According to Revenue, €338.9M of the €724.9M Capital Acquisitions Tax (CAT) paid in 2024 was in respect of grandparents passing wealth to their grandchildren. The allowable threshold in this instance (ie Group B as outlined below) is just €40k per recipient. Anything above this amount will be subject to Capital Acquisition Tax.
CAT is a tax of 33% on the receipt of gifts (received during someone’s lifetime) and inheritances (received following someone’s death) or certain benefits from a trust. These gifts/inheritances can include money, property, investments, shares, land or other valuable possessions. CAT is applied where the value of a gift/inheritance exceeds certain lifetime tax-free thresholds (of the receiver). There are three different thresholds and these depend on the relationship between the giver (disposer/donor) and the receiver.
| Group | Relationship | Threshold |
| A | Parent to: child, stepchild, adopted child, and in some cases foster child | €400,000 |
| B | Direct (lineal) descendent – brothers, sisters, nieces, nephews, grandchildren | €40,000 |
| C | All other persons | €20,000 |
The thresholds are a lifetime cumulative limit so previous gifts/inheritances reduce the remaining threshold available even if they were inherited/received from a different person. The value of the threshold decreases in line with the closeness of the familial connection as per the above table.
CAT is often payable within just a few months of the inheritance or gift. This can result in a sudden liquidity pressure, particularly if the inheritance or gift is something other than cash or is something which can’t easily be sold in a short time frame. While CAT cannot be avoided there is an annual gift tax allowance of €3,000. This means that €3,000 can be received per year per donor. Unlike the CAT thresholds which are based on the amount received by the receiver in their lifetime, the gift tax allowance allows €3,000 to be received within one calendar year from each respective donor. For this reason, it can be more effective to gift a sum over a prolonged period (€3,000 annually) rather than in one large lump sum. In instances where parents are intending to gift to a child, both parents can gift €3,000 to that child per year ( ie €6,000) annually and if that child has a long term partner or spouse then each parent could give their child their child’s partner €3,000 each (€12,000).
This can be given to the child by direct payment or can be paid into a Small Gift Exemption Savings Plan (sometimes known as Child Savers) on their behalf. These monies would be invested in the markets as per the client’s choice (after the usual conversations regarding risk tolerance and future plans etc.) and can be an excellent alternative as the gift tax allowance is being utilised yearly, rather than a larger lump sum in the future which would be subject to CAT. These savings plans would follow the regular rules of all savings plans where the growth is subject to an Exit tax of 38% (accurate at time of writing July 2026), but would not be subject to CAT. There are also options available for minors where the policy can be put in trust. It’s important to note that a policy in trust avoids probate.
Yes, the rules (and subsequent thresholds) apply to the receiver but that does not mean the giver cannot also put money in place to pay off an inheritance tax liability. In essence, the donor (ie giver) can pre-pay the tax before the inheritance or gifting takes place by taking out a Section 72 policy or a Section 73 policy. These are policies designed to cover inheritance tax liabilities under the Capital Acquisitions Tax Consolidation Act 2003.
A Section 72 policy is a life assurance policy designed specifically to pay an inheritance tax bill. In most cases, the donor/giver pays regular premiums on a life assurance policy taken out in their own name but with a named beneficiary. This policy is only triggered on death, (and therefore is only suitable for inheritances) and should be taken out for the benefit of whoever will be liable for the CAT. The beneficiary receives a tax-free lump sum which is used to pay the inheritance tax due on the estate. Any excess from the life insurance proceeds then fall back into the estate and will be taxable under CAT rules.
A Section 73 policy is a form of savings plan that is used to build up funds over time to meet a future gift tax liability. It is designed for assets which are being passed during the lifetime (gift rather than inheritance). This is not limited to the €3,000 annual gift tax relief, but there are certain criteria which need to be met. This policy has to be set up as a Section 73 from the beginning and must be in force for 8 years before the relief will apply. However, if you do not choose to use it for tax relief it can be used as a regular savings plan. If it used to offset a gift tax CAT bill and any unused proceeds are treated as a taxable gift.
Due to technological and medical advances, we are now living longer, so it is often the case that an inheritance is received much later in life. In some instances, this is received some decades after it was most needed i.e. received in retirement. There are instances where it would be more beneficial for a grandchild than a child to receive an inheritance as it may help them purchase a property etc. However, the tax free threshold for a grandparent giving to a grandchild is €40,000, whereas it would be €400,000 for a parent to give to a child instead. For this reason, it is important to plan strategically
Multi-generational planning refers to the holistic approach to financial planning. Rather than just dealing with the sole client it is important to engage with other family members particularly those from whom an inheritance may be received or bestowed. If you wish to book a consultation to map your family’s future then please email us at info@olliemoranfs.com, call 061-337578 or use the following contact link: Contact Us – Ollie Moran Financial Services Ltd.
