Together with my mother, my family has been trying to figure out the most tax-efficient way for her to leave her estate to her children and grandchildren.
I understand that blood-related grandchildren are under category B and can inherit €32,500 each but I'm not sure what the situation is regarding my step-children. I have four stepchildren (one is under 18 and the other three are over 18).
I understand that my spouse can inherit €16,250 from my mother tax-free but I’m wondering if his children can also inherit €16,250 each tax-free (eg they are all category C?). If you could offer any advice or point me in the right direction to get this advice, I would be most grateful.
Ms R.F., email
Now there’s a new year’s resolution that so many people would be well advised to follow – estate planning. There are relatively generous allowances made for inheritances passing from a parent to a child in Ireland – certainly if you look at some of the structures in place in other European countries.
However, children aside, they are very much more limited.
It is also worth noting that the allowances – which, as you say are different for each of three categories – are cumulative. So, if someone in category B – a sibling, niece/nephew or grandchild beneficiary of a large gift or inheritance – receives something from, say, each of four grandparents, they can quickly top the €32,500 lifetime limit.
That might mean that some of the people your mum plans to leave money or assets to would face a tax bill – it is 33 per cent on anything above those lifetime limits. But clearly, it still makes sense to spread assets as widely as she is comfortable with to minimise the take for the taxman.
Family structures have clearly changed quite a lot since much of Ireland’s tax law was first written and that is why it is very important that your mother expressly provides in her will for your stepchildren.
If she has no will when she dies, her estate is divided up under rules set out in the Succession Act. This dates back to 1965 and, crucially, makes no provision for stepchildren.
So if there is no will or if the stepchildren are not expressly mentioned in any will, they are entitled to nothing.
The good news is that there is provision for stepchildren under the more recent legislation governing capital acquisitions tax (inheritance tax) which dates back only to 2003.
It is only one mention but that is enough.
The 2003 Capital Acquisitions Tax Consolidation Act sets out the three categories you mention. Category A covers children receiving from a parent and the act explicitly states that the term child includes stepchildren. That means stepchildren can inherit up to €335,000 in aggregate from a step-parent and their own birth parents.
But what about step-grandchildren? There’s no mention of the term in Irish law that I can find. However, Revenue helpfully notes that a step-grandchild is treated like a child if their own parent has died, they are under the age of 18 and are inheriting from a grandparent who is the deceased parent’s parent.
Bit of a tongue-twister that but it seems to confirm that a step-grandchild is treated as a linear relative and will therefore be treated under category B of the capital acquisitions tax code for inheritances, where the threshold is, as already stated, €32,500.
So while your spouse is treated as a stranger to your mother in inheritance tax terms as are all in-laws – and so taxed under category C where he must declare anything over €16,250 received as inheritances or large gifts (above €3,000 in value) – his children will be treated the same as any of your mother’s other grandchildren, as long as they are specifically mentioned in her will.
On the subject of tax planning, it is worth remembering that your mother can also use the small gift exemption to pass on up to €3,000 a year tax free to any child, grandshild or in-law without creating a tx liability or affecting the amount they can inherit.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.
