Since 2012, we have identified a lack of awareness in the area of Gift and Inheritance Tax. The 2012 Budget reduced thresholds to an all-time low and as a direct result Inheritance Tax is no longer a problem only for the wealthy of Irish Society, it is also a potential problem for middle class Ireland.
Therefore, the importance of planning ahead for projected Capital Acquisition Tax should be very high on your agenda.
The fact that the rate of Capital Acquisition Tax has increased from 20% in 2008 to 33% presently and that the Group 1 Threshold (Parent to Child) has reduced from €521,208 in 2008 to €380,000 currently is certainly capturing the attention of many people (as of October 2015).
There are of course certain reliefs and exemptions available such as Business Relief, Agricultural Relief and Family Home Relief but even taking these exemptions and reliefs into the equation, there would still be a significant Inheritance Tax liability in some cases.
Tax is a complicated subject. It is highly recommended that you should discuss your personal situation and the likely effect inheritance and gift tax will have on your plans with your Accountant/Tax Advisor.
Life Assurance Section72 Relief
To encourage people to plan ahead and to have cash available to pay Inheritance Tax when they die, relief is available on certain life assurance plans.
This relief was introduced by Sect. 60, of the 1985 Finance Act to allow people to plan for the payment in a tax efficient manner. The legislation is now contained in Sect. 72 of the CAT Consolidation Act 2003. The Relief provides that where a life assurance policy is put in place to provide for the payment of Inheritance Tax, Revenue will not seek to tax the proceeds as long as the money is used to pay Inheritance Tax arising on the death of the lives assured under the policy, provided certain conditions are met.
A policy effected under Sect. 72 CAT Consolidation Act 2003 effectively gives you an option – rather than letting Tax legislation decide how your estate will be distributed – you can pass on your assets in the way you wish – and plan for the tax consequences.
Small Gift Exemption: Capital Acquisition Tax/Gift Tax legislation allows for an exemption from Gift Tax for the first €3,000 of any gift taken by a beneficiary from any one ‘donor’. The €3,000 is an annual limit.
What this means is that a beneficiary can receive up to €3,000 tax free in any one year from any donor or even multiple donors, and this gift will not impact on their appropriate group tax free threshold.