Understanding the Most Common Exemptions of Capital Acquisition Tax (CAT)

Cover Image for Understanding the Most Common Exemptions of Capital Acquisition Tax (CAT)

| Naomi Butler

Capital Acquisition Tax (CAT) is a tax levied on the monetary value of gifts and inheritances received by individuals. While it may seem like an unavoidable expense, there are several exemptions that can help you minimise or even avoid paying CAT altogether.

Exemption 1: Support, Maintenance, or Education Costs

One of the key exemptions is related to support, maintenance, or education costs. If the gift is used to cover these expenses, it may be exempt from CAT. However, the expenditure must be considered normal for the person giving the gift, taking into account their financial circumstances. This means that there is no fixed value or figure that determines whether the exemption applies; instead, it depends on what is deemed reasonable and normal for the individual in question.

It's important to note that not all payments from a parent to a child are covered by this exemption, even if they meet the criteria of being normal and reasonable. The Revenue's interpretation of Section 82(2) of the CAT Act states that the exemption does not apply to all such payments, so it's crucial to consult with a tax professional to determine if this exemption is applicable in your specific situation.


Exemption 2: Compensation

Another common exemption from CAT is when the gift or inheritance is given to the state or is related to compensation. For example, if you receive funds as a result of a legal settlement or compensation claim, it may be exempt from CAT.

Exemption 3: Gifts to the State

If you donate a gift or inheritance to the State, such as a piece of artwork or historical artefact, it may also be exempt from CAT in the hands of the State provided they are of national, scientific, historic or artistic interest.

Exemption 4: Lottery Winnings and Prizes

Lottery winnings and prizes are also exempt from CAT. This means that if you win the Euro Millions or the local raffle, you will not be required to pay CAT on the value of the prize or winnings.

While the above exemptions are some of the most common, there are many other exemptions available under the CAT Act that may apply to your specific situation. It's essential to consult with a tax professional to ensure that you are taking advantage of all the available exemptions and minimising your CAT liability.

In summary, understanding the various exemptions of Capital Acquisition Tax can help you save money and avoid unnecessary tax payments. By familiarising yourself with these common exemptions and seeking professional advice, you can make informed decisions about your gifts and inheritances and ensure that you are making the most of the tax relief options available to you.

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About the Author

Naomi is a member of our technical support team, providing advice on all tax heads in response to queries submitted through our Knowledge Hub Platform. In addition, as a speaker for OmniPro CPD events, she creates content and presents on a variety of taxation topics. A Chartered Tax Advisor, Naomi trained and worked in practice since 2004. She progressed from trainee up to Head of Tax Compliance and Personal Tax Manager. Naomi has a range of experience overall tax heads with a strong understanding of personal taxes and payroll. Naomi also lectures in taxation for both CPA and Accounting Technicians Ireland through Griffith College.

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