Inheritance Planning Service
Ireland has one of the highest rates of inheritance gift tax in the world. Changes in inheritance tax rules commenced in 2009 but it is only now that people are starting to realise the impact this is having as property prices and asset values begin to recover.
The tax bill faced by beneficiaries can be substantial, depending on 3 main factors:
- The relationship between the deceased and the beneficiary (this determines the maximum tax-free threshold that applies, i.e. the ‘Group Threshold’)
- The net/taxable value of the inheritance
- Any previous gifts or inheritance received.
What many people don’t realise is payment of this tax bill needs to be paid soon after the inheritance, and the onus is on the beneficiary to pay it and complete a full inheritance tax return.
If you do not plan ahead, your family could lose part of their inheritance or be faced with a difficult decision between having to sell part of their inheritance, or borrow the money to pay the tax bill.
If your family is likely to have to pay inheritance tax when you die, it may be a good idea to protect them against this beforehand.
It is important to note if you are married/in a civil partnership you do not have to pay inheritance tax on anything you would inherit from your spouse/civil partner.
To find out how Cornmarket can help call (01) 408 4025 today!
What are the thresholds and CAT tax rate?
Inheritances can be received free from Capital Acquisitions Tax (CAT) up to a certain amount. The tax-free amount varies depending on your relationship to the person giving the inheritance (Group Threshold).
There are three different groups. Each group has a threshold that applies to the total inheritances you’ve received since 5th December 1991, in that group. At present, the current rate of Capital Acquisition Tax is 33%.
Capital Acquisitions Tax thresholds after 14th October 2015
Tax free amount*
|A||Son or daughter||€280,000|
A parent**, brother, sister, niece, nephew or grandchild of the person giving the gift.
**In certain circumstances a parent taking an inheritance from a child can qualify for Group A threshold.
|C||All other relationships, other than those mentioned in A or B||€15,075|
*CAT only applies to the amount of the inheritance which exceeds the gift in the relevant group threshold. CAT is charged at 33% on inheritances made on or after 5th December 2012.
Example of how Inheritance Tax works
|Net/Taxable Value of Inheritance||€700,000|
Number and type of Beneficiaries: 2
Son and Daughter
|Breakdown of in heritance due.|
|Gross inheritance to each beneficiary||€400,000||€300,000|
Less tax-free amount threshold
Relationship: child i.e. Group A
|Gross taxable inheritance per child||€120,000||€20,000|
|Tax payable at 33% per child||€39,600|
|Overall inheritance tax due||€46,200|
What are my options to protect my family against Inheritance Tax?
The tax liability for beneficiaries can be avoided in a number of ways:
- By effecting a ‘Section 72 Life Assurance Policy’.
This policy funds the Capital Acquisitions Tax (CAT) liability which arises on the benefits inherited from your estate and the proceeds of this are exempt from inheritance tax. This policy is relatively straight-forward to set up.
- By gifting a maximum of €3,000 per person annually.
Your beneficiaries can each receive gifts of up to €3,000 a year from you without paying tax. This exemption, which is known as the small gift exemption, is useful if you can afford to drip-feed your inheritance while you are still alive.Cornmarket's Inheritance Savings Plan allows you to do this in a tax efficient manner, if you stay under the group threshold
- By gifting the family home to a child.
You could save your children hundreds of thousands of euro in tax by encouraging them to move into any second homes or investment properties you intend to leave to them. As long as your child has been living in the house for at least three years before they inherit it – and so long as they meet certain other conditions - he or she would not have to pay any inheritance or gift tax on the property they’ve been given. This exemption, is known as the ‘Dwelling House Exemption’.
For more information on any of your options above call (01) 408 4025 today!