Favourite Nephew/Niece Relief: Getting the €400,000 Group A Threshold on a Business Inheritance
Favourite nephew (or niece) relief lets a niece or nephew who genuinely worked in the disponer's business be treated as a child — so the business assets they inherit are taxed against the €400,000 Group A threshold instead of the €40,000 Group B one. On a €300,000 business inheritance, that's the difference between paying €0 and paying €85,800 in Capital Acquisitions Tax.
What favourite nephew/niece relief actually does
Normally a niece or nephew falls into Group B for Irish Capital Acquisitions Tax (CAT) — a tax-free threshold of just €40,000. A child of the disponer (the person leaving the gift or inheritance) gets Group A — €400,000. That's a €360,000 gap, and at the 33% CAT rate it's worth up to roughly €118,800 in tax saved.
Favourite nephew or niece relief closes that gap for one specific situation: where the niece or nephew has been working in the disponer's business. Revenue's own guidance puts it plainly: a qualifying nephew or niece is “entitled to the Group A tax-free threshold for the purposes of computing the tax payable on any gift or inheritance received by him or her of those business assets.” (Revenue.ie — Favourite Nephew or Niece Relief)
The crucial word is those. The relief is not a blanket re-classification of the niece or nephew. It only lifts the business assets into Group A. Anything else they inherit — cash, a holiday home, a share portfolio — stays firmly in Group B. We'll come back to this, because it's where people get caught.
All CAT figures in this guide are taken from Revenue.ie and apply for 2026 unless changed in a future Budget:
The qualifying rules: who counts, and the 5-year working test
Three things have to line up. Get any one wrong and the relief simply doesn't apply — there is no partial version.
1. You must actually be a niece or nephew
Revenue defines a qualifying nephew or niece as the child of the disponer's brother or sister (including the children of their civil partners). A great-niece, a grand-nephew, or a niece-by-marriage is not within the relief. The blood (or civil-partnership) link to a sibling of the disponer is the test.
2. You must have worked in the business for the 5 years immediately before the gift or inheritance
The clock that matters is the five years immediately before you receive the benefit. Revenue's wording: “You must have worked for the disponer for the five years immediately before receiving the gift or inheritance.” A gap, a sabbatical, or leaving and coming back can break the five-year run. For an inheritance, the relevant point is the date of death.
3. You must meet the minimum-hours / whole-time test
This is the part that trips most families up. There are two versions, and which one applies depends on how the business is staffed:
| Situation | Minimum working requirement |
|---|---|
| Larger business with other employees | More than 24 hours per week at the place where the business, trade or profession is carried on |
| Business carried on exclusively by you and either the disponer or the disponer's spouse / civil partner (i.e. essentially a two-person operation) | More than 15 hours per week at the place of business |
So the more-than-15-hours test is only available in the small, essentially family-run scenario where the only people working the business are you and the disponer (or their spouse/civil partner). The moment there are other employees, you fall back to the more-than-24-hours test. Both figures are “more than” — bang on 24 hours is not enough. (Revenue.ie)
Keep evidence of the hours before you ever need it: payslips, a contract of employment, rosters, time sheets, your role on the company's RBO / CRO filings. Revenue can and does query whether the working test was genuinely met. “He was always around the yard” is not the same as a documented 24+ hours a week for five years.
Worked example: Liam inherits his uncle's hardware shop
The facts. Conor runs a hardware shop in Co. Kilkenny. His nephew Liam — the son of Conor's sister — has worked full-time in the shop (about 38 hours a week) for the last seven years. Conor dies and leaves Liam the trading business: stock, fixtures, the goodwill and the trade fit-out, with an agreed market value of €300,000. Liam has received no other gifts or inheritances from any Group A or Group B disponer in his life, so his thresholds are untouched.
Step 1 — Does the relief apply? Liam is the child of the disponer's sister (qualifies as a niece/nephew). He worked for Conor for the five years immediately before the inheritance, and there are other employees, so he needs the more-than-24-hours test — at 38 hours a week he clears it comfortably. The inherited assets are business assets. Relief applies.
Step 2 — Without the relief (Group B).
Taxable value: €300,000
Less Group B threshold: − €40,000
Taxable excess: €260,000
CAT at 33%: €260,000 × 33% = €85,800
Step 3 — With favourite nephew relief (Group A).
Taxable value: €300,000
Less Group A threshold: − €400,000
Taxable excess: €0 (the €300,000 sits entirely under the €400,000 threshold)
CAT due: €0
The result. The relief turns an €85,800 CAT bill into nothing. Liam still has to file — see the IT38 note below — but he pays no tax on the business he already runs.
| Step | Group B (no relief) | Group A (relief applies) |
|---|---|---|
| Taxable value of business | €300,000 | €300,000 |
| Tax-free threshold | €40,000 | €400,000 |
| Taxable excess | €260,000 | €0 |
| CAT at 33% | €85,800 | €0 |
Figures are illustrative; threshold and rate are the official 2026 values from Revenue.ie. Liam's threshold history is assumed clean — prior Group A/B benefits would reduce the headroom (see aggregation below).
What counts as “the business” — and how non-business assets stay in Group B
The relief only re-classifies assets used in the business. Revenue is explicit: “The relief applies only to assets used in the business. Group B threshold applies to non-business assets.” In practice that means a single estate can be split across two thresholds.
Suppose Conor had also left Liam €120,000 in cash and an investment apartment worth €200,000. Those are not business assets — they are tested against Liam's Group B threshold (€40,000), not Group A. So the same inheritance would be carved up like this:
| Asset | Value | Threshold applied | Treatment |
|---|---|---|---|
| Trading business (stock, goodwill, fit-out) | €300,000 | Group A €400,000 | Favourite nephew relief |
| Cash | €120,000 | Group B €40,000 | Standard niece/nephew |
| Investment apartment | €200,000 | Group B €40,000 | Standard niece/nephew |
The €300,000 of business assets sits under Group A and is tax-free. The €320,000 of non-business assets is squeezed against the €40,000 Group B threshold and is largely taxable. The lesson: favourite nephew relief protects the business, not the whole estate. Where assets are genuinely used in the trade, characterising them correctly matters — a delivery van used in the shop is a business asset; the family's second car is not.
Stacking with Business Relief for a near-total wipe-out
Favourite nephew relief is a threshold relief — it changes which threshold applies. Business Relief (sometimes called business property relief) is a valuation relief — it can reduce the taxable value of qualifying relevant business property by 90%, subject to its own conditions and clawback rules. They operate on different parts of the sum, which is exactly why they stack so powerfully.
Take Liam again, but imagine the business were worth €900,000 — too big to disappear under the €400,000 Group A threshold on its own:
Market value of qualifying business: €900,000
Step 1 — Business Relief (90% reduction):
€900,000 − 90% = taxable value of €90,000
Step 2 — Favourite nephew relief (Group A threshold):
€90,000 reduced value, less the €400,000 Group A threshold = €0 taxable excess
CAT due: €0. Without either relief, a €900,000 business at Group B would face roughly (€900,000 − €40,000) × 33% = €283,800. The two reliefs together take it to nil — but only if every condition of both reliefs is satisfied and there is no later clawback (e.g. the business is sold or ceases within Business Relief's retention period).
This is the structure that keeps trading family businesses in the family. But Business Relief has its own qualifying tests (relevant business property, minimum ownership periods, a six-year clawback window if the property is disposed of) that are beyond this guide — treat the example as illustrating the principle of stacking, not a guarantee for your facts. See Revenue's Business Relief guidance and take advice before relying on it.
You still have to file an IT38
Both reliefs are claimed, not automatic. Even where the result is €0 CAT, if the taxable benefit exceeds 80% of the relevant group threshold a return is required. To claim favourite nephew relief on the IT38: select “Child of Brother or Sister” from the relationship dropdown, and tick “Favourite Nephew/Niece Relief” on the Reliefs & Exemptions page. File online through myAccount or ROS by the relevant pay-and-file deadline. (Revenue.ie — filing obligations)
- Favourite nephew/niece relief treats a working niece or nephew as a child — Group A (€400,000) — for the business assets only.
- You must be the child of the disponer's brother or sister, and have worked in the business for the 5 years immediately before the gift/inheritance.
- The hours test is more than 24 hours/week normally, or more than 15 hours/week if the business is run only by you and the disponer (or their spouse/civil partner).
- A €300,000 business inheritance: €0 at Group A versus €85,800 at Group B.
- Non-business assets (cash, investment property) stay in Group B — the relief does not cover the whole estate.
- Stack with Business Relief (90% valuation cut) for a near-total reduction — subject to its own conditions and clawback.
- Claim it on the IT38: tick the relief box and select “Child of Brother or Sister”.
A note on aggregation
CAT is cumulative within each group. Prior gifts or inheritances since 5 December 1991 in the same group use up your threshold. So if Liam had already received €150,000 of Group A benefits earlier in life, only €250,000 of Group A headroom would remain — still enough to shelter the €300,000? No: €300,000 − €250,000 = €50,000 taxable excess × 33% = €16,500. Always check the beneficiary's full Group A history before assuming the relief produces a zero bill.
Frequently asked questions
Does favourite nephew relief cover everything I inherit from my uncle or aunt?
No. It only re-classifies business assets into Group A (€400,000). Any cash, investment property, or other non-business assets you inherit are still tested against the Group B threshold (€40,000), per Revenue's guidance. A single estate can therefore be split across two thresholds.
What if I worked 20 hours a week — do I qualify?
It depends on the business. If the business is run exclusively by you and the disponer (or their spouse/civil partner), the test is more than 15 hours a week, so 20 hours qualifies. But if there are other employees, you need more than 24 hours a week — and 20 hours would fall short. Both are “more than” tests.
Is a great-niece or niece-by-marriage covered?
No. Revenue defines a qualifying niece or nephew as the child of the disponer's brother or sister (including children of their civil partners). Great-nieces, grand-nephews and relations by marriage fall outside the relief.
Can I combine favourite nephew relief with Business Relief?
Yes, and that's where the big savings come from. Business Relief can cut the taxable value of qualifying business property by 90%, then favourite nephew relief applies the Group A threshold to what's left. Each relief has its own conditions and Business Relief carries a clawback if the business is sold or ceases within its retention period, so confirm both sets of rules with an adviser.
Do I still need to file if no tax is due?
Yes. The reliefs are claimed on the IT38 return, not given automatically. A return is generally required once the taxable benefit exceeds 80% of the relevant group threshold — even where the final CAT is €0. File online via myAccount or ROS.
What is the current CAT rate and Group A threshold?
The CAT rate is 33% (since 6 December 2012). The Group A threshold is €400,000 for gifts and inheritances taken on or after 2 October 2024, Group B is €40,000 and Group C is €20,000. Figures verified on Revenue.ie; check for Budget changes.
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