Inheritance Tax Planning
Capital Acquisitions Tax (CAT) is the tax which is charged when you receive a gift or an inheritance. CAT comprises two separate taxes – Gift tax payable on lifetime gifts and an Inheritance tax which is payable on inheritances received on a death.
Anybody who thinks they may leave their families with an Inheritance Tax liability upon their death should seriously consider putting a plan in place to reduce this potential tax liability for your family.
Here are the main assets caught in the inheritance tax net:
- All personal assets, including your house, contents and personal effects
- Life Insurance policies arranged on an own life basis
- Any lump sum death benefit payable under a pension scheme in the event of death before retirement
Over recent years the thresholds have been reduced significantly and the tax rates have increased. Currently, each child can receive a gift or inheritance up to the value of €280,000 (on after 14/10/2015) from a parent (known as parent to child threshold). Other threshold amounts apply depending on the relationship between the person who receives the gift/inheritance.
The current tax rate is 33% (2016)
The current annual gift exemption is €3,000 (2016).
Certain reliefs and exemptions apply to certain types of assets. The main reliefs and exemptions are:
- Spouse or Civil Partner Exemption
- Agricultural Relief
- Business Relief
- Family Home Relief
- Life Assurance Relief
Inheritance tax can wipe out wealth build up over a lifetimes work. There are tax efficient vehicles available to offset the worst effect of Inheritance Tax such as life assurance contract also called a Section 72 plan. It is designed to pay out a lump sum on the death of the policyholder equivalent to the Capital Acquisitions Tax (CAT) Bill faced by his or her estate.
Planning to reduce your inheritance tax is proper, legitimate and essential for the protection of your estate.
You may need to consider an Inheritance Tax Plan if:
- You think your estate will exceed the inheritance tax thresholds set by Revenue.
- You are a common law spouse and you do not qualify for the spousal exemption from inheritance tax.
- You are in a same sex relationship and stand to inherit your partner’s estate should he or she die.