What Is Capital Acquisitions Tax (Inheritance Tax)?

In Ireland, if you inherit assets or get a generous gift, the government takes a portion of that value as tax. This is what we call Capital Acquisitions Tax (CAT)—also known as inheritance tax.

Most people don’t need to consider this type of tax during a typical tax year, but knowing how it works is important so you’re not caught off guard when receiving assets from a loved one.

This guide will break down the who, what, and why of inheritance tax, giving you a clear and straightforward overview of everything you need to know about the topic.

What is Capital Acquisitions Tax?

CAT (or inheritance tax) is a special tax people in Ireland pay when they receive a gift or inheritance. So, anytime you inherit money, property, or something of value, the government will take a portion of it as tax. 

Remember that CAT applies whether the person you receive it from is still alive or leaves it to you after they’ve passed away. But there are exceptions to the rule (we’ll cover those in detail shortly).

Whether or not you have to pay CAT on something you receive depends on two key things:

1. The value of what you receive: If your inheritance or gift exceeds a specific limit, inheritance tax must be paid.
2. Your relationship to the person giving it: The closer you are to them—like a parent or grandparent—the higher the tax-free threshold.

What is the CAT tax rate?

CAT is charged at a flat rate of 33% on the portion of an inheritance or gift that exceeds the tax-free threshold. 

Who has to pay inheritance tax?

Here’s a breakdown of who pays what in terms of inheritance tax:

• Disponer (giver): The person giving the gift or leaving the inheritance doesn’t have to pay any tax but must ensure the property or gift is passed on correctly.
• Beneficiary (receiver): The person who inherits or receives the gift must pay the inheritance tax rate if the value of the gift is over the tax-free threshold. They must also file a return with Revenue to report what they’ve inherited or received.

What do you pay CAT on?

CAT applies to several different types of assets, including:

• Property: Houses, apartments, or land
• Money: Cash gifts, savings, or monetary inheritances
• Shares: Stocks, investments, or business ownership
• Personal items: Valuable possessions like jewellery, artwork, or antiques

What about foreign assets?

Taxable assets can include foreign property if the person giving the gift or inheritance (the disponer) or the person receiving it (the beneficiary) is an Irish resident.

What are the tax-free thresholds for CAT?

Tax-free thresholds determine whether you must pay inheritance or gift tax in Ireland. If what you inherit or receive is below the threshold for your relationship with the giver, you won’t pay tax. 

But if it’s above the relevant group threshold, you’ll pay tax on the amount that exceeds it. Here’s a simple breakdown of the thresholds:

• Group A (€400,000): When inheriting from a parent (including stepchildren and adopted children).
• Group B (€40,000): When receiving a gift or inheritance from a sibling, grandparent, aunt, uncle, or in-law.
• Group C (€20,000): When inheriting from a friend, cousin, or someone not closely related.

If what you inherit or receive exceeds these limits, you’ll have to pay a 33% tax on the excess amount. 

Example A:

If you inherit €400,000 from a parent and the threshold is €335,000, you’ll pay 33% tax on the remaining €65,000. That means a tax bill of €21,450 (€65,000 × 33%).

Example B:
If you’re a grandparent and leave €100,000 to your grandchild, the tax-free threshold is €32,500. The portion above this threshold (€67,500) will be taxed at 33% (meaning your grandchild will owe €22,275).

Note: These thresholds can change over time. For the most current figures, check the Revenue Commissioners’ website. 

What inheritance tax exemptions are available in Ireland?

A few CAT exemptions can help reduce (or even eliminate) the tax you need to pay in certain circumstances—like passing on property to a spouse, transferring a family home, or inheriting agricultural or business assets. 

Let’s take a look at the most common exemptions and how they work:

Spousal transfers

Transfers between spouses are entirely exempt from CAT. This means that spouses can pass on assets to each other without worrying about tax costs—which can be a significant relief during difficult times.

Dwelling house exemption

This exemption lets individuals inherit or receive a family home tax-free, so long as certain conditions are met. This is a helpful measure for ensuring homes stay in the family—without a heavy tax burden falling on anyone’s shoulders.

Qualifying conditions: 

• They must have lived in the home for at least 3 years before the inheritance.
• They must continue to live there for a period after receiving it.
• They don’t own (or have an interest in living in) any other property at the date of inheritance.

For a more detailed overview of the qualifying conditions, please see here.

Agricultural Relief

Agricultural relief can reduce the taxable value of farmland and other agricultural property by up to 90%. This exemption helps keep family farms in the family, making it easier to pass on assets without a hefty tax bill.

To qualify:

• At least 80% of the total property must be agricultural (excluding trees and underwood).
• The property must be farmed commercially (or leased to a commercial farmer) for 6 years.
• The recipient must either have an agricultural qualification or farm the property for at least 50% of their working hours.

Find out more about this relief and its other qualifying conditions here.

Business Relief

Business Relief can apply if someone inherits or receives a gift of business property. This relief reduces the taxable value of the business property for CAT by 90%, subject to certain conditions.

It covers:

• The transfer of a business
• A share in a business
• Shares or securities in a company that operates a business

But the relief does not apply to individual assets—even if they’re used in the business.

Small Gift Exemption

The Small Gift Exemption is a tax relief that allows you to receive gifts of up to €3,000 per year from any one person without paying Capital Acquisitions Tax (CAT).

Here’s what this means in simple terms:

• You can receive €3,000 tax-free from as many people as you want each year.
• The exemption applies per giver (disponer), so if you receive gifts from multiple people, each gift of up to €3,000 is exempt.
• These tax-free gifts do not count towards your overall CAT threshold.

💡 Example: If your parents each give you €3,000 in a year, you receive €6,000 tax-free. If a grandparent also gives you €3,000, that’s €9,000 total, all tax-free.

Important Rules

• This exemption only applies to gifts, not inheritances.
• You do not need to file a CAT return if you only receive small gifts under this exemption.

When Do You Need to File a CAT Return?

• A CAT return is required if the total taxable gifts and inheritances you’ve received in a group threshold (since 1991) exceed 80% of your group threshold.
• The €3,000 exemption is deducted before the tax is calculated on the remaining amount. This applies to gifts only.

This exemption is a great way to pass on wealth tax-free, especially between family members over time. If you’re considering gifting more significant amounts or planning, speaking to a tax professional to maximise your tax savings may be helpful.

Excluded assets: What you don’t pay CAT on

Certain assets and gifts are excluded from inheritance tax altogether. Some of the key exclusions include:

Reasonable payments for medical expenses

If someone gives you money to cover medical bills—like hospital fees or treatment costs—this amount is generally excluded from CAT. 

However, some conditions must be met: The payment must be reasonable (not excessive) and made directly to your medical provider, not to you personally.

Reasonable payments for educational expenses

If someone gives you money for educational purposes—like tuition or school fees—once certain conditions are met, these are also CAT-free.

The payment must be made directly to the educational institution, and the amount should be reasonable for the level of education being provided.

How are assets valued for CAT?

Accurate asset valuations are important because they directly affect how much CAT will be owed. Here’s how the valuation process works: 

General valuation process

The taxable value of an asset is what it’s worth on the market, minus any debts or loans attached to it. For example, if you inherit a house worth €500,000, but there’s a €100,000 mortgage, the taxable value would be €400,000 (€500,000 – €100,000).

Valuing property

For property—including houses and land—the market value is usually the price that the property would sell for if it were on sale in an open market. You can figure this out by looking at similar properties in the area that have recently sold. Depending on the property type, you may need a professional valuation to determine its value. 

Valuing shares

When you receive shares or securities in a company, their value is generally based on what they’re worth when you inherit or get them as a gift. You can check the stock market yourself, but sometimes, you might need a professional to help you figure out their value.

Valuing personal items

Jewellery, art, collectables, and other personal items must be valued based on market value. However, since the value of these items can vary widely, getting a professional appraisal is a good idea to ensure that the right amount of inheritance tax is applied.

How to pay CAT in Ireland

If you owe CAT in Ireland, here’s a quick guide on how to pay it:

• Fill out Form IT38: If the value of your inheritance or gift exceeds the tax-free threshold, complete Form IT38 through Revenue Online Service (ROS) or by post.
• Calculate the tax: CAT is 33% above the tax-free threshold.
• Make the payment: Pay online via ROS or by cheque/bank draft to Revenue.
• Adhere to deadlines: You must pay by October 31st (or November 15th if filing online) of the year after you receive the inheritance or gift.
• Keep records: Save proof of payment and the return for future reference.
• Use our service: We offer a simple inheritance or gift tax return service. Get started now.

Closing thoughts 

Whether you inherit wealth or pass it on to a loved one, it’s important to understand CAT. You can confidently move through the process and avoid surprises when you’re up to speed on the tax thresholds, available exemptions, and assets’ values.

Just make sure to file the proper forms and pay on time to stay in compliance with regulations.