Favourite Niece/Nephew Relief: Passing Your Business to the Next Generation

Passing a family business to the next generation is a major milestone for many small business owners. While most business transfers happen between parents and children, in many cases it is a niece or nephew who has been most involved in the day to day running of the business and is the natural successor.

However, transferring business assets to a niece or nephew can trigger significant Capital Acquisitions Tax (CAT) unless the correct reliefs are applied. One of the most valuable reliefs available is Favourite Niece/Nephew Relief.

This guide explains how the relief works, who qualifies, and how it can reduce or eliminate CAT on business transfers.

 

CAT Thresholds: Why Transfers to Nieces and Nephews Are Tax Heavy

CAT applies to gifts and inheritances. The tax‑free threshold depends on the relationship between the disponer (the person giving the gift) and the beneficiary.

Current CAT Thresholds

• Group A (Parent to Child): €420,000 
• Group B (Aunt/Uncle to Niece/Nephew): €44,000

 

This means a child can receive €420,000 tax free, while a niece or nephew can only receive €44,000 before paying CAT at 33%.

This difference can create a substantial tax bill when passing business assets to a niece or nephew unless Favourite Niece/Nephew Relief applies.

 

What Is Favourite Niece/Nephew Relief?

Favourite Niece/Nephew Relief allows a qualifying niece or nephew to be treated as if they were a child for CAT purposes in respect of business assets only. If they qualify, they can use the Group A threshold (€420,000) instead of the Group B threshold (€44,000). This can eliminate CAT entirely on many business transfers.

 

Who Qualifies for Favourite Niece/Nephew Relief?

To qualify, the niece or nephew must meet certain criteria. They must have worked:

• In the business for the five years immediately before receiving the gift or inheritance.
• At least 15 hours per week in a small business (run by the disponer or their spouse/civil partner), or
• At least 24 hours per week in a larger business (with additional employees)

 

It is important to note that the relief applies only to assets used in the business, such as:

• Premises used for trading 
• Stock 
• Plant and machinery 
• Goodwill 

 

It does not apply to:

• Investment properties 
• Cash 
• Shares not used in the business 
• Personal assets 

 

These are taxed under normal CAT rules.

 

Example: How the Relief Works

Matthew Jones inherits the estate of his uncle. The inheritance includes:

Business assets: 

• Garage valued at €250,000
• Stock valued at €30,000

 

Non‑business assets: 

• Cash and investments worth €75,000 

 

Matthew has worked in the business for the required five-year period and qualifies for Favourite Niece/Nephew Relief.

 

• Business Assets (€280,000 total): Matthew can use the Group A threshold so no CAT payable on business assets.
• Non‑Business Assets (€75,000): These fall under Group B threshold.   

 

Matthew pays CAT only on the non‑business portion

 

Key Takeaways 

• Passing business assets to a niece or nephew normally triggers CAT after €44,000. 
• Favourite Niece/Nephew Relief can increase this threshold to €420,000 for business assets. 
• The niece/nephew must have worked in the business for the five years before the transfer. 
• Investment or non‑business assets remain taxable under Group B. 
• Proper documentation of hours worked and business involvement is essential.

 

Inheritance Tax Planning

Whether you are planning a future transfer or dealing with an immediate inheritance, professional tax planning advice ensures the relief is applied correctly and the transfer is structured tax efficiently. Contact us today to see how we can help.

 

 

Last updated: 22nd October 2026