While topics relating to death and inheritance may not be top priority around most dinner tables, dealing with these issues early is perhaps one of the wisest financial decisions you can make. Financial matters should not even have to be contemplated during times of bereavement and loss.
One of the more important aspects of this is, creating a Will. While the Succession Act ensures that the next of kin will inherit the assets, a Will speeds up this process and makes it as seamless as possible avoiding unnecessary confrontation and disputes. Without a Will, a person dies intestate and certain rules come into play pertaining to the division of their assets. This can be a lengthy and drawn out process.
There is also the much detested issue relating to inheritance tax. Ireland’s inheritance tax or Capital Acquisition Tax (CAT) is currently 33%. Following the death of a parent, a child, is entitled to inherit under current CAT thresholds a certain amount (up to € 320,000 in your lifetime) tax-free; after this point, you are taxed 33%. (There are exemptions and reliefs that are available to help reduce the tax liability, including; dwelllng house exemption, business/agricultural reliefs).
However, for example, if you are due to inherit a property worth €500,000 from your deceased parent, you are liable to pay 33% tax on the difference between the €320,000 threshold and what the property is worth: in this case, €59,400. This can be very stressful should you not be in a position to come up with the lumpsum.
The payment for inheritance tax and the filing of returns are subject to the Self-Assessment System and so the obligation to make a return to the Revenue Commissioners rests with the person receiving the inheritance.
The Pay and File date for Capital Acquisitions Tax is 31 October in that year where the valuation date is between 1st January and 31st August, where the valuation date is between the 1st September and the 31st December, the deadline for CAT payment is the 31st October the following year.
So where do the children of deceased parents, for example find the funds to pay this tax bill?
The simplest and more cost-effective solution is to take out a Section 72 life insurance policy that will pay the tax bill for them.
This life assurance benefit does not form part of the estate asset value, as it is specifically written under section 72 of the Capital Acquisition Tax Consolidation Act 2003 to pay inheritance tax.
The policy could be taken out by the parents themselves, or an alternative is if the children themselves, if they can afford to, finance the policy for their parents given that it’s for their long term benefit.
Either way, forward planning can help hugely with inheritance related matters.
Key Features Section 72 Policies
1. The life insurance policy must be a Revenue approved policy.
2. The policy is expressly affected under Section 72 for the purposes of paying inheritance tax on death.
3. The policy can be a single life policy or a joint life second death policy effected by spouses or registered civil partners.
4. The policy must be affected on the life or lives of the disponer(s) who also must pay the premiums.
5. The Section 72 policy must have a ratio of sum assured to annual premium of at least 8:1.
If the policy has a premium loading for medical, occupational or financial reasons, the ratio
must be at least 6:1.
6. Any portion of the proceeds not used to pay off the inheritance tax liability will be liable itself to inheritance tax.
7. A policy can be effected by a disponer as an employee of a company however, if the premiums are paid by the employer they are deemed to be a ‘benefit-in-kind’
chargeable to income tax in the hands of the insured.
If you would like any additional information in connection to inheritance tax policies, please contact Anne O’Doherty/Lynda McAuliffe, Quintas Wealth Management on 021 4641480.
