When dealing with the loss of a loved one, the administrative and financial challenges surrounding an inherited property can feel overwhelming. Among these challenges lies one of the most pressing concerns—understanding the tax obligations tied to inherited assets. Whether you’re planning to sell the property or retain it, clarity on inheritance tax and capital gains tax (CGT) in Ireland is essential for making informed decisions.
Let’s take a closer look at how to calculate these taxes, the latest changes to thresholds, and strategies to mitigate your financial liabilities.
The Role of Capital Acquisitions Tax (CAT) in Ireland
Capital Acquisitions Tax (CAT) applies to inheritances above certain thresholds, depending on your relationship to the deceased (disponer). The taxation process can feel complex, especially as these thresholds periodically change.
Under Budget 2025, CAT thresholds received a significant increase to account for rising property values across Ireland. Any inheritance exceeding these thresholds is taxed at a rate of 33%. It’s crucial to understand which threshold applies to your situation. Here’s what you need to know about the updates:
- Group A Threshold: Increased from €335,000 to €400,000 for inheritances from a parent to a child. This means children can now inherit an additional €65,000 tax-free.
Group A – Son / Daughter
Example 1 – Mary
Mary receives an inheritance from her father valued at €500,000 in probate. Mary’s previous Group A inheritance her mother totals €150,000.
- Threshold Remaining: €400,000 – €150,000 = €250,000
- Taxable Excess: €500,000 – €250,000 = €250,000
- Tax Liability: €250,000 x 33% = €82,500
Without the recent threshold increase, Mary would have owed €102,300 for the same inheritance—highlighting the impact of Budget 2025’s updates.
Example 2 – Philip and Sarah
Philip and Sarah recently inherited assets valued at €1,025,000 from their parents, marking the first time either of them has received a gift or inheritance.
- Threshold Remaining: €400,000 x 2 = €800,000
- Taxable Excess: €1,025,000 – €800,000 = €225,000
- Tax Liability: €225,000 x 33% = €74,250
Without the recent threshold increase, Philip and Sarah would have owed €117,150 for the same inheritance—highlighting the impact of Budget 2025’s updates.
Revenue also recognises certain ‘normal payments’ between parents and children, which may not fall under Capital Acquisitions Tax (CAT) liability. These include:
- Use of the family home
- Educational expenses and free accommodation during university
- “Reasonable” contributions towards a wedding
CAT is a self-assessment tax. If you are uncertain about whether an asset needs to be declared, it is advisable to contact the Revenue Commissioners with the relevant details for clarification.
- Group B Threshold: Raised from €32,500 to €40,000, covering inheritances from close relatives like siblings, grandparents, aunts, and uncles.
Group B – Niece/Nephew/Siblings/Grandchildren
Example – Hugh
Hugh inherited a sum of €305,000 from his grandfather, marking the first time he had ever received a gift or inheritance.
- Threshold Remaining: €40,000
- Taxable Excess: €305,000 – €40,000 = €265,000
- Tax Liability: €265,000 x 33% = €87,450
Without the recent threshold increase, Hugh would have owed €89,925 for the same inheritance—highlighting the impact of Budget 2025’s updates.
- Group C Threshold: Increased from €16,250 to €20,000 for other relationships not included in Groups A or B, including more distant relatives and non-relatives.
Group C – Other
Example – Sarah
Sarah received an inheritance of €345,000 from a friend who had recently passed away. Prior to this, she had never received any significant gifts.
- Threshold Remaining: €20,000
- Taxable Excess: €345,000 – €20,000 = €325,000
- Tax Liability: €325,000 x 33% = €107,250
Without the recent threshold increase, Sarah would have owed €108,487.50 for the same inheritance—highlighting the impact of Budget 2025’s updates.
Calculating Valuation for Tax Purposes
Once you’ve determined your relationship category, the valuation date comes into play. This is the date at which the inherited property’s value is assessed for tax purposes. Typically, the valuation date aligns with the grant of probate but may differ in specific cases.
For example, if your mother passed away in 2021 leaving her home to you, the property’s value as of the probate date in 2021 is used to calculate CAT—not its value at the time of the disponer’s original purchase. If you sell the property later, CGT may apply to the difference between the probate valuation and the sale price.
Things to Remember About CGT
Capital gains tax of 33% is levied on profits made when you sell inherited property. The base cost for CGT is typically the property’s valuation at the time of inheritance. Understanding these figures will help you calculate any potential CGT liabilities before making decisions about selling.
Navigating Rising Property Values
With property prices in Ireland continuing to soar, beneficiaries often face unexpected tax burdens. While this increase in thresholds is welcomed, particularly following years of property value inflation, it highlights the importance of planning ahead to minimise tax exposure.
Strategies to Ease the Tax Burden
Estate planning and tactical decision-making can ease the financial burden of inheritance taxes. Here’s how you can get a head start:
- Annual Gift Exemption: Take advantage of Ireland’s annual gift exemption, allowing you to receive up to €3,000 annually from any individual tax-free. Over time, this strategy can transfer wealth incrementally without triggering CAT.
- Section 72 Life Insurance Policy: Consider this policy specifically designed to cover CAT liabilities. Beneficiaries can use the lump sum payout to settle inheritance tax bills without impacting their inherited assets.
- Agreed Valuations: If you’re inheriting property that isn’t immediately sellable, work with professionals to ensure an accurate valuation, as this can influence your CGT liabilities on future sales.
- Agricultural and Business Relief: For farms or family businesses, reductions of up to 90% on taxable value may apply under specific conditions.
- Favourite Niece/Nephew Relief allows a niece or nephew to be treated as a child for inheritance tax purposes if they worked full-time (24 hours/week or 15 hours/week in smaller farming operations) on the farm for their aunt/uncle for at least 5 years before the gift or inheritance.
- Dwelling house exemption: You can be exempt from CAT on inheriting or receiving a gift of a dwelling house if specific conditions are met, including being a dependent relative.
- Document Record-Keeping: Maintaining accurate records—such as valuation reports and probate documents—can simplify filing and reduce potential disputes with Revenue.
Challenges Ahead
Despite these positive changes, many young adults inheriting properties from their families continue to face financial hurdles. Rising living costs, higher property valuations in urban areas, and the complexities of double taxation for cross-border estates are becoming common pain points.
Experts recommend seeking professional advice to expertly leverage tax planning tools and exemptions. Whether you’re managing a modest family home or an extensive estate, informed actions today can result in significant cost savings tomorrow.
Moving Forward
Navigating inheritance tax does not need to feel overwhelming. Empower yourself with up-to-date knowledge, and use the resources available to help reduce your financial stress.
If you’re inheriting property or planning your estate, now is the perfect time to explore professional advisory services tailored to your unique circumstances. Expert legal advice can make a world of difference, especially when managing valuable and sentimental family assets.
Start planning smartly today. Contact our team to ensure the legacy left to you turns into an asset for your future.
