Gintax answers Sunday Independent readers’ questions on tax.
Article published on 11 October 2020

NOTE - answer below could equally apply for Irish citizens

Q I am a US citizen living in Ireland for most of my adult life. Ireland is now my permanent home and tax country. My mother is a US citizen who has lived her entire life in USA. She has no ties to Ireland other than the fact that I live here. My mother plans on leaving me approximately €500,000 in her estate when she passes. (My father is deceased). My question is, what are the tax implications in Ireland? She already gifts me and my wife €3,000 each per year to avail of the small gift tax exemption and she has never given any other gifts to me. She will not be liable for any US taxes because she won’t exceed the US lifetime giving limit of $11.2 million. Will I need to pay Irish Capital Acquisitions Tax (CAT) or does a double taxation agreement with USA apply? As I said no tax will be owed in USA because of their generous limits on tax-free inheritance. Tom, Co Clare

As a long-term Irish resident, you are within the scope of Capital Acquisitions Tax (CAT) on any inheritances you receive. Normally, CAT at a rate of 33pc applies on the value of any inheritances received above your tax-free threshold. This is currently €335,000 on all gifts or inheritances from parents.

Given the circumstances, the Ireland/US Treaty on estate taxes should indeed be relevant and can apply to offer automatic tax exemption here. Under this Treaty, an inheritance taken from a US (non-Irish) domiciled person under a US will should be exempt from Irish CAT as long as the benefit consists of a non Irish asset.

The domicile status of your mother will be critical here. Based on your letter, she seems to satisfy the requirements due to her US citizenship, residency and her limited ties to Ireland. However, the domicile test will be at the date of death and all facts and circumstances will need to be considered at that point.

Assuming this is satisfied, then as long as the €500,000 value received does not consist of Irish assets, the inheritance will not be subject to Irish CAT. If the value consists of any Irish property, such as Irish registered shares or an Irish holiday home, that element will be subject to Irish CAT in the normal manner.

It is important to note that the Treaty only applies to inheritances. If your mother gifts you the assets, the exemption will not apply.