A Complete Guide to Irish Inheritance Tax

When a loved one leaves you a gift or some money, it’s a kind and meaningful gesture. It’s their way of showing you how much you meant to them and an opportunity to be part of your future, even though they’ve passed on.

But along with the gift comes the question of Inheritance Tax (IHT), which can be confusing if you haven’t dealt with it before. There’s a lot to think about, from thresholds and tax-free limits to what to pay and when.

However, don’t worry – we’ve put together a comprehensive guide to cover everything. You’ll learn how inheritance tax works in Ireland, the tax thresholds, how much you might have to pay, and how to submit your tax return.

The basics of inheritance tax in Ireland

Let’s begin with some basic concepts surrounding inheritance tax to provide a solid foundation.

What is the difference between inheritance tax and probate?

These are both common terms you’ll hear when your loved one’s estate is being dealt with.

• Inheritance tax: This is the tax you might have to pay on money or property you inherit from a loved one. In Ireland, this tax is called Capital Acquisitions Tax (CAT).
• Probate: This is the legal step that makes the will official and allows the person in charge (called the executor or administrator) to take care of tasks such as paying bills and settling the estate.

Is inheritance tax paid before probate?

It depends on the situation, but usually, inheritance tax is linked to the valuation date. This is the date when the value of what you inherit is officially set.

The valuation date is usually one of these:

• The date the executor or administrator gets control of the asset for you
• The date the asset is actually kept by the executor
• Or the date the asset is given to you
  

Sometimes, the valuation date is the date of death, like when:

• A gift was given, expecting the person would pass away soon
• A legal power wasn’t used as expected
• Or the property automatically passes to someone else (like a joint owner)
  

Since inheritance tax is worked out based on the valuation date, you might have to pay the tax before probate is finished. This is often the case with things like bank accounts or shares, which can’t be passed on to you until the tax is paid. But for other assets like property, probate usually comes first, before any tax is paid.

What inheritance tax threshold am I part of?

In Ireland, there are different tax-free limits (called thresholds) based on how closely you’re related to the person who passed away. If what you inherit is under that limit, you don’t owe any tax. 

Here’s a quick breakdown of the thresholds:

• Group A (€400,000): This applies if you inherit from a parent (stepchildren and adopted children count here, too).
• Group B (€40,00): For gifts or inheritances from a sibling, grandparent, aunt, uncle, or in-law.
• Group C (€20,000): This covers friends, cousins, or anyone not closely related.
• Spouses and civil partners are fully exempt from inheritance tax.

Important: If what you inherit is more than your tax-free limit, you’ll have to pay inheritance tax called Capital Acquisitions Tax (CAT). The current tax rate is 33%.

The good news? You only pay tax on the portion over the threshold limit. Everything up to your group’s threshold is still tax-free.

Do I need to declare an inheritance in Ireland?

In Ireland, you must file a CAT return if:

• What you inherit is over 80% of your tax-free threshold. 
• You go over your tax free exemption amount and need to pay inheritance tax.

For example:

If you fall into Group A (inheriting from a parent), your tax-free threshold is €400,000.

80% of that is €320,000. So, if you inherit more than €320,000, you must file a CAT return – even if you don’t owe any tax yet.

But you don’t need to declare it if you inherit a smaller amount (say €100,000), as it’s clearly under the 80% mark.

Do I still pay inheritance tax if I wasn’t born (or am a resident) in Ireland?

That depends on where the person who left you the inheritance lived, and where the assets are. If the person who passed away lived in Ireland, or if the assets (like a house or shares) are in Ireland, you may need to pay inheritance tax here even if you are a non-resident. How much tax you owe will depend on the sum you inherit and the tax-free thresholds.

If neither you nor the person who died lived in Ireland, and the assets aren’t in Ireland, then you won’t owe tax in Ireland.

Does inheritance tax apply if I live abroad but inherit from someone in Ireland?

Yes. Many people in the Irish diaspora face this when inheriting from their family back home. If the person who passed away lived in Ireland, or if the assets you inherit (like property or shares) are in Ireland, you must pay inheritance tax. 

Keep in mind that whether you actually owe tax depends on the value of what you receive and the tax-free thresholds, and you’ll need to file a CAT return to make your payment. 

Inheritance tax payment and compliance guidelines

Now, let’s examine how to pay the tax and stay compliant with the rules.

How do I calculate inheritance tax?

1. Find out your tax-free threshold.

The first step is to find out your tax-free threshold. Remember, your inheritance tax threshold depends on your relationship to the person who left you the inheritance. Here’s a quick reminder:

• Group A (€400,000): Parents to children
• Group B (€40,000): Siblings, grandparents, aunts/uncles, in-laws
• Group C (€20,000): Friends, cousins, others
• Spouses and civil partners: Usually avoid inheritance tax completely

2. Work out the value of what you’ve inherited

Figure out the current market value of the assets you’ve received. You can do this by calculating their worth on the valuation date. This date is usually: 

• Date of death: This is the most commonly used date. It means the value of the assets on the day the person passed away.
• Date of transfer: Sometimes, Revenue may use a different date, such as when the assets are actually transferred to you.

3. Subtract your tax-free threshold from the value inherited

You don’t owe any tax if the value is less than the threshold. You’ll pay tax on the amount over the threshold if it’s more.

4. Calculate the tax on the amount over the threshold

CAT is currently applied at a rate of 33%. Therefore, if the amount you inherit exceeds the relevant group threshold by € 20,000, your tax bill would be €6,600 (€20,000 × 33%).

5. Check if any reliefs or exemptions apply

Sometimes, parts of an inheritance may be tax-free if they qualify for certain reliefs – like Business Relief, Farm Relief, or the Dwelling House Exemption.

When do I pay inheritance tax?

The deadline depends on the valuation date. Remember, this is usually the day the person passed away, or sometimes the date you become entitled to the inheritance (like when probate is granted).

Here’s how it works:

• If the valuation date is between January 1st and August 31st, you must file and pay by October 31st of the same year.
• If the valuation date is between September 1st and December 31st, you must file and pay by October 31st of the following year.

How do I pay inheritance tax?

You’ll need to fill out and submit a Form IT38 (your inheritance tax return) to Revenue by the same deadline as your inheritance tax payment. This can be done online through the Revenue Online Service (ROS), the quickest and most straightforward way to file and pay your inheritance tax bill.

Tip: Keep clear records of valuations, correspondence, receipts, etc. in case Revenue asks for more details later.

Can you deduct expenses from your inheritance for tax purposes?

Yes! In certain cases, some costs and debts can reduce the taxable value of what you inherit. These include:

• Outstanding mortgages: If you inherit a property with a mortgage, you’re only taxed on the property’s value after the mortgage is subtracted.
• Debts: Any loans, credit card bills, or other debts the person had can be taken off the estate’s total value before tax.
• Funeral costs: Expenses like burial or cremation costs can also be deducted to lower your Irish inheritance tax liability.
• Legal or admin fees: If you had to pay for legal help or sorting out the estate, some of those costs might reduce the tax you owe.

Tip: These deductions aren’t always automatic. It’s a good idea to speak with a tax advisor to see if they apply to your situation, and to make sure you claim everything you’re entitled to.

What charges are there for late filing and payment of inheritance tax?

If you file your CAT return late, you may have to pay penalties and interest:

Late filing penalties

• Up to 2 months late: 5% surcharge of the tax owed (max €12,695)
• More than 2 months late: 10% surcharge of the tax owed (max €63,485)

Interest

Interest is added daily on any unpaid tax from the valuation date until it’s paid (currently, that’s approximately 0.0219% per day).

As you can see, these charges can add up quickly, so it’s best to file and pay on time to avoid extra costs.

What happens if I can’t afford to pay inheritance tax?

If you’ve inherited something valuable, like a property or farm, but don’t have the cash to pay the inheritance tax – you’re not alone. This is a common problem called “asset-rich but cash-poor.”

The good news? Revenue offers some flexibility to help you out. You can: 

Pay CAT in instalments 

This option is mainly available if the inheritance includes valuable assets (like property or land), but you don’t have enough cash to pay the tax all at once.

It works like this: 

• Phased payments: Revenue may allow you to pay the tax over up to 60 months (5 years), usually in equal yearly instalments.
• Interest: Interest may be charged on the unpaid balance, but Revenue can sometimes reduce or waive it – especially if you engage with them early.
• Eligibility: You must show that you can’t pay the full amount without selling key assets (like the family home or a farm).
• How to apply: You’ll need to apply directly to Revenue.

Take out a loan 

Another option is to take out a loan to cover the tax. You’ll repay it when you sell part of the inheritance (or another asset).

If you find yourself in this situation, it’s best to consult with a tax advisor. They can help you understand your options and work with Revenue to avoid penalties or delays.

Closing thoughts 

Inheritance tax can be a complex and daunting concept for anyone to understand. However, understanding the key concepts – such as how thresholds work, when and what to pay, and the deductions available to you – can make the process a lot more manageable.

Getting to grips with it all means you’ll stay on the right side of the law, stay clear of costly penalties, and claim any deductions or reliefs you’re entitled to. You’ll keep your CAT bill as low as possible and can focus on remembering your loved one and enjoying the inheritance that’s been left to you.