Latest news with #thresholds
Irish Times
03-08-2025
- Business
- Irish Times
Inheritance, relatives and blended families: what does it mean for tax-free thresholds?
Could you clarify a passing comment that you made in your article last week. You used the phrase 'by blood'. Are you drawing a distinction with uncle or aunt by marriage versus an uncle or aunt 'by blood'? In other words, are you saying that a child can inherit under Class B from their parent's sibling, but not the spouse of that sibling? Are you sure that is correct as I do not see any such distinction in Revenue guidance ? It also raises the question of who is 'the parent' in the case of a divorce and remarriage. Does the birth parent for Class A purposes cease to be a parent on remarriage or can the step-parent become one? Mr DL READ MORE I always wonder when I write 'by blood' whether it is clearly understood. As with many recurring items, I have set out clearly what that means at one point or another but often revert to the shorthand. And yes, it can be counterintuitive if, like me, you grew up in a family where aunts were regarded as aunts regardless of whether they were my parents' siblings or had married into the family – and similarly for uncles. But Revenue does make a distinction when it comes to inheritance. The three inheritance tax thresholds are very specifically delineated according to blood relationship between the person making the gift or leaving the inheritance in their will and the person receiving it. Category A, which offers the highest tax-free threshold – currently €400,000 – is generally referred to as covering gifts and inheritances from a parent to a child, but it is slightly wider than that. [ Inheritance tax: How to avoid leaving your loved ones with a hefty bill Opens in new window ] For instance, if it is the child that dies – as an adult or otherwise – and the parent who inherits from them, the parent will also benefit from the Category A threshold as long as they are inheriting outright – rather than, say, getting a life interest in a property. The threshold will also apply to a child – anyone under the age of 18 – where they are inheriting from their grandparent when their parent is dead. We'll come back to that Category A in a minute in relation to the second part of your query. Category B covers close blood relatives other than parents – or other scenarios covered by Category A. It is sometimes described as lineal relations – i.e. those in a direct line of descent or ancestry. Most commonly, that is seen as covering gifts and inheritance from a brother or sister, a grandparent and an uncle or aunt. And yes, it is only aunts or uncles related by blood – i.e. siblings of one or other parent. You're certainly right to query it. I used to think it covered everyone with that title but I did check with the Revenue commissioners and they did confirm that there had to be a blood relationship with the aunt or uncle for them to be covered under Category B. Category B will also cover life interest inheritance from a child to a parent or any inheritance from a child to an aunt, uncle or grandparent in the unfortunate circumstance of the child predeceasing the older relative. [ Will inheritance tax be cut again in the budget? Opens in new window ] Many people worry about what other people will pay in tax on an unexpected windfall (inheritance) after they are gone. Photograph: Getty Images There is a growing clamour – particularly from people who do not have children – for reform of this Category B. As it stands, the tax-free threshold under Category B is €40,000, just 10 per cent of the Category A threshold. An awful lot of people worry about what other people will pay in tax on an unexpected windfall (inheritance) after they are gone. Personally, I always find that odd but that's not to say it is not a thing. There is pressure either to raise this significantly or to find some other device to allow people without children nominate one or two beneficiaries who can avail of a higher threshold. It is something that has been examined in the Tax Strategy Papers published recently by the Department of Finance . These papers examine issues that might be addressed in the budget later this year or a budget further down the line. As is their wont, this review merely sets out options and, to the degree possible, their likely cost or benefit to the exchequer. Whether one approach should be favoured over another or whether any policy change should be pursued remains a political matter for decision by the Government . Finally, we have Category C which covers all other people benefiting from a gift or inheritance – sometimes called 'strangers in blood' where the current tax-free threshold is €20,000. [ I am due to inherit €30,000, is it worth my while to gift my husband half to avoid tax? Opens in new window ] The three inheritance tax thresholds are delineated according to blood relationship between the person leaving the inheritance in their will and the person receiving it. Photograph: Getty Images And you can see here why Revenue specifies that aunts and uncles in Category B must be blood relations, not relations by marriage. Apart from friends, neighbours, carers, gardeners etc, Category C also includes cousins who are, by definition, blood relatives of some sort and also in-laws, whom in many cases can be closer to the disponer (the person making the gift or inheritance) than even a niece or nephew by blood. But so it is. As regular readers will know, the other key thing to note is that these are lifetime limits on all gifts and inheritances dating back under each category to December 5th, 1991. So, under Category B, you need to tot up all large gifts and inheritances you have received from any grandparent, sibling, aunt or uncle to see if your latest windfall is tax-free or otherwise. And when we say gifts, we mean gifts valued at more than €3,000, as anything below that in any year is covered by the small gift exemption and is also tax free. Finally, once to hit 80 per cent of the relevant threshold – benefits of €320,000, €32,000 and €16,000 for each category respectively, you need to file an inheritance tax return to Revenue even though no tax is owing until you exceed the full threshold. Getting back to your second query – the position with blended families after divorce, remarriage and separation – you're quite correct to say that this is increasingly relevant in our modern society. We need to return to the question of the Category A threshold. When it states that a child can receive up to €400,000 tax-free from parents, the definition of child also refers to stepchildren and to adopted children. In fact, it even applies to foster children as long as those foster children spent at least five years with the family before the age of 18 at the family's expense. So does that mean that a child who is adopted or whose parents have divorced and remarried can receive category A benefits from more than two parents? Yes, it does. A stepchild qualifies for Category A on inheritance or gift from their birth parents and from any step-parent. The same is true for a child formally adopted. But birth parents are not removed from the Category A equation. A child can still avail of Category A in relation to a birth parent, even after divorce and remarriage, or where the child has been adopted elsewhere, as can a child who has been fostered under the criteria mentioned above. The one difference between the three categories of child is that if an adopted child's birth parent dies without making a will, they are not entitled to anything under intestacy where a stepchild and a fostered child would be. Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to , with a contact phone number. This column is a reader service and is not intended to replace professional advice
Daily Mail
10-07-2025
- Business
- Daily Mail
A MILLION Brits face being dragged into higher tax rates costing £10bn amid fears Rachel Reeves will break her vow and extend hated 'stealth tax'
A million Brits face being dragged into higher tax rates if Rachel Reeves breaks her vow to end the freeze on thresholds. Fears are mounting that the Chancellor will opt to extend the long-running stealth raid, as she faces an estimated £30billion hole in the government books. The policy, in place since 2022, is due to end in 2028-29. By that point it will have dragged an extra 4.2million people into the tax system as wages rise. There will be 3.5million more taxpayers in the higher-rate band, and 600,000 in the top rate. However, keeping the freeze in place for another two years could bring in an extra £10billion annually for the Treasury according to the IFS think-tank - significantly easing Ms Reeves' problems. Around another 400,000 more people would be paying income tax and 600,000 into higher and additional rates by 2029-30. The Treasury's OBR watchdog has predicted the thresholds freeze will have raised £48.9billion of additional tax by by 2029-30, 1.4 per cent of GDP. Around 14 per cent of adults will be paying the 40p rate, compared to under 4 per cent in the early 1990s. IFS director Helen Miller told BBC Radio 4's Today programme that extending the freeze 'absolutely would' be a tax on 'working people'. 'The big problem I have with that measure is the lack of transparency,' she said. 'It is a big tax rise but not one that people are going to see very easily.' Extending the freeze would seemingly contradict Ms Reeves' words at the Budget last year. She told MPs at the time: 'Having considered this issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people. 'It would take more money out of their payslips. I am keeping every single promise on tax that I made in our manifesto. 'There will be no extension of the freeze in income tax and National Insurance thresholds beyond the decisions by the previous government from 2028-29.' Ms Reeves has insisted she will not come back for another big raid, but seems to be backed into a corner after guaranteeing to keep the fiscal rules on borrowing. She has also said Labour will keep the manifesto pledge not to hike taxes on income tax, employee national insurance or VAT. But experts have suggested that the stalling economy together with spending pressures could mean she has a £31billion funding gap to fill at the Autumn Budget. Challenged at PMQs yesterday to guarantee that thresholds will not be held again, Keir Starmer merely said: 'We will stick to our manifesto commitments, we will stick to our fiscal rules.'
