Gift and Inheritance Tax >> Tax Free Thresholds

Everybody is entitled to a certain amount free of any tax. This is known as your taxfree threshold. The amount of taxfree threshold depends on your relationship with the person from whom you receive the gift or inheritance.

The most common threshold relates to assets transferring from parents to children and the current taxfree threshold for same is €332,084. No liability to tax will arise unless the value of the benefit exceeds this amount. The second taxfree threshold which amounts to €33,208 applies where benefits are received from other close family relations apart from your parents. Finally the third taxfree threshold which amounts to €16,604 applies in all other circumstances. These taxfee thresholds cover all transfers to you within your lifetime. However any benefits received prior to the 5th December 1991 are ignored. Transfers of assets between spouses are exempt from both gift and inheritance tax. 

For the majority of cases the calculation of the inheritance tax or gift tax will be relatively straightforward and our site is designed to cater for these circumstances.  Where assets are being transferred in or out of Trusts, or limited interests are being acquired, the rules and regulations applying to same are very complicated. Because of the complexity of these matters and the fact that everybody’s circumstances are somewhat different we deal with this type of situation by way of consultation and a separate charge will arise for advice on such matters. 

Chart of Inheritance and Gift Tax Free Thresholds
TABLE 1 : Up to 2008

TABLE 2 : From 2009 2011

  
Annual Gift Tax Exemption 
Every person can receive up to €3,000 per annum by way of gift from any one donor. This means in the case of children they could receive €6000 per annum from their parents. Each parent can make an annual gift of €3000 from their own resources to a child which would be completely ignored for gift tax purposes. 

Example 1
Married couple now grandparents who have 3 children who are married and who each have 3 of their own children.
3 children
3 inlaws
9 grandchildren
15 x €6,000 per annum= €90,000 Future Tax Saving @ 25% €22,500 
In this example there is a very substantial future tax saving if the parents can take maximum advantage of the annual gift allowance.

Using all available Tax Free Exemptions to reduce tax liabilities 

Example 2
Assume Following Facts:
·         Parents have assets of €2m which they want to give to their children
·         They have 2 children, each married with 3 kids of their own
Questions: How can they distribute the money to minimise tax?
By spreading the benefit over all the family members €58,114 is saved in tax. We show how this is achieved in the table below. 
The 1st Alternative was leaving the assets equally between the 2 children. 
The 2nd Alternative includes benefits for the grandchildren and inlaws to use up their tax free thresholds. 

How do I plan my affairs so as to reduce inheritance/gift tax in the future?

Step 1 List out all your assets and their estimated value. Deduct any mortgages or liabilities from the value of the assets.

Step 2 Decide who you would like to leave your assets to. Remember as a short term measure assets left to your spouse are completely free of tax.

Step 3 For assets passing to children note that a child can receive €332,084 free of tax assuming no previous gifts to the child since 4/12/1991. In the case of a parent with 2 children entitled to their normal tax free threshold no tax will arise unless the value of your assets exceeds €664,168 assuming the assets are divided equally between the children. If you have 3 children this increases to €996,252 and so on.

Step 4 Examine the special tax relief available for certain assets e.g. residential property, business assets and agricultural property.

Step 5 Use our calculator to estimate the future tax liability that may arise and consider what steps can be taken to reduce it.

We can give more advice on this matter by way of consultation for which an extra charge will arise.