A relative in his 40s who is unable to work and is in receipt of a full disability allowance has been told by an elderly relative that he can expect to receive a substantial sum on her death (which fortunately does not appear imminent).
Assume that it is in the region of €200,000 – €300,000.
He has currently no assets. We assume that this would have to be reported to the Department of Social Welfare, and would reduce his allowance, but we have not been able to find out how this would be calculated.
Mr R.K. Dublin
There appear to be two issues here. First there is the issue of inheritance tax and then there is the impact on his current disability allowance payments.
An inheritance of the scale you are talking about would certainly raise inheritance tax/capital acquisition tax issues unless it is coming from a parent – and even then, tax liability could arise.
Just how much tax your relative would have to pay depends on the precise nature of the relationship and the thresholds in place at the time the inheritance takes place.
There are three categories of beneficiary for the purposes on inheritance tax and each has a different financial threshold. Category A relates to inheritances from a parent to a child so we’ll assume that’s not relevant here.
Category B covers very specific “linear” relations and siblings. So if this man is a brother, sister, niece/nephew, grandchild or great grandchild of the person giving the inheritance, they qualify. Otherwise, they don’t. If it is a cousin or great-uncle/aunt, or whatever, they fall under the lower Category C threshold covering inheritances received from strangers – including in-laws.
At the moment, the threshold for category B is €32,500 and half that for category C – ie €16,250. Anything above those levels is liable for capital acquisitions tax at 33 per cent.
Those thresholds may, of course, change. They were above €54,000 and €27,000 respectively back in 2009 and then fell to levels even lower than they are at now before increasing slightly again. The important thing will be the level of the threshold when the donor dies.
Next is the likely impact on this man's disability payments. Disability allowance is a means-tested payment and therefor the Department of Social Protection will need to know of any material change in your relative's financial position.
In this tax year, the means test treatment of capital – ie savings – is that the first €50,000 of savings is ignored for the purposes of the means test. The next €10,000 of savings is deemed to deliver €1 per €1,000 in weekly income. The rate climbs to €2 per €1,000 on the subsequent €10,000 and to €4 per €1,000 on anything above €70,000.
So, for practical purposes, let’s assume your relative will qualify under the higher Category B CAT threshold and that the sum involved is €200,000, the “best case” scenario from their point of view.
Deducting the CAT tax-free exemption of €32,500 from the €200,000 inheritance, a balance of €167,500 remains which is subject to inheritance tax/CAT. That will mean a tax bill of €55,833.
Having paid the tax due, your relative will have an inheritance lump sum of €144,167. This now needs to be assessed as savings under the means test. The first €50,000 is left alone and the next €10,000 yields weekly means of €10 (at €1 per €1,000) under the test. This rises to €20 on he next €10,000. What’s left of the savings for means test purposes above the €70,000 threshold is €74,167. At the relevant means test rate of €4 per €1,000, this gives your relative weekly means of €300.
So, in total, under the means test rules on savings as I see it, your relative on disability allowance would be deemed to have weekly means of €330 even after paying inheritance tax.
The top rate of disability allowance at the moment is €193 a week but anyone with “means” in excess of €192.50 receives nothing. So, under today’s figures, your relative would lose all of their disability allowance should they receive even the lowest level of inheritance mentioned in your question.
Of course, you’d need to work out the situation both for inheritance tax and the means test on the relevant thresholds in place when his currently healthy relative passes on.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
