Most people who have ever received a gift, inheritance or dealt with a Discretionary Trust will be aware of Capital Acquisitions Tax (hereinafter called CAT). The focus of this article is to illustrate the benefit of disclaimers in relation to CAT.
CAT is set at a rate of 33% for gifts or inheritances and depending on the tax threshold that a person is subject to, a considerable amount of CAT may need to be paid.
There are three threshold groups that are set in respect of the person giving a gift or inheritance;
Group A Threshold: This applies to children of the person giving the gift or inheritance and is set at €310,000.00.* In certain circumstances this threshold applies from children to parents.
Group B Threshold: This applies to brothers, sisters, nieces, nephews, grandchildren and in most instances parents of the person giving a gift or inheritance and is set at €32,500.00.*
Group C Threshold: This applies to anybody not included in Group A or Group B and is set at €16,250.00. *
It may be the case for the purposes of tax efficiency that a person does not want to receive a gift or inheritance. This can arise where a person has already received a gift or inheritance and their threshold has been reached. Where for instance a person leaves property to their son or daughter in their Will and due to previous gifts the Group A threshold has been reached they may choose to disclaim to avoid tax liability.
In a situation where there is a Will, it should be noted that a disclaimer of inheritance would cause it to fail and as such, it would fall into the residue of the estate. This would commonly be done if the residue of an estate was left to the disclaimers own children and provided the grandchild had not already received a gift they would then have the full Group B Threshold of €32,500.00 to avail of.
The area of Capital Acquisitions Tax and Disclaimers can become quite complicated and for further information please contact Thomas Norris on 051 877029 or at tom@mwkeller.ie
*Please note that these Threshold amounts are applicable as of the 12th October 2016. Different threshold amounts apply to gifts or inheritances disposed of before this date.
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