Important CAT Mitigation Strategies

darrenbenhambno
Feb 25
4 min read

• It is always important to bear in mind what tax-free thresholds remain. (For example, the current Group A CAT free threshold on gifts/inheritances from Parent to Child is now €400,000) and what the potential future gifts or inheritances could be for the individuals who will be the proposed beneficiaries in a will. Where possible, as part of any succession plan that involves an inheritance with cash amounts – it should be considered whether to use the Small Gift Exemption amount of €3,000 per person during the lifetime of the disponer in order to efficiently transfer cash to the next generation. The Small Gift Exemption does not apply in an inheritance situation.

• Where possible it should always be assessed as to whether any reliefs such as Business Relief and Agricultural Relief would be available for a beneficiary so as not to exhaust the €400,000 Group Threshold and to keep it available for other potential gifts or inheritances which would not qualify for any relief from CAT.

Business Relief

• Business Relief can be a valuable relief as it reduces the taxable value of qualifying assets to 10% of their full value and it can apply in an inheritance situation.

• Business Relief is only available in respect of relevant business property and therefore will not apply to any investment property being inherited. In circumstances where shares in a trading family company (or group) are being inherited, any investment assets in the company would dilute the relief on the inheritance of the shares in that company (group). As such, where possible, where it is the intention to leave shares in a family trading company to the next generation, investment assets and other non-business related assets should be removed/separated from the trading company (or group) in order to reduce the dilution of Business Relief for the beneficiary on a future inheritance of the shares.

Agricultural Relief

• Agricultural Relief can apply in an inheritance situation to reduce the taxable value of the property being inherited to 90%.

• As part of a succession plan to the next generation, it should be considered as part of the plan whether the beneficiary will farm the inherited property personally or would intend to lease out the farm to an active farmer.

• It should be assessed whether a proposed beneficiary of farming assets would satisfy the 80% agricultural asset test on any future inheritance of agricultural assets. With sufficient planning, the assets of a beneficiary can be managed in order to assist with satisfying this condition in the event of a future inheritance of agricultural property.

• As part of a succession plan to target Agricultural Relief, it should also be considered whether any residential property being inherited would qualify as a farmhouse for the purposes of the relief. It is important to assess whether the property is of a “character appropriate to the property” and details such as value, use, size, location and proximity and access to the other agricultural assets are all relevant details to be assessed. In addition, the use of the residential property after the inheritance can determine whether Agricultural Relief on the property is available. It is often taken for granted that a residential property being inherited with a farm would automatically qualify for agricultural relief. However, this is not always the case and should be assessed as part of a succession plan.

• Consideration should be given to the potential valuation date of a future inheritance of agricultural assets for a beneficiary, to assess whether the terms of the will or the use/current condition of the agricultural property can be structured in a way as to provide time between the date of death and the valuation date of the inheritance for a beneficiary to adjust their personal asset holdings to ensure the 80% point in time agricultural asset test is satisfied. For example, in circumstances where a beneficiary has access to agricultural assets or farms them with the deceased at the date of death, then the valuation date will likely be the date of death. However, in circumstances where a beneficiary does not have access to the agricultural assets or where the land is leased to a third party, the valuation date could be determined to be a later date such as a grant of probate. It should be noted that the valuation date of any inheritance will depend on the specific circumstances of each case.

Clawback of Reliefs

• The clawback periods for both Business Relief and Agricultural Relief should always be considered as part of any succession plan and should be reviewed with the proposed beneficiaries in advance to ensure they understand what managing the clawback conditions will entail. In particular, managing the clawback conditions for Business Relief can be more onerous than often appreciated. It is regularly understood that a clawback of the relief would only arise in circumstances where the business assets are disposed of by the beneficiary. However, the clawback can arise in other circumstances too.