The recent Finance Bill changed two aspects of calculating tax owed for gifts and inheritance under Capital Acquisition Tax. The first involves the base dates between which tax liability for gifts or inheritances should be calculated. For tax purposes it has been brought forward from June 2nd, 1982, to December 2nd, 1988.

Only the cumulative amount for gifts or inheritances taken on or after December 2nd, 1988, will be liable when computing CAT in relation to these items.

The second change involves the small gifts' exemptions limit. The first £1,000 of the total value of gifts received from any one donor after January 1st, 1999, in any year is exempt from gift tax. This was increased from an annual limit of £500.

CAT places a charge on the transfer of assets or property from one person to another when the person receiving the property does not have to pay full value for it. This happens when a person is left an inheritance or given a gift of cash, property, a car or jewellery.

The amount of the gift or inheritance that is allowed tax-free, or the threshold, is determined by the relationship between the donor and the receiver. Married couples are not liable for CAT, but certain tax-free thresholds apply for other relations, or those unrelated to the donor. The threshold for the transfer of an inheritance or gift from a parent to child is £192,900. Individuals receiving an inheritance or gift from a sister, brother, niece, nephew, aunt, uncle or grandparent are allowed £25,720 tax free. The same amount applies for a gift from a child. Those who are not related to the donor, such as a friend or non-married partner, are only allowed £12,860 tax free.

An IT 38 form must be lodged when an inheritance either by itself, or when added together with prior gifts or inheritances, exceeds 80 per cent of the relevant tax-free amount.

Inheritance tax must be paid within four months to the Revenue Commissioners or an interest charge will be incurred at 1 per cent per month from the date on which the benefit is retained or set aside for the benefit of the successor.