It is often the case that when a person is making a will they wish to leave an inheritance to a grandchild. The question is then asked how that inheritance is dealt with by the Revenue Commissioners.
The first issue to determine is the age of the grandchild. A grandchild over the age of 18 years is an adult and is responsible to discharge their tax liability in the usual way. Any person under the age of 18 years is a minor and cannot hold an inheritance in his/her own right. The usual position then is that the parents of the grandchild are asked in the will to hold the inheritance until the grandchild reaches 18 years.
Inheritance tax is payable by reference to what is known as the valuation date. The valuation date is the date on which a personal representative is entitled to retain the inheritance for the benefit of the grandchild. As a grandchild is a lineal descendant of the person making the will, the grandchild is entitled to part of the inheritance tax free. The relationship between grandchild and grandparent falls under category “Group B” which means that the first €32,500 of the inheritance is not taxable.
It has to be taken into account however that any prior gifts or inheritances received by the grandchild from a grandparent prior to this date would reduce or eliminate this tax-free amount.
At present, inheritance tax is charged at the rate of 33% on any amount of the inheritance that exceeds the sum of €32,500 assuming that there are no prior gifts or inheritances. A Form IT38S must be completed and submitted to the Revenue Commissioners.
If the valuation date is between January 1st and August 31st the deadline for the inheritance tax to be paid is the 31st October of that year. If the valuation date is between September 1st and December 1st, the deadline for the tax payment is October 31st in the following year. The obligation to pay tax arises even though the grandchild is still a minor, not working and therefore not a taxpayer.