA taxes its citizens and long-term residents on their worldwide estates. Property situated in the USA is liable to Estate tax regardless of citizenship or residence status of the individual. Some states impose an additional estate or inheritance tax.  If applicable, an inheritance tax is calculated on the value of inherited assets received by a beneficiary after the death of the disponer.  It’s important to bear in mind that the federal tax payment deadline can precede the Irish Capital Acquisitions Tax deadline, depending on the valuation date of the inheritance which can cause problems.

The concept of “Domicile” is central to the treaty’s application. Broadly, an individual is considered to be domiciled in the US for estate tax purposes if they live in the United States with no present intention of leaving.  While there is no legal definition, the criteria for determining domicile for US estate tax purposes is different to the requirements for determining US income tax residence.  In other words, an individual may be considered U.S. resident for Income Tax purposes but not U.S. domiciled for Estate tax purposes. US domiciled individuals and U.S. citizens are taxed on the market value of their worldwide assets at the date of death. Non-US domiciled individuals, however, are liable to Federal Estate tax on the market value of their US “situs” assets.

Double Taxation

If the deceased individual owned property in one jurisdiction but leaves this property to a beneficiary who is resident in a different jurisdiction, then the possibility of double taxation arises.

Ireland has double taxation agreements with over seventy countries worldwide. With regard to Inheritance Tax, however, there are only two:

1. The Ireland/UK Double Taxation Treaty which covers both gift and inheritance tax.

2. The Ireland/US Double Taxation Agreement which only applies to Inheritance Tax. It covers Capital Acquisitions Tax but not U.S. State Taxes.

In claiming a tax credit under the DTA, the credit is granted to the person who is actually liable for UK tax.  In general, this would be the residuary legatee.  The tax credit is available only where the same event gives rise to tax in both jurisdictions.

In situations where no double taxation agreement is applicable, unilateral relief may apply. Unilateral Relief applies when the gift or inheritance consists of foreign property on which similar foreign taxes are imposed by the tax authorities in the corresponding jurisdiction. When computing the CAT liability and filing the Irish IT38 Tax Return, the tax credit equals the lower of (a) the Irish CAT arising on the foreign property and (b) the foreign tax charged by the other country.

When making a claim for Double Taxation Relief or a refund of the inheritance tax charged by the other jurisdiction, the personal representative should request a Letter of Residence from the Irish Revenue Commissioners.

For further information, please click: https://www.revenue.ie/en/tax-professionals/tdm/capital-acquisitions-tax/cat-part01-20181009072201.pdf

What we can do for you

We have a comprehensive understanding of our clients’ requirements.  This coupled with our extensive experience of Irish and International succession, trust and estate tax planning enable us to create tax efficient strategies for passing wealth to the next generation for our diverse client base.  For further information, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.