Favourite Nephew or Niece Relief

The CAT framework treats parent-to-child inheritances favourably (Group A threshold €400,000) and niece-or-nephew inheritances much less so (Group B threshold €40,000). The gap is substantial: a €400,000 inheritance to a child is tax-free; to a niece or nephew, it triggers €118,800 of CAT.

For Irish farms and family businesses where a niece or nephew has worked alongside a childless uncle or aunt for years, this gap can feel unfair: the relationship is effectively that of a child. The favourite nephew or niece relief recognises that working relationship and applies Group A treatment.

What the relief does

Where the relief applies, the inheriting niece or nephew is treated as if they were a Group A beneficiary for the purposes of calculating the threshold. The threshold is €400,000 rather than €40,000, a ten-fold increase. The rate (33%) and other rules are unchanged.

The relief applies to the inheritance of the business or agricultural property only. If the niece or nephew also inherits other assets from the same uncle or aunt (cash, personal possessions, investments not used in the business), those other assets are treated under ordinary Group B rules.

The qualifying conditions

To qualify, the niece or nephew must have:

1. Worked substantially full-time for the deceased for at least five years ending on the date of death (or the date of the gift, if the benefit is a lifetime gift rather than an inheritance).
2. Worked in a qualifying capacity: the business must be the deceased's own trade, profession, farming, or business; the work must be in the day-to-day running of that business.
3. Not have worked for the deceased during that period as a mere employee on a standard employment contract drawing ordinary wages as their sole remuneration. The test is whether the niece or nephew is effectively part of the business, not just an employee.

Revenue's interpretation of "substantially full-time" is: - At least 24 hours per week if the deceased was still actively running the business - At least 15 hours per week if the deceased was semi-retired and the niece or nephew was effectively running the business under the deceased's oversight

The five-year period must be continuous up to the date of death. Breaks for study, maternity leave, or temporary illness are generally permitted if the working relationship resumed. A break of several years followed by a return shortly before death typically fails the test.

What qualifies as the deceased's business

The relief applies to: - A farm, agricultural land, and farm machinery - A sole-trader business (any trade) - A partnership in which the deceased was a partner, where the niece or nephew worked in the partnership - A company in which the deceased held a controlling interest and the niece or nephew worked for the company

Limited to the deceased's own active business. A passive investment portfolio, a rental property, or a business the niece or nephew joined as an external employee do not qualify.

Stacking with Agricultural Relief and Business Relief

The Favourite Nephew or Niece relief can be claimed alongside Agricultural Relief or Business Relief. The mechanics:

1. First, apply Agricultural Relief (or Business Relief) at 90% to reduce the taxable value of the property.
2. Then, apply the threshold. If Favourite Nephew or Niece relief applies, the €400,000 threshold is used rather than €40,000.
3. CAT at 33% on any remainder.

Example: a niece inherits the working farm she has managed with her uncle for 12 years. The farm is worth €1.2 million.

• Agricultural Relief: €1,200,000 × 10% (90% reduction) = €120,000 taxable value
• Favourite Nephew or Niece Group A threshold: €400,000
• Excess over threshold: €0 (well under)
• CAT: €0

Without either relief (ordinary Group B treatment, no Agricultural Relief): CAT would be 33% of (€1,200,000 - €40,000) = €382,800.

Worked example: relief applies

A nephew has worked for his uncle in the uncle's haulage business for 11 years. He does not hold shares but is effectively the operational manager, dealing with customers, drivers, and the fleet. The uncle is semi-retired but still owns 100% of the business and draws the profit. The uncle dies and leaves the business to the nephew. The business is valued at €750,000.

• Deceased's business: qualifying (trading business carried on by the deceased)
• Nephew's role: qualifying (substantially full-time in running of the business)
• Five-year test: passed (11 years continuous)
• Business Relief: 90% reduction, taxable value = €75,000
• Favourite Nephew treatment: Group A, €400,000 threshold
• Taxable amount: €0
• CAT: €0

Without either relief, CAT would be 33% × (€750,000 - €40,000) = €234,300.

Worked example: relief fails

A nephew has worked for his uncle's construction company for three years. The uncle dies and leaves the nephew the company shares.

• Five-year test: failed (only three years)
• Favourite Nephew or Niece relief: does not apply
• Ordinary Group B treatment applies

Business Relief may still apply (90% reduction). The position: - Business Relief taxable value: 10% of €500,000 = €50,000 - Group B threshold: €40,000 - Taxable amount: €10,000 - CAT at 33%: €3,300

Modest, but the nephew does not get the much larger cushion of Group A treatment.

When to claim

The relief is claimed by the niece or nephew on their own IT38 return. The Revenue form has specific fields for Favourite Nephew or Niece relief in the reliefs section.

Supporting evidence is almost always requested if the relief is queried: - Written employment records covering the five-year period - Payslips or evidence of remuneration (to show the relationship was not purely employer-employee on standard wages) - Testimony from other employees or professional advisers confirming the nature of the role - Business accounts showing the niece or nephew's operational role

When a tax adviser is essential

This relief requires careful documentation. Retain a tax adviser where: - The five-year working relationship is not obviously documented - The deceased's business or farm has mixed trading and investment activity - The niece or nephew also received significant other assets from the deceased (the relief only applies to qualifying business property) - There are other nieces or nephews inheriting who do not qualify and may raise fairness disputes - The stake is substantial (inheritance above €200,000)

A failed Favourite Nephew or Niece claim on a €500,000 inheritance costs the full Group B assessment. Professional fees of €1,500 to €3,000 to secure the claim are typically inexpensive relative to the stake.