LAST UPDATE | 5 Oct
BUDGET 2025 BROUGHT in some long-awaited changes to Capital Acquisitions Tax (CAT) also known as Gift Tax or Inheritance Tax, and these updates should make life a bit easier for many families in Ireland who are dealing with this tax. Let’s dive into the details and what they mean for you and your family.
One of the headline changes is the increase in CAT thresholds, which determines how much you can inherit or receive as a gift before getting hit with the 33% tax. Here’s what’s new:
This means that if you’re inheriting from your parents, you can now inherit up to €400,000 without paying CAT. Let’s say you inherit a home worth €400,000 — under the new rules, you’re in the clear.
Before, with the old threshold, you would have paid tax on the €65,000 over the €335,000 limit, resulting in a €21,450 bill. So this increase can make a real difference for families who are passing on homes or other assets.
There was a tightening of the conditions for Agricultural Relief. While this relief still allows a 90% reduction in the taxable value of agricultural land, Budget 2025 introduced a new requirement: the donor (the person passing on the farm) must meet a six-year active farmer test for the beneficiary to benefit from the relief.
This change is designed to ensure that farmland remains in productive use and is passed down to individuals who will actively farm or lease it to someone who will, but will be seen by many as yet another onerous condition to be met when passing on the family farm.
The 33% rate of CAT was unchanged, and many will feel that this rate is simply too high despite the increased thresholds. The amount for the annual small gift exemption of €3,000 also remained unchanged and is another relief that has simply not kept pace with inflation, however it is still a very valuable tool in your tax planning arsenal which is unfortunately overlooked by many.
The changes to Capital Acquisitions Tax (CAT) in Budget 2025 represent a positive step forward, particularly for middle-income families. The increase in the Group A threshold from €335,000 to €400,000 will help many people avoid the burden of a large inheritance tax bill when inheriting homes or other assets, which is especially critical in light of rising property prices.
For farmers, the continuation of agricultural relief, though with more stringent conditions, means that farm succession can still happen without overwhelming tax obligations, provided careful planning is in place.
However, while these increases are welcome, they may not be enough to address the challenges faced by families in high-cost areas like Dublin, where property values regularly exceed the new threshold. In these areas, even with the €400,000 limit, an inheritance split among siblings can easily trigger a CAT liability. This means that many families, especially those inheriting property in cities with higher real estate values, could still face significant tax bills.
In summary, while Budget 2025 offers some relief, CAT remains a tax that impacts far more than just the wealthy. Families need to plan carefully and ensure they qualify for the available reliefs, some of which require significant preparation and time to benefit fully. Even with the updated thresholds, the rising cost of property and the unchanged 33% tax rate mean that many people will still need to navigate the complexities of CAT planning.
Johnny O’Callaghan is founder of taxplanner.ie and MD of John O’Callaghan Chartered Certified Accountants, Tax Advisers and Business Consultants.
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