You stated in a recent column that a child can receive €280,000 tax free in their lifetime from their parents. Is this allowance from each parent or both parents? I ask because my parents are divorced and one day, I will inherit (as an only child) a substantial amount from both of them.

Ms JR, email

Answer:

Tax on inheritance is always a prickly subject. Avoiding it – colloquially known as "estate planning" – has become an industry but often people either leave such planning too late or fail to consider that their personal circumstances are such that they should look at steps they can take to reduce the amount the taxman eventually takes.

When it comes to divorce, things get even more complicated.

Divorce, as all the data tells us, tends to adversely impact the financial position of both parties. That doesn’t mean that one or both people will not have assets to pass on but, understandably, they tend to consider only their own position not that of their former spouse and how that will impact any beneficiary.

In Ireland, unlike in the UK, inheritance tax is levied on the beneficiary, not on the estate of the deceased. That means, in your case, that you have to consider the tax position in relation to all the inheritances to you along with gifts you receive during the lifetime of the “disponer” – the person making the gift or inheritance to you – aside from gifts under €3,000 annually which are covered under the small gift exemption.

As you note, the current tax free threshold on gifts and inheritances between parents and a child is €280,000. This figure changes regularly. As recently as early 2009, you could inherit as much as €542,544 from parents though the figure fell sharply to €225,000 until late last year.

And while it was indexed to consumer prices between 1990 and 2011, that is not currently the case.

There is a growing clamour for further increases in the threshold to reflect the improving economy and the recovery in the value of assets such as property, but it remains to be seen if Minister for Finance Michael Noonan responds in the budget.

For the moment, however, the €280,000 threshold is an aggregate figure – ie you need to add any inheritances and gifts received from either parent since December 1991 together and once the figure tops €280,000, you are liable for tax. You cannot just receive this sum separately from each parent without paying tax.

And once it exceeds 80 per cent of the relevant threshold – currently €224,000 in your position – you’re obliged to notify the Revenue by filing an IT38 form (Inheritance Tax/Gift Tax Return) through its online service ROS, even though no tax is yet owing.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice