I received an inheritance from my late sister in 2024. I paid tax on the balance after deduction of the €32,500 allowance. The amount involved was more than €40,000.
This year, I have received a small inheritance from an uncle.
These inheritances are both group B. The tax-free allowance is now €40,000.
Is the increase of €7,500 (more than the value of this second inheritance) in the allowance of any benefit to me in deciding whether tax is due on this second inheritance?
Ms M.McG.
Getting a fix on tax with inheritance can be a minefield for two reasons. First, you need to keep track of everything you have received since December 5th, 1991 as an inheritance or even as a gift, if that gift was worth more than €3,000.
That’s 34 years ago. And if, like me, last week is a stretch, you’ll want to have all that written down neatly and stored in a file.
Not only that, but you need to have a fix on your tax position in each of three separate categories of tax-free exemption – Category A from your parents, Category B from close blood relatives, and Category C for everyone else, including in-laws, cousins, friends, etc.
Every time an inheritance comes up in your name, Revenue will require not only the details of that latest inheritance but the details of every previous inheritance within that category, the amounts received, and on which dates.
And then you have to juggle with changes to those thresholds from time to time. There have been five adjustments to at least come of the thresholds over the past decade, and there were 10 in the previous decade.
So it’s little surprise that people can be left confused about how such changes affect them.
The bottom line is that every inheritance (or, where relevant, gift) is assessed against the thresholds in place at the time the person giving that inheritance dies, or, in the case of gifts, when the gift is made.
Back in 2024, when your sister died, the threshold for inheritance from close blood relatives – Category B – was, as you say, €32,500.
Because your inheritance from her was higher than that – €40,000 – you were taxed on the balance of €7,500 at 33 per cent.
‘You will pay no tax on this latest inheritance from your uncle, although you will need to file an inheritance tax return to the Revenue, as you are beyond the 80 per cent level of the new threshold’
But now, this year, when your uncle has died, the threshold under Category B has risen to €40,000.
When you take this inheritance it will be added to the previous one and assessed against the current threshold. You don’t give a precise figures, only that it is less than €7,500, so let us assume it is €5,000.
Adding that to your sister’s inheritance, you have now received Category B inheritances of €45,000. You might think that this means you will be taxed on your latest good fortune as the figure is entirely above the new threshold, but that is to ignore that you have already paid tax on some of this total.
The €40,000 is what you are allowed tax-free and if you have only used up €32,500 of the current tax free threshold, this €5,000 would still leave you below the new limit of €40,000 – at €37,500 to be precise.
As a result, you will pay no tax on this latest inheritance from your uncle, although you will need to file an inheritance tax return to the Revenue, as you are beyond the 80 per cent level of the new threshold.
In fact, as it stands, on the basis of our illustrative €5,000 inheritance, you will still have a €2,500 window of tax-free capacity in Category B, should any other close family leave you an inheritance in the future. And that is before any further upward adjustment of the threshold.
So, to sum up, the increased threshold is very much of use to you in relation to this latest inheritance you are receiving from your uncle’s estate. It means that instead of having to hand a third of it over to Revenue, you get to keep all of it – on the basis that it is below €7,500.
If he had left you more than €7,500, anything above that level would have been subject to 33 per cent capital acquisitions tax – but only on the amount that was above the €7,500 level, not the whole sum.
