Inheritance tax bills and saving the family home – part two

This is a follow up to last week’s article where a reader was being forced to sell their family home to pay an Inheritance tax bill. In that article I mentioned dwelling house relief and how this could save you from inheritance tax on the family home. We also went through the instances where this would not apply so this week, I will explain two further options to protect the family home. These methods will also work for all other inheritances.

No parent or relative wishes to see their children issued with a hefty Capital Acquisitions Tax (CAT) bill upon their death. The children will be forced to sell the property just to cover the inheritance bill.

You may receive gifts and inheritances up to a set value over your lifetime before having to pay Capital Acquisitions Tax (CAT). Items such as cash, property, land, household contents, paintings, shares are regarded as gifts. Anyone who receives monetary gifts or inheritances worth more may have to pay CAT, which has been set at 33% since December 2012. That amount, called a threshold, varies depending on the relationship between the giver and the receiver.

There are three groups covering different relationships, each of which has a different CAT threshold. It’s important to note that the threshold applies to the total amount of gifts and inheritances received since 6 December 1991.

Lifetime Thresholds


€335,000Parent(s) to a child.

€32,500Brother, Sister, child of a brother or sister, lineal ancestor or descendant.

€16,250 Other

Example. If a property valued at €600,000 was being gifted or left to a child there would be a tax bill of €87,450 due on the property. (assumes no previous gifts/inheritances)

The Small Gifts Exemption

For tax calculation purposes, a small gift is classified as any amount up to €3,000. Your client can make a small gift to as many people as they like in any calendar year, without impacting on their CAT threshold.

Section 72 Life Assurance Plan. A Section 72 Life Assurance Policy is a life insurance policy which will help you to protect your family against having to pay inheritance tax. This plan will provide a cash payment when you die which your family can use to pay any tax bill that might result. The Section 72 Policy works pretty much the same as regular life insurance policies. You take the policy, you pay the premium, and your benefactor gets a tax-free lump sum. But in the case of Section 72, the benefactor must use it to clear the inheritance tax. This way, your assets can be passed on and enjoyed by your loved ones rather than being used to pay a tax bill.

Section 73 Savings Plan. This is simply a savings plan designed to protect against the unintended consequences of creating a tax liability when passing on an asset during your lifetime. A savings plan is set up and revenue approval is obtained as a section 73 policy from the outset. The proceeds are used to pay any tax bill on a gift. Funds provided any other way will just increase the taxable gift. If you are interested in hearing more, please contact us for full details.

What is the difference between Section 72 and 73?

A Section 72 Policy is a ‘Whole of Life’ Assurance policy, which pays out a lump sum on death. A Section 73 Policy is a Savings / Investment Policy, so they are fundamentally completely different.

with Philip Cullen of Southeast Mortgages & Financial Services
This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

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