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Inheritance Tax, also known as Capital Acquisitions Tax, is a tax of 33% payable upon an inheritance over a certain threshold amount. You can also be liable for capital acquisitions tax on any gifts that you receive from another individual, although there is an annual exemption of €3,000 per person as a gift. You can use this annual exemption to your advantage, by making a dent in the ultimate inheritance tax bill each year. A gift or inheritance between spouses is exempt of any tax.
There are three different thresholds, over which Capital Acquisitions Tax is payable:
Category A – €320,000
This applies where the beneficiary is a
- child (including adopted child, stepchild and certain foster children) or
- minor child of a deceased child of the disponer.
- Parents also fall within this threshold where they take an absolute inheritance from a child.(not a gift)
Category B – €32,500
This applies where the beneficiary is a
- brother, sister,
- a nephew, a niece or
- lineal ancestor or lineal descendant of the disponer (eg grandchild).
Category C – €16,250
This applies where the beneficiary is anybody else.
These thresholds are for an individuals lifetime. This means that, for example, your father were to leave you €320,000 now, you would not be liable for tax. However, if your mother were to leave you any inheritance thereafter, you would be liable for tax on that.
Inheritance tax can be tricky, for example, if you pass away and leave many insoluble assets (eg. property), your dependents will be in trouble trying to pay the tax on 33% of the value of the assets, over their threshold amount.
Is there a way you can prepare for Inheritance Tax, or for Gift Tax? Absolutely. There is a type of whole of life policy, called a Section 72 policy, will pay the inheritance tax liability for your dependents, without furthering the size of the inheritance, and ultimately the inheritance tax bill. A similar policy can be taken out called Section 73, if you intend to give a gift while you are still alive. However, with the policy under Section 73, you must be paying the premiums for at least 8 years before it will cover the Capital Acquisitions Tax liability on a gift.
For people with a large estate, this is something important to consider. Could you be leaving the beneficiaries with a large tax headache? If you wish to discuss any of the above with us, please do not hesitate to contact us.
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