Budget 2025 introduces significant shifts in inheritance tax rules, impacting estate planning and succession strategies. The tax-free threshold for gifts and inheritances from parents to children has increased from €335,000 to €400,000. This adjustment allows families to transfer assets with reduced tax liabilities, benefiting those expecting to inherit property or other valuables.
Though the change affects a small portion of the population, it offers meaningful savings for those impacted. For those involved in estate planning or expecting inheritances, understanding these updates is vital.
Key Takeaways
- Raised Threshold: The inheritance tax threshold for parent-to-child transfers has increased to €400,000. It means you can inherit an extra €65,000 tax-free compared to previous years.
- Limited Impact: While affecting a small percentage, the change can lead to substantial tax savings.
- Timeframe: These changes apply to inheritances received on or after 2 October 2024. Any inheritances received before this date will be subject to the old thresholds.
- It’s wise to review your estate planning and consult with a financial advisor if needed.
Overview of Budget 2025
Minister Jack Chambers unveiled Budget 2025, addressing Ireland’s cost-of-living challenges while supporting families without fuelling inflation. With over €10.5 billion allocated in various measures, the budget includes significant taxation changes outlined in the Finance Bill 2024.
The Budget 2025 has brought significant changes to inheritance tax rules in Ireland. These updates affect thresholds, and rates for estates. These changes aim to balance tax collection with allowing families to pass on assets more easily. You may find it easier to inherit property or other valuable assets from your parents under these new rules.
Threshold and Rate Adjustments
- Parent-to-Child Transfers: Capital acquisition tax thresholds rise to €400,000, marking the first major update since 2020. This change means you can inherit more without facing a tax bill. For example, if you inherit a €450,000 house from your parents, you’ll only pay tax on €50,000 instead of €115,000 under the old rules.
- Other Relationships: For other close relatives, the threshold will rise to €40,000 from €32,500. Check the limits relevant to your situation.
- Unchanged Basic Rate: The basic inheritance tax rate remains at 33%. This applies to the value of your inheritance above the tax-free threshold.
- The government has also adjusted some exemptions and reliefs. These could affect how much tax you pay if you inherit farmland or a family business.
Agricultural Relief
Agricultural Relief has been updated in Budget 2025, with a new condition requiring the donor to meet a six-year active farmer test for the beneficiary to benefit from the relief. This change aims to ensure that farmland remains in productive use and is passed down to individuals who will actively farm or lease it.
International Considerations
Inheritance tax changes in Budget 2025 have implications for cross-border estates and double taxation agreements. These factors are crucial for those with international assets or beneficiaries.
Cross-Border Estates
If you have assets in multiple countries, your estate may face complex tax issues. The new inheritance tax threshold of €400,000 for children applies to worldwide assets for Irish residents.
For non-residents inheriting Irish property, different rules may apply. You’ll need to check the specific regulations of each country involved.
Some countries have higher tax rates or lower thresholds than Ireland. This could result in a larger tax bill for your beneficiaries.
It’s wise to seek advice from tax experts in all relevant countries. They can help you plan your estate to minimise tax liabilities across borders.
Double Taxation Agreements
Double taxation agreements (DTAs) prevent the same inheritance from being taxed twice in different countries. Ireland has DTAs with several nations to protect your estate from excessive taxation.
These agreements outline which country has the right to tax specific assets. They also provide methods for offsetting tax paid in one country against liabilities in another.
Not all countries have DTAs with Ireland. In such cases, you might need to rely on unilateral relief measures to avoid double taxation.
It’s important to review the specific DTA between Ireland and any other country where you hold assets. This can help you understand how your estate will be treated for tax purposes.
Giving and Philanthropy
Budget 2025 introduces measures to support giving and philanthropy, including changes to the tax exemptions that apply to sporting bodies. Charities will no longer need to be established for at least two years to access the Charitable Donations Tax Scheme, and they will have a longer timeframe to use the funds raised under the scheme.
The Minister has also announced plans to introduce measures allowing PAYE and self-assessed individuals to donate to sports bodies. These changes aim to foster a new approach to giving and philanthropy in Ireland, as outlined in the National Philanthropy Policy launched in December 2024.
Support Measures
The government has introduced new support measures to help people navigate inheritance tax changes. These include advisory services and financial education programmes to assist individuals in planning their estates.
Record Keeping and Documentation
Proper documentation is crucial for inheritance tax compliance. You should keep:
- The will and any codicils
- Bank statements from the last 3 years
- Property valuations
- Gift records
Store these documents for at least 6 years after the estate is settled. Digital copies are acceptable, but ensure they’re securely backed up.
For complex estates, consider using estate management software. This can help you track assets, debts, and distributions more easily.
Remember, good record-keeping makes the probate process smoother and helps avoid disputes with the Revenue Commissioners.
Implementation Timeline
Effective from 2 October 2024, these changes necessitate timely estate planning. Any inheritances before this date adhere to previous thresholds.
For tailored advice, contact HOMS Assist to ensure your estate planning aligns with these new regulations, safeguarding your legacy for future generations.
