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Capital Acquisitions Tax (CAT) takes a chunk of the gifts and inheritance that is due to your loved ones. With the inheritance tax, the amount is payable after the person giving it has passed on. For the gift tax, this amount is payable while the person giving the gift is still alive.
How Much Gift Tax Will I Pay?
To estimate the tax amount, first determine what the asset will be worth. This can be anything from property, cars, jewellery, to savings and investment funds. If it is under the threshold indicated below, then it is tax-free. The amount above the threshold is taxed 33%.
These thresholds vary among different groups:
1. Group A
CAT threshold: €335,000
Here you have the children of the individual giving the gift, a.k.a the disponer. It also includes foster children under certain terms, or a minor son or daughter of the deceased child of the disponer. Parents taking an absolute inheritance from their child also fall in this category.
2. Group B
CAT threshold: €32,500
This group includes some relatives of the disponer, specifically the siblings, grandparents or grandchildren, nieces and nephews, plus any lineal ancestor or descendant of the disponer.
3. Group C
CAT threshold: €16,250
Anyone with a relationship with the disponer that has not been covered by Groups A or B.
Note: Gifts from a spouse or civil partner are exempt from the capital acquisitions tax.
Example
If you gift your child a €500,000 asset, then:
- Untaxed amount: €335,000
- Amount liable for tax: €165,000
Tax owed: 33% of €165,000, which is €54,450
Next problem: Liquidity
Unless your child has €54,450 in cash or bank, then the asset will need to be liquidated, selling it off. They'll then settle the gift tax bill, and remain with the balance.
Or you could simply take an insurance policy under the provisions of the Section 73 CAT Consolidation Act, which pays out the gift tax. Here, the cash value of the savings plan, or combined life and savings plan, is used to pay taxes owed on gifts during your lifetime. Qualifying for the Section 73 relief allows your beneficiary to enjoy the full amount, asset or cash-equivalent, tax-free.