Do you plan on leaving a loved one a significant gift or inheritance? Do you know the tax implications this may have on the individual?
In 2020, you can leave your child up to €335,000 tax free, a blood relative can receive up to €32,500 tax free, while anyone else can only receive up to €16,250 tax free. All benefits received since 5th December 1991, from all persons within a threshold count towards your tax free gift/inheritance. For example, if one parent left a child €325,000 and the second parent left a further €100,000 to the same child, the second gift of €100,000 is liable to inheritance tax. The rate of Capital Acquisitions Tax (CAT) is currently 33%. This can be an issue where the gift or inheritance might be of property, with no capital to pay the CAT liability.
There are ways around this tax, there are types of insurance policies you can take out to pay this tax liability on the recipient’s behalf. With Section 72 cover, the proceeds of the policy can be used to pay an inheritance tax bill without any further tax implications. Section 73 cover can be used to pay a gift tax bill without any further tax implications. However there are a lot of restrictions with these types of policies.
We were recently approached by a client who had a lot of assets, but only one child. She was hoping to reduce the future tax liability for her daughter. This particular client was of the age where Section 72 cover would have been very expensive and a Section 73 policy wasn’t really suitable for her needs. We discussed their options and came up with a plan. There is an annual CAT exemption for gifts of €3,000 per year, per person. This means that you can gift anyone €3,000 per year without any tax implications. The recipient can receive this annual gift exemption from an unlimited amount of people, without eating into their CAT thresholds.
For our client, we decided to set up the €3,000 gift annually via direct debit into a savings scheme in the client’s daughters name. This system is both reducing her future tax liability annually and building up a lump sum for her future inheritance tax liability.
If you have any concerns over inheritance or gift tax liability, please get in touch and see how we can help you. We will discuss your needs and devise a plan that best suits your situation.