Lawlink – What do I do about tax on inheritance from family friend?

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Q. I have always been very close with a family friend of my grandparents, who passed away 20 years ago. He was always referred to by my mother as an ‘uncle’. He recently passed away at the age of 90 and left my mother and I some money. It is a relatively sizeable amount, but we are very concerned about the possible tax bill. We are thinking about waiving the inheritance so as not to create problems. My grandparents were apparently always very vague as to whether he was an actual relative or just a close family friend. My mother always had a suspicion that there was some blood relation that was not spoken about. Can you give us advice as to where to go next?

Dear Reader,

The first step in situations such as this is to sit down with your own solicitor or tax advisor to ensure that you receive advice tailored for you and your family.

In general terms, any inheritance received is subject to Capital Acquisitions Tax (CAT). The amount of CAT you might pay is dependent on the value of the inheritance you receive, and on your relationship to the person giving the inheritance. The degree of relationship is very important.

You should try and confirm one way or the other whether the deceased was any blood relative of the family. Perhaps this can be ascertained by taking up copies of birth certificates, or perhaps wider members of the family who may have been taken into the confidences of your grandparents. Perhaps the deceased’s own family may be able to clarify matters.

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If it transpires that the deceased has no blood relation to you or your mother, the inheritance would fall into ‘Category C’, in which you would be entitled to inherit only €16,250 before CAT becomes payable. In this instance, if he had left an inheritance of, say, €50,000, tax would be in the region of €11,140.

If it transpires that he was a relative, the category the inheritance would fall into would depend on the degree of relationship. If he was an uncle of your mother’s, then he would fall into ‘Category B’, and a gift of €50,000 would result in a tax bill of €5,775.

It is important to note that you are taxed only as a percentage of the gift that you receive, therefore it is exceedingly unlikely that you would be left with a negative bill. Again, you should consult with your accountant, tax advisor, or solicitor.