We recently spoke to a client about estate planning. Our client responded that they didn’t plan on having anything left by the time they die. When we questioned how they knew when they were going to die there was an awkward silence. The reality of it is, we all like to think of our death as being when we are elderly and happy to go. None of us know when it will happen to us. According to a breakdown in claims from 2019 from New Ireland, the average age for a death claim was 69. I don’t think any of us would like to think of passing away that young.
If you were to die unexpectantly, what affect would that have on your estate? Hopefully you have made a will. If you have not made a will, that is definitely something to consider. Your will should state who you wish to bequeath your assets to.
Depending on the person’s relationship to you, they may be liable for Inheritance Tax/Capital Gains Tax(CGT) of 33% in 2021. See our below for the inheritance tax free thresholds in Ireland 2021*. There are many ways to reduce or even avoid inheritance tax bills with the right planning.
How to plan around CGT?
The most obvious way to minimise inheritance tax is to use the thresholds to the maximum. But what if you have no children, or relatives that you wish to leave your assets to? The threshold for Group C is negligible. There is a type of insurance, called a Section 72 policy(or Section 73 for a gift), which can be used to pay an inheritance tax bill without forming part of the estate and furthering the CGT liability. There is also an annual CGT exemption of €3,000. This means that any individual can gift €3,000 tax free to any amount of people every year. It also means that any individual can receive €3,000 tax free from any amount of people every year. This exemption should absolutely be taken advantage of when it comes to estate planning. Beware, use it or lose it when it comes to the annual exemption. If you do not use it this year, it cannot be carried forward. You can also set up a bare trust, in which you are gifting the money to the individual(s) every year, but they cannot draw it until a pre-determined age.
If you wish to discuss any of the above options, please get in touch. We would be delighted to help you with your estate planning.
*Group A Tax-free threshold
The Group A tax free threshold is €335,000 . This applies where the beneficiary is a…
- child (including an adopted child, stepchild and certain foster children) OR
- minor child of a deceased child of the disponer (donor).
- Parents also fall within this threshold where they take an absolute inheritance (full and complete ownership) from a child.(not a gift) and the inheritance is taken on the death of the child. Otherwise, parents fall into Group B.
Group B Tax-Free Threshold
The Group B tax-free threshold is €32,500. This applies where the beneficiary is a …
- brother or sister
- nephew or niece
- lineal ancestor or lineal descendant of the disponer (eg grandchild).
Group C Tax Free Threshold
The Group C tax-free threshold is €16,250 and it applies in all other cases. This includes cousins, great-nephews/ great-nieces and non-relatives.