Saturday, 22nd September 2018
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John Smiles

Qualified Financial Advisor

Plan that inheritance

Changes in taxation often go under the radar and their impact goes unnoticed. When planning the transfer of assets, either by Gift or Inheritance, professional financial advice is very important.

Most people are aware there is a tax-free threshold, below which the amount transferred will not be subject to Capital Acquisitions Tax [CAT], formerly called gift tax or inheritance tax. This threshold depends on the relationship between the person making the gift/inheritance (the Disponer) and the person receiving it (the Beneficiary).

Currently a child can inherit €310,000 from a parent; a brother, sister or nephew, etc can inherit €54,254 and all 'other' beneficiaries can inherit €16,250.

The current rate of tax is 33%.

People who choose to live together in non-married relationships and divorced people fall into the 'Other' category above and will only have an exemption of €16,250 when transferring assets either by gift or inheritance.

There are still valuable reliefs for the transfer of qualifying business or agricultural assets but because of the many terms and conditions attaching, this is beyond the scope of this article. However, advance planning for these events is essential.

There is an annual CAT exemption of €3,000, called a small gifts exemption. This means any individual can gift €3,000 to another without any tax implication.

In order to provide funds to pay CAT, a regular savings plan, known as a Section 73 plan, which will accumulate funds over a period of time, can be used to pay gift tax. If done correctly, then the savings do not form part of the gift for tax purposes.

It is possible to set up a life assurance policy specifically designed to pay inheritance tax, known as a Section 72 policy. As long as the policy proceeds are used to pay the tax, they do not form part of the taxable estate and will not themselves be liable for CAT.

Some advance planning is essential to avoid paying too much tax on asset transfers. This is a complex area, and financial brokers work with Tax and Legal experts to help their clients plan for such events.

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