Page 179 - Guerin Media Ltd | Active Retirement Ireland Members Annual 2016
P. 179
What you should know about inheritance tax
Financial adviser Peter Heuston explains Section 72 policies
These are policies that are taken out from life companies who will pay
Inheritance and estate planning should be a key element of any solid out a lump sum in the event of death. Typically it pays out on second
nancial plan. death, as generally with the rst death assets being passed from one
spouse to another are exempt from inheritance tax. The premium
Capital Acquisitions Tax can have a serious impact on the value of your payable is less expensive when the policy is on a joint life last death
estate. There was a perception that given the recent economic downturn basis and can be particularly useful where the health of one the parties
and reduction in estate and asset values, the need to plan for CAT had may not be great.
gone away. However the truth is very di erent for a number of reasons. Basically the proceeds from a Section 72 policy are tax free when used
to pay CAT. Section 72, Capital Acquisitions Tax Consolidation Act 2003
The economy is recovering with a resultant increase in estate grants a relief in relation to the proceeds of life insurance policies which
and asset values. would otherwise be liable to inheritance tax on the death of the insured
The rate of CAT has increased from 20% in 2008 to 33% in 2015 person.
Thresholds have been dramatically reduced. For example the Section 72 provides that the proceeds of any qualifying insurance
group A threshold from parents to children reduced from policy taken out under this section by the insured person on his / her
€521,208 in 2008 to €280,000 in 2015 own life will be exempt from inheritance tax in so far as such proceeds
Example are used to pay the inheritance tax on the bene ts received on the
Mr. and Mrs. Bloggs have an estate valued at €1,500,000 which is to be insured person’s death, or within a year of his death.
divided equally between their two children. Their children’s inheritance Simply, the proceeds of a life insurance policy are used to pay the
tax bill will be €310,200 - i.e. 21% of the estate will be taken in tax. inheritance tax liability on the bene ts received on the death of a
Parents should obviously try and minimize estate taxes at death to ensure person.
that inheritances are passed on to bene ciaries with the least amount Basically the proceeds from a Section 72 policy are tax free when used
being given over to taxes. to pay CAT.
Tax can have a serious impact on the value of your estate passing to your Reducing tax liability
bene ciaries. There are however some legitimate routes and schemes There are a number of ways by which a potential inheritance tax liability
that can be used to try to reduce the overall tax liability when passing on can be reduced including:
assets. Drawing up a will or altering an existing one in such a way as to gain
Annual Tax Exemption maximum advantage of class thresholds and reliefs.
There is an annual Gift Tax exemption of €3,000 from each disponer to a Discretionary trusts can be used to defer C.A.T. but carry a Discretionary
donee. Therefore, for example, two parents could gift a child €3,000 each Trust Tax (up to 6% in the rst year of charge and 1% per annum).
(i.e. €6,000 p.a.) without the child incurring a tax liability and without the Ensuring small gift exemption of €3,000 per annum per disponer is
amount a ecting the relevant tax-free threshold. used up annually.
Thresholds Ensuring compliance with the conditions of the reliefs and avoiding
There are three groups of thresholds and they vary in amount depending claw backs of reliefs.
on the relationship between the bene ciary and the disponer These options, however, may not be su cient to cover a future
Group A - each child is currently entitled to inheritance tax liability and so it may be prudent to e ect a Section 72
receive a maximum of €280,000 in respect of gifts or life insurance policy.
inheritances from their parents without incurring a tax liability. Remember assets being inherited may not be liquid and so may need
Group B - Where the bene ciary is a lineal to be liquidated in order to pay the CAT. You should ensure that the tax
ancestor, descendant, brother, sister or child of liability does not put the home / business in jeopardy. Anyone leaving
brother or sister of the disponer, they may receive up to a their family with an inheritance tax liability should seriously consider a
current maximum of €30,150 without incurring a tax liability. Section 72 policy.
Group C - In all other cases (including common law How much does this cover cost?
spouses / co-habitants) the tax free threshold is currently Husband & Wife - both aged 65 (non smokers)
€15,075. Estimated inheritance €1,000,000
Principal Private Residence Relief 2 children - €500,000 each
Children can inherit the home completely exempt of tax and without Inheritance Tax Liability €145,200
impacting their threshold if when they receive the property they do not Annual cost to insure this risk €3,100
own any other property anywhere in the world. Other conditions need If last surviving spouse lives 25 years total cost is € 93,875
to be met. Pay-out €145,200
Other Property Wouldn’t the kids prefer to receive €77,500 less if it saved them
If children live in a property that their parents own for more than three €145,200
years that property can then be passed to that child without any tax Peter Heuston, FCA, QFA, FLIA, AITI, is a quali ed nancial adviser and
implications subject to other conditions being met. managing director of Heuston Financial Planning Ltd t/a Retirement
Ireland specializing in the area of retirement/ inheritance tax planning.
Business / agricultural relief To receive a speci c quote please email peter@retirementireland.ie
Provided certain conditions are met the value of a business / land can be Tel: (01) 4428120
reduced by 90% before calculating the taxable value. Heuston Financial Planning ltd, t/a Retirement Ireland is regulated by
Favourite nephew or niece relief the Central Bank or Ireland.
This is a relief that applies if the nephew / niece has worked substantially
on a full time basis for a disponer and meets other certain conditions
then the nephew /niece is entitled to the Group A threshold of €280,000
instead of the Group B threshold of €30,150 which normally applies to
nephews or nieces.
Financial adviser Peter Heuston explains Section 72 policies
These are policies that are taken out from life companies who will pay
Inheritance and estate planning should be a key element of any solid out a lump sum in the event of death. Typically it pays out on second
nancial plan. death, as generally with the rst death assets being passed from one
spouse to another are exempt from inheritance tax. The premium
Capital Acquisitions Tax can have a serious impact on the value of your payable is less expensive when the policy is on a joint life last death
estate. There was a perception that given the recent economic downturn basis and can be particularly useful where the health of one the parties
and reduction in estate and asset values, the need to plan for CAT had may not be great.
gone away. However the truth is very di erent for a number of reasons. Basically the proceeds from a Section 72 policy are tax free when used
to pay CAT. Section 72, Capital Acquisitions Tax Consolidation Act 2003
The economy is recovering with a resultant increase in estate grants a relief in relation to the proceeds of life insurance policies which
and asset values. would otherwise be liable to inheritance tax on the death of the insured
The rate of CAT has increased from 20% in 2008 to 33% in 2015 person.
Thresholds have been dramatically reduced. For example the Section 72 provides that the proceeds of any qualifying insurance
group A threshold from parents to children reduced from policy taken out under this section by the insured person on his / her
€521,208 in 2008 to €280,000 in 2015 own life will be exempt from inheritance tax in so far as such proceeds
Example are used to pay the inheritance tax on the bene ts received on the
Mr. and Mrs. Bloggs have an estate valued at €1,500,000 which is to be insured person’s death, or within a year of his death.
divided equally between their two children. Their children’s inheritance Simply, the proceeds of a life insurance policy are used to pay the
tax bill will be €310,200 - i.e. 21% of the estate will be taken in tax. inheritance tax liability on the bene ts received on the death of a
Parents should obviously try and minimize estate taxes at death to ensure person.
that inheritances are passed on to bene ciaries with the least amount Basically the proceeds from a Section 72 policy are tax free when used
being given over to taxes. to pay CAT.
Tax can have a serious impact on the value of your estate passing to your Reducing tax liability
bene ciaries. There are however some legitimate routes and schemes There are a number of ways by which a potential inheritance tax liability
that can be used to try to reduce the overall tax liability when passing on can be reduced including:
assets. Drawing up a will or altering an existing one in such a way as to gain
Annual Tax Exemption maximum advantage of class thresholds and reliefs.
There is an annual Gift Tax exemption of €3,000 from each disponer to a Discretionary trusts can be used to defer C.A.T. but carry a Discretionary
donee. Therefore, for example, two parents could gift a child €3,000 each Trust Tax (up to 6% in the rst year of charge and 1% per annum).
(i.e. €6,000 p.a.) without the child incurring a tax liability and without the Ensuring small gift exemption of €3,000 per annum per disponer is
amount a ecting the relevant tax-free threshold. used up annually.
Thresholds Ensuring compliance with the conditions of the reliefs and avoiding
There are three groups of thresholds and they vary in amount depending claw backs of reliefs.
on the relationship between the bene ciary and the disponer These options, however, may not be su cient to cover a future
Group A - each child is currently entitled to inheritance tax liability and so it may be prudent to e ect a Section 72
receive a maximum of €280,000 in respect of gifts or life insurance policy.
inheritances from their parents without incurring a tax liability. Remember assets being inherited may not be liquid and so may need
Group B - Where the bene ciary is a lineal to be liquidated in order to pay the CAT. You should ensure that the tax
ancestor, descendant, brother, sister or child of liability does not put the home / business in jeopardy. Anyone leaving
brother or sister of the disponer, they may receive up to a their family with an inheritance tax liability should seriously consider a
current maximum of €30,150 without incurring a tax liability. Section 72 policy.
Group C - In all other cases (including common law How much does this cover cost?
spouses / co-habitants) the tax free threshold is currently Husband & Wife - both aged 65 (non smokers)
€15,075. Estimated inheritance €1,000,000
Principal Private Residence Relief 2 children - €500,000 each
Children can inherit the home completely exempt of tax and without Inheritance Tax Liability €145,200
impacting their threshold if when they receive the property they do not Annual cost to insure this risk €3,100
own any other property anywhere in the world. Other conditions need If last surviving spouse lives 25 years total cost is € 93,875
to be met. Pay-out €145,200
Other Property Wouldn’t the kids prefer to receive €77,500 less if it saved them
If children live in a property that their parents own for more than three €145,200
years that property can then be passed to that child without any tax Peter Heuston, FCA, QFA, FLIA, AITI, is a quali ed nancial adviser and
implications subject to other conditions being met. managing director of Heuston Financial Planning Ltd t/a Retirement
Ireland specializing in the area of retirement/ inheritance tax planning.
Business / agricultural relief To receive a speci c quote please email peter@retirementireland.ie
Provided certain conditions are met the value of a business / land can be Tel: (01) 4428120
reduced by 90% before calculating the taxable value. Heuston Financial Planning ltd, t/a Retirement Ireland is regulated by
Favourite nephew or niece relief the Central Bank or Ireland.
This is a relief that applies if the nephew / niece has worked substantially
on a full time basis for a disponer and meets other certain conditions
then the nephew /niece is entitled to the Group A threshold of €280,000
instead of the Group B threshold of €30,150 which normally applies to
nephews or nieces.
