Why do I have to pay inheritance tax in Ireland on a cross border inheritance?

“I don’t live in Ireland, why do I have to pay inheritance tax in Ireland?” “I live in Ireland, why do I have to pay Irish inheritance tax on a foreign inheritance?” These are not uncommon questions. It often comes as a surprise to a beneficiary that their inheritance can be taxed in the Republic of Ireland in circumstances where they may consider such inheritance as having only tenuous connections with Ireland. Why is this?

Inheritance tax in many jurisdictions outside of Ireland is an Estate tax i.e. the Estate of the Deceased person pays the tax and often the beneficiary has little more to do than wait for their cheque to arrive in the post. In Ireland, however, it is the beneficiary who is liable to and must account for inheritance tax. In seeking to establish whether a beneficiary of an Irish connected inheritance is taxable, one must look at several criteria, to include, the tax residence of the disponer (the deceased person) and the beneficiary and, indeed, the location of the asset. In this blog, I wish to focus on the circumstances in which a Beneficiary may be liable to Irish Inheritance Tax. Irish Inheritance Tax is more correctly known as Capital Acquisitions Tax (CAT).

If you are in receipt of an inheritance that is Irish related, then it falls to be taxed in Ireland in any of the following circumstances:

A) where the disponer was resident or ordinarily resident in Ireland at the date of the inheritance; or
B) where you as beneficiary were resident or ordinarily resident in Ireland at the date of the inheritance ;
C) where the date of the inheritance the property (or any part of the property) was situate in Ireland e.g. a house or a bank account, or
D) where a portion or all of the market value of any inherited share in a private company and incorporated abroad is attributable either directly or indirectly to property situate in Ireland.

So, to take an example, Bruce is born and raised in the USA and his Irish resident uncle, Michael dies leaving him the proceeds of a USA based bank account. Are the Irish authorities entitled to tax that inheritance despite the fact that the inherited asset is situate in the USA and the Beneficiary resides there? The answer is yes. As set out at (A) above, Michael (the disponer) was resident in Ireland at the date of the inheritance and as such Bruce has tax filing obligations and possible a tax liability to discharge in Ireland.

Let’s take another example. Thomas was born and raised in Scotland but he came to Ireland 5 years ago to live and work. Thomas inherits a house in Glasgow from his Aunt Margaret who lived all her life in Scotland. Are the Irish authorities entitled to tax Thomas’ inheritance despite the fact that the inherited asset is situate in Scotland, Aunt Margaret (the disponer) was resident in Scotland and Thomas considers himself Scottish? The answer is yes. As set out at (B) above, Thomas as Beneficiary was resident in Ireland at the date of the inheritance and as such he has tax filing obligations and possible a tax liability to discharge in Ireland.

I appreciate that the examples raise questions about how the Irish Tax Authorities collect Inheritance Tax in such circumstances and also how the Irish Inheritance Tax system relates to foreign inheritance tax systems vis a vis double taxation. These are topics which I will visit in future blogs.

For further advice please contact Fergal McManus of Morgan McManus Solicitors.

About Fergal McManus

Solicitor and Chartered Tax Adviser practising in Property, Commercial, Capital Taxes and Cross Border law. Follow me on twitter @fergalmcmanus
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