Death is understandably a topic that people don’t like to think a lot about. But as we all know, it’s an unavoidable part of life. So what happens after you are gone, especially to your loved ones, is something that’s worth considering now. Set out below is some useful information, links and calculators to help you better understand Inheritance Tax Planning. If you would like to discuss your own circumstances in confidence why not schedule a callback or a free consultation.
The continuing economic recovery has led to rising property values and pension and investment funds increasing in value. Coupled with the lower level of revenue thresholds (down 40.5% since 2008 for inheritances received from parents*) and a tax rate of 33%*, a tax bill following the death of a loved one is something many people could face.
You can decide who you want to receive your assets, like your home, savings or possessions, after you die. But did you know that if you leave them to someone other than your spouse or civil partner, they could have to pay a 33% inheritance tax?
YourGuide To Inheritance Tax Planning
Inheritance tax is payable to the Revenue Commissioners when the value of the assets inherited is higher than a certain threshold amount. For inheritances received from parents this threshold amount is €320,000. Anything over that amount is subject to a 33% inheritance tax.
Inheritance Tax Thresholds
The threshold is €32,500 where the beneficiary is a grandchild, sibling or niece/nephew of the person who left them the assets. For other people, including couples who live together but are not married to one another or civil partners, the threshold amount is just €16,250. Anything over that is taxed at 33%.
For example, a €500,000 inheritance by a child would be liable to €59,400 inheritance tax if the full threshold of €320,000 was available to them. (€500,000 - €320,000 = €180,000 x 33% inheritance tax).
Inheritance Tax Thresholds in Ireland
Inheritance Tax Calculation – Some Examples
Example 1 : A son inherits a house valued at €415,000 from a parent. This is €80,000 over the Group A threshold of €335,000 . Therefore the tax bill would be 33% of €80,000 which is €26,400
Example 2 : Two children inherit a house worth €830,000. The total inheritance tax threshold for both children is €335,000 times two ( €670,000). With 33% tax on the remaining €160,000 house value, this would result in an inheritance tax bill of €52,800 in total or €26,400 per child.
Example 3 : A nephew inherits a house worth €200,00. The tax-free threshold (Group B) is just €32,500.
The inheritance tax will be 33% of €167,500 – which is €55,275.
You are exempt from Capital Acquisitions Tax (CAT) on the inheritance of a dwelling house if you satisfy certain conditions.
If you are a dependent relative, the exemption also applies to a gift of a dwelling house, where you satisfy certain conditions.
If you receive a gift or an inheritance, you may have to file a return. The charge for the late filing of a return is a percentage of the total tax due for that year, and will depend on the length of the delay. There is an overall cap on the amount you have to pay. If you file the return within two months of the filing date, 5% will be added (up to a maximum of €12,695).
After that time, 10% will be added (up to a maximum of €63,485).
You may also have to pay the following daily interest rates for late payments.
inheritance Tax Liability Calculator
The Solution - A Section 72 Life Insurance Policy
You can use your Whole of Life insurance policy to help offset this inheritance tax liability. You do this by setting it up by what is known as, a Section 72 Life Insurance policy.
This is a special insurance policy approved by the Revenue Commissioners under Section 72 of the Capital Acquisitions Tax Consolidation Act 2003. It is taken out specifically to help pay inheritance tax. The money paid out, when it is used to pay inheritance tax, is then not liable to tax.
Otherwise, they may have to sell the family home or take out a loan to pay the tax. So setting up a Whole of Life policy this way can ensure that your assets can be passed on and enjoyed by your loved ones rather than being used to pay a tax bill.
find out more about Inheritance Tax Planning
With enough cover in place you can protect your loved ones from an inheritance tax bill. Otherwise, they may have to sell the family home or take out a loan to pay the tax. So setting up a Whole of Life policy this way can ensure that your assets can be passed on and enjoyed by your loved ones rather than being used to pay a tax bill.