Favourite Niece or Nephew Tax Relief in Ireland

When most people think about Capital Acquisitions Tax (CAT) in Ireland, they focus on the standard tax-free thresholds: Group A for children, Group B for siblings, nieces, and nephews, and Group C for unrelated individuals. But there’s a powerful, lesser-known relief that can transform inheritance tax planning for extended families: Favourite Niece/Nephew Relief.

This relief allows a qualifying niece or nephew who has worked in the family business to be treated as a “child” for tax purposes. That means they gain access to the much higher Group A threshold (€400,000 in 2025), instead of being stuck with the far smaller Group B threshold (€40,000).

In this guide, we’ll explain:

• What Favourite Niece/Nephew Relief is and why it matters.
• The strict conditions that must be met.
• Worked examples showing real-world tax savings.
• How it interacts with Business Relief, Agricultural Relief, and other CAT provisions.
• Common mistakes that lead to Revenue challenges.

🔑 What is Favourite Niece/Nephew Relief?

Favourite Niece/Nephew Relief is a provision under Irish tax law that elevates certain nieces or nephews into Group A for CAT purposes, instead of the standard Group B.

• Group A threshold (2025): €400,000
• Group B threshold (2025): €40,000

By moving from Group B to Group A, a qualifying niece or nephew can receive over €360,000 extra tax-free, massively reducing their tax exposure.

Example: Without Relief vs With Relief

• Nephew inherits business assets worth €400,000.
• Without relief → Group B threshold: €40,000.
• Taxable: €360,000 × 33% = €118,800
• With Favourite Niece/Nephew Relief → Group A threshold: €400,000.
• Taxable: Nil
• Tax saving: €118,800.

That difference can mean whether a family business survives or is sold off to pay tax.

✅ Conditions to Qualify

Revenue applies strict conditions before allowing a niece or nephew to be treated as a “child”:

Full-Time Work Requirement

• The niece/nephew must have worked full-time in the business for at least five years immediately before the gift or inheritance.
• “Full-time” means at least 24 hours per week (or 15+ hours per week in smaller businesses run exclusively by family members).

Nature of the Business

• The business must be an active trade.
• Passive activities (e.g., property letting, investment companies) usually don’t qualify.

Direct Relationship

• The person must be a true niece or nephew (child of the disponer’s sibling). Step-relatives may require careful analysis.

Documented Evidence

• Payroll records, contracts, payslips, or sworn statements may be required to prove full-time work.

🚫 What Doesn’t Qualify?

• Nieces/nephews who only helped out casually or part-time.
• Businesses that are primarily investment-focused.
• Assets transferred where there is no clear business involvement.
• Cases without robust paperwork to support employment history.

Revenue often challenges claims where the rules are not clearly satisfied.

📊 How the Relief Works in Practice

By applying Favourite Niece/Nephew Relief, you change the group threshold used in the CAT calculation.

Worked Example 1: Small Business Inheritance

• Business value: €250,000
• Beneficiary: Nephew, full-time employee for 6 years
• Without relief: €250,000 – €40,000 = €210,000 × 33% = €69,300 CAT
• With relief: €250,000 – €400,000 = €0 → No CAT liability

Worked Example 2: Combining Reliefs

• Business value: €1,000,000
• Qualifies for Business Relief (90% reduction)
• Qualifying niece also meets Favourite Niece/Nephew criteria

Step 1: Business Relief

• €1,000,000 × 10% = €100,000 taxable value

Step 2: Favourite Niece/Nephew Relief

• €100,000 – €400,000 = €0 taxable → No CAT liability

Here, combining the two reliefs wipes out CAT completely.

⚖️ Interaction with Other Reliefs

Favourite Niece/Nephew Relief can be strategically combined with other CAT reliefs:

• Business Relief → 90% reduction in value before applying thresholds.
• Agricultural Relief → 90% reduction if assets are agricultural.
• Dwelling House Exemption → If the niece/nephew lived with the disponer, additional relief may apply.

With professional planning, multiple reliefs can be layered to eliminate CAT exposure entirely.

⚠️ Common Mistakes

• Failing the 5-year work test: employment must be continuous and full-time.
• No supporting evidence: Revenue often requests payroll records.
• Assuming casual help qualifies: weekend work or seasonal work does not count.
• Not combining reliefs: families lose out on tax savings by not applying multiple reliefs together.

📈 Why Favourite Niece/Nephew Relief Matters in 2025

• CAT remains at 33% — among the highest inheritance tax rates in Europe.
• Group B threshold (€40,000) is very restrictive, especially for valuable family businesses.
• Families without children often rely on nieces or nephews to carry on the family business.
• Rising property and business values mean more estates are exposed to tax — reliefs are essential to avoid forced sales.

💡 How Irish Tax Hub Can Help

At Irish Tax Hub, we are experts in navigating CAT reliefs like Favourite Niece/Nephew Relief, Business Relief, and Agricultural Relief.

We help families:

• Review business involvement to confirm eligibility.
• Prepare documentation to defend relief claims with Revenue.

⚡ Don’t leave your family business exposed to crippling tax bills.
Contact Irish Tax Hub today for tailored advice on succession planning, inheritance strategies, and Revenue compliance.