How can we pass on our wealth as efficiently as possible?

Planning for the future is essential, especially when transferring wealth efficiently.

As personal circumstances change and tax laws evolve, it’s important to assess the impact of passing wealth to the next generation. Some individuals prefer to transfer assets during their lifetime rather than through a will, allowing beneficiaries to benefit sooner.

Key considerations include:

Capital Acquisitions Tax (CAT),

Capital Gains Tax (CGT), and

Stamp Duty.

The amount of inheritance or gift that a person can receive tax free in their lifetime is known as a threshold. This depends on their relationship with the person who is providing the gift/inheritance. There is no tax liability between spouses and civil partners. Other relations are grouped into three categories with different thresholds; any amount over these limits are subject to CAT at 33%.

These are:

Group A: €400,000

Group B: €40,000

Group C: €20,000

There are a number of ways to plan efficiently using various reliefs. The easiest way to transfer wealth is by availing of the Small Gift Tax Exemption. This allows an individual to gift €3,000 per annum to another individual tax free in any given year. By strategically gifting assets over time, you can significantly reduce the CAT burden on beneficiaries. A parent can gift €3,000 per annum to their child, their spouse and each of their grandchildren.

For example,

By the time a grandchild turns 18 they could have received €54,000 from each grandparent tax free – without affecting their threshold. For children under 18, we would recommend setting up a Bare Trust which hold the fund in trust.

Family Partnership structures can be used to pass ownership of assets to children. Family partnerships enable individuals to retain control of these assets as they grow in value in the child’s name. Under this structure, the increase in value should not be subject to CAT on the death of the parents making this a very efficient method to transfer wealth to the next generation.

A Section 72 Life Assurance Policy is an insurance policy used to cover the inheritance tax due when the policyholder dies. This provides a cash payment when an individual dies which is used by the family to pay any inheritance tax bill that arises. The proceeds from the policy are exempt from inheritance tax once it is used to pay the tax liability.

There are other reliefs which can also be considered such as the Dwelling House Relief. This may be used to gift the family home to a child.  If an individual is gifted or inherits a house that has been their main residence this may be exempt from tax, subject to certain conditions.

Business Relief may also be used as this allows a 90% reduction in the taxable value of inherited or gifted business property for Capital Acquisitions Tax (CAT). It applies to the transfer of a business or shares in a business but does not apply to individual assets.

If an individual receives a gift or an inheritance of agricultural property, they may qualify for Agricultural Relief. This relief reduces the taxable value of the property, including land, by 90%. Again, this relief is subject to certain conditions.

There are circumstances where CGT and CAT may arise in the same transaction where non-cash assets are gifted. It may be possible to offset the CGT due against the CAT liability. This should be considered prior to gifting an asset as this can be a valuable relief.

When thinking about the future,

We would always recommend that our clients have a financial plan to help understand their own financial position prior to considering transferring wealth. As always we ask clients to ensure their will is up to date and they are utilising thresholds available to them.

We also recommend that you seek advice from your tax advisor and solicitor.

To learn more, you can reach out to any member of the team.

Susan Walsh
Private Client Manager

Disclaimer:

The above is subject to legislation changes and should not be considered tax advice.