Inheritance Tax Reliefs

There are various reliefs available and it is important to seek professional advice when making a will to ensure any reliefs available are utilised.  The following are some of the reliefs: 

1. Business Relief; 
2. Agricultural Relief; 
3. Dwelling House Relief; 
4. Favourite Nephew/Niece relief; 
5. Relief for a Minor Child of a Deceased Child. 

Business Relief

This is a relief from inheritance tax (CAT) for all gifts/inheritance of a relevant business property. The relief is not a full relief from inheritance tax. It enables the beneficiary to reduce the value of the relevant gift/inheritance by 90% of its value.

A simple example: Michael O'Leary inherits the local shop (the family business from his father). The value of the shop is €2,000,000.

Value of the business	€2,000,000
Relief of 90% applied	€1,800,000
Taxable Value	€200,000

 

The relief can be quite complex and certain criteria must be complied with in order to get the benefit of the relief. 

Relevant business property is defined in section 93 of the Capital Tax Act 2003 in detail. In general it consists of property, land, buildings, plant and machinery consisting of a business or an interest in business and also certain shares.

From the definition above you can see that the relief applies to the business, so leaving a gift you a Will of a premises without the business will mean that the relief will not apply.

For example: Paddy, in his Will, is leaving the warehouse to his son John but wishes to leave the distribution business to his daughter Mary. John will not be able to benefit from the relief. Mary however, provided certain criteria are complied with, can apply for the relief. It is also important to note that certain businesses are excluded from relief.

Agricultural Relief

This is a relief from inheritance tax (CAT) of all gifts/inheritances of relevant agricultural property. The relief is not a full relief from inheritance tax. It enables the beneficiary to reduce the value of the relevant gift/inheritance by 90% of its value.

A simple example: Mike receives an inheritance from his father of a farm valued €1,000,000, livestock valued €50,000 and machinery valued €30,000.

Value of the farm, livestock & machinery	€1,080,000
Relief of 90% applied	€972,000
Taxable Value of the inheritance	€108,000

 

What does "agricultural property" mean?

• land
• livestock on the land
• farm machinery
• woodland, crops. NB must be growing on the land
• Single Farm Payment (see below for more on this)
• home
• farm buildings

To qualify for this relief certain criteria need to be complied with. The main criteria is that you must be a 'farmer' at the valuation date (which in general means the date the property is valued).

The Farmer Test
The definition of a farmer for the benefit of obtaining the relief is different from the every day meaning of the word. For the purpose of the relief, a farmer is a person who can show that not less than 80% of their assets, after receiving a gift, comprises of agricultural property.

For example: Jim receives an inheritance from his father of a farm worth €2,000,000, machinery worth €30,000 and livestock worth €40,000. Jim has his own house, in the city, worth €200,000 which has a mortgage worth €180,000, savings of €15,000 and a car worth €9,000.

Agricultural Assets		Own Assets
Farm	€2,000,000	House (after mortgage)	€20,000
Machinery	€30,000	Savings	€15,000
Livestock	€40,000	Car	€9,000
Total Inheritance	€2,070,000	Total Own Assets	€44,000
Total Assets	€2,114,000

Farmer Test = Total Agricultural Inheritance divided by Total Assets multiplied by 100.

Jim's percentage agricultural assets after the inheritance is 97.9%.

Jim is a farmer for the purpose of the relief.

What to Watch Out For

1. There are a number of circumstances in which the relief granted can be clawed back  or partially clawed back e.g. if the agricultural property is sold within six years.
2. When you give the farm to someone in your Will and do not specifically give them the livestock then the livestock will fall into the residue of your estate. For example Tom leaves his son Mark all of the land in his Will. Tom does not leave the livestock and machinery to Mark. Tom's Will has a residue clause leaving the residue of his estate to his son Simon and daughter Karen in equal shares. The livestock and machinery fall into the residue of the estate. Simon and Karen will not be able to obtain the relief on the livestock and machinery.
3. When calculating whether a beneficiary qualifies as a farmer, if the beneficiary is also entitled to a share in the residue of your estate then this is also included in the beneficiary's own assets. Taking the example of Jim above, who is currently a qualifying farmer at 97.9%. If Jim is also now receiving a share of the residue of the estate which ends up being 50% of €1,000,00, the value of a life policy and shares the then Farmer Test would look as follows:

 

Agricultural Assets		Own Assets
Farm	€2,000,000	House (after mortgage)	€20,000
Machinery	€30,000	Savings	€15,000
Livestock	€40,000	Car	€9,000
		50% of Residue of Estate	€500,000
Total Inheritance	€2,070,000	Total Own Assets	€544,000
Total Assets	€2,614,000

 

Farmer Test = Total Agricultural Inheritance divided by Total Assets multiplied by 100.

Jim's percentage agricultural assets after the inheritance is now 79.2%.

Jim does not qualify as a farmer for the purpose of the relief.

Careful planning of your Will is essential to avoid situations like this.

Single Farm Payment
It is extremely important that if you have a Single Farm Payment entitlement that it is dealt with in your Will. Since the start of 2005 you can transfer/sell your Single Farm Payment entitlement with or without the land. If you do not deal with the Single Farm Payment in your Will it will fall to the residue of your estate. If you have no residuary clause it will be dealt with under the Rules of Intestacy. Single Farm Payments are treated as agricultural property for Ineritance Tax (CAT) purposes and can benefit from the relief provided the criteria for obtaining the relief are complied with.

Dwelling House Relief

This is a relief, from inheritance tax (CAT) that applies to a dwelling house. A dwellinghouse is defined as a building or part of a building which is used as a dwelling. The dwelling house relief applies only to the part of the building used as a dwelling and includes grounds up to one acre. The relief is a full relief from inheritance tax, if the relief applies. For example: Sarah has always resided at her family home. She is left the family home in her mother's Will which is valued at €350,000.

Value of house	€350,0000
Relief of 100% applied	€350,000
Taxable Value	Nil

 

From the above example no inheritance tax applies and Sarah has the full benefit of her threshold of €225,000 for any other gift in the Will.

There are certain criteria that must be complied with:

1. A beneficiary must have resided (lived) in the house as their main residence for a period of three years prior to receiving the gift/inheritance.
2. Beneficiaries must occupy and maintain the dwelling house as their main residence for six years after receiving the gift/inheritance. If the Beneficiary is over 55 years old different rules apply.
3. The relief applies to only one dwelling. For example: Sarah Murphy receives two houses in a Will.
4. If the beneficiary owns another house or a share in another house relief cannot apply.

A cohabitant can avail of dwelling house relief provided certain criteria are complied with, for example

• The dwelling house must be their main residence for three years
• They must have no interest in any other house

Previously cohabitants would only be able to available of a threshold of €15,075.

 

Favourite Niece/Nephew Relief

Please call us for full details on this relief.

Favourite niece/nephew relief has been extended so that it is available to the child of a civil partner’s brother or sister. The Finance (No. 3) Act 2011 sets out that the niece or nephew must fulfil certain criteria in order to avail of this relief, for example have been working  on a full time basis in the business, working 24hrs a week for the deceased  or more than 15 hours a week if the relevant business is carried out exclusively by the deceased, their spouse and person availing of the relief.  (Importantly the reference is to business carried out exclusively by the deceased, their spouse and person availing of the relief, there is no reference to a business carried out solely by a civil partner.)

 

Request a Call Back or contact us directly and one of our team will discuss your Will or Estate and how we can assist you.