CAT is a tax on gifts and inheritances. You may receive gifts and inheritances up to a set value over your lifetime before having to pay CAT. Once due, it is charged at the current rate of 33%. Gifts become inheritances if the person dies within two years of giving the gift.Under current legislation, parents can give a child gifts or an inheritance of up to €320,000 tax-free (the Group A threshold) before the child owes any Capital Acquisitions Tax (CAT). If a gift or inheritance is received from an individual/s belonging to group B your tax-free threshold is €32,500 and group C – €16,250 (life time limit). For example, if your brother or a grandparent (group B) gave you €30,000 as a gift you will not be liable to CAT. Your friend, cousin or other person not belonging to the group A or B will belong to group C threshold.
There is one small exemption from CAT that can make a considerable difference over time, if applied early enough: the small gift exemption. This exemption allows people to transfer wealth easily and incrementally in the form of annual €3,000 tax-free gifts.Anyone can receive a gift of up to €3,000 from any other person in a calendar year without having to pay CAT. Gifts can be taken from multiple people, as well, and the same €3,000 exemption applies to all of them.
Normally, standard CAT rates apply to property transfers to children over the available tax-free thresholds. However, under Dwelling House Relief, a property can be gifted without the beneficiary having to pay CAT, in very limited circumstances. Restrictive conditions must be met to avail of this relief, however. The main ones are that the beneficiary must have lived continuously in the house for three years prior to the gift and not have an interest in any other dwelling house.
Please get in touch with us if you have any questions or need an advice on CAT implications.