How to Calculate Inheritance Tax (CAT) in Ireland: A Guide for Estate Planning

How to Calculate Inheritance Tax in Ireland – Step-by-Step Guide

Inheritance tax in Ireland is determined using the following formula:

Total Inheritance Received – Tax-Free Threshold = Taxable Amount

Taxable Amount x 33% = CAT Liability

Each beneficiary has a different tax-free threshold, depending on their relationship to the deceased. These thresholds fall into three groups:

• Group A: €400,000 – Applies to children (including adopted, step, and foster children).

• Group B: €40,000 – Applies to siblings, nieces, nephews, and grandchildren.

• Group C: €20,000 – Applies to all other beneficiaries.

Any inheritance received above these thresholds is taxed at 33%.

Inheritance Tax Calculation Examples – What You Need to Know

Let’s look at different scenarios to see how CAT is applied.

Example 1: One Child Inheriting an Estate

Estate Value: €600,000
Beneficiary: One child (Group A)
Tax-Free Threshold: €400,000

• Taxable amount: €600,000 – €400,000 = €200,000

• Tax liability: €200,000 x 33% = €66,000

The child must pay €66,000 in inheritance tax.

Example 2: A Niece Inheriting an Estate

Estate Value: €100,000
Beneficiary: A niece (Group B)
Tax-Free Threshold: €40,000

• Taxable amount: €100,000 – €40,000 = €60,000

• Tax liability: €60,000 x 33% = €19,800

The niece must pay €19,800 in inheritance tax.

Example 3: A Friend Inheriting an Estate

Estate Value: €50,000
Beneficiary: A close friend (Group C)
Tax-Free Threshold: €20,000

• Taxable amount: €50,000 – €20,000 = €30,000

• Tax liability: €30,000 x 33% = €9,900

The friend must pay €9,900 in inheritance tax.

Example 4: Mixed Beneficiaries (Two Children and One Niece)

Estate Value: €1,200,000
Beneficiaries: Two children (Group A) and one niece (Group B)
Tax-Free Thresholds: €400,000 per child, €40,000 for the niece

Each child inherits €500,000 and the niece inherits €200,000.

Children’s Tax Calculation:

• Each child has a €400,000 threshold.

• Taxable amount per child: €500,000 – €400,000 = €100,000

• Tax liability per child: €100,000 x 33% = €33,000

• Total for both children: €33,000 x 2 = €66,000

Niece’s Tax Calculation:

• Taxable amount: €200,000 – €40,000 = €160,000

• Tax liability: €160,000 x 33% = €52,800

Total Inheritance Tax Liability:

• €66,000 (children) + €52,800 (niece) = €118,800

How a Section 72 Policy Can Help Reduce Inheritance Tax

A Section 72 life insurance policy is specifically designed to cover inheritance tax liabilities. The payout from a Section 72 policy is exempt from inheritance tax, meaning it can be used to pay the tax bill without increasing the taxable estate.

For example, if a person’s estate has a €121,275 tax liability, they could take out a Section 72 policy for that amount. The policy payout would then cover the tax bill, ensuring beneficiaries receive their full inheritance.

Key Takeaways – Understanding Your Tax Liabilities

• Inheritance tax is 33% on amounts above tax-free thresholds.

• Beneficiaries fall into three groups, each with different tax-free thresholds.

• The total estate value minus thresholds determines the taxable amount.

• A Section 72 policy can help cover the tax liability and protect beneficiaries.

If you’re planning your estate, it’s essential to calculate your beneficiaries’ potential tax liabilities and explore options like Section 72 policies to minimise the impact.

Need Help with Estate Planning?

At Section72.ie, we specialise in Section 72 policies to help families protect their inheritance.  If you’d like a free consultation, click here to book a call with an expert.