The tightening of inheritance tax rules started in 2009, but it is only now, as property and asset prices recover, that people have started to realise the importance of the changes.
The thresholds for a child have plummeted from more than €540,000 in early 2009 to just €225,000, while the rate of capital acquisitions tax has soared from 20 per cent to 33 per cent.
Smaller families, where there are few people sharing in the inheritance of a property, end up being hit hard by enormous inheritance bills. And those who own property in Dublin are also among the biggest losers, as valuations tend to be much steeper in the capital and its surrounds. Recovery in the property market has meant that the tax-free thresholds are very restrictive, catching large numbers of people in the tax net for inheriting their parents’ or a relative’s home.
Capital acquisitions tax must be paid by a deadline of October 31st for gifts/inheritances valued in the previous 12 months. This can also put pressure on people to try to settle a tax bill at a time when they may be distraught after suffering bereavement.
The good news is that you can get an insurance policy if you don’t want to leave your children with a significant tax bill in the event of your death, you could always buy an insurance policy which will cover this sum in the event of your death. Known as a section 72 policy, the relief is approved by Revenue to allow people cover the cost of death taxes. The advantage of this is that the proceeds of the policy is not in itself a taxable event.
It could be something that the children are asked to cover the cost of given that it will help them avoid taxes when they inherit. And there are some restrictions. For example, with these policies you must continue to make regular premium payments for at least eight years, and, if you stop, even after these eight years, you can’t restart again.
You can also get a policy to cover the cost of gift tax, known as a section 73 policy.
Advice is needed in this area otherwise ordinary families will continue to be big losers when it comes to inheritance tax.
