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If you read the Business section of any Irish broadsheet on a regular basis, then it is more than likely you’ve been seeing quite a substantial amount of articles about Inheritance Tax of late. You might have been wondering to yourself, why has this become so topical all of a sudden? Well, there are a number of factors here.


Firstly, as a result of the Government’s austerity programme the Inheritance Tax thresholds fell dramatically in the last number of years. Your Inheritance/Gift Tax threshold is the amount you can receive from a person before incurring a tax liability. For example, in 2009 a parent could leave a child up to €542,544 before any tax liability could be incurred. This figure was subsequently reduced, however, over the next number of years to its current figure of €225,000.


Your threshold will also depend on your relationship to the deceased. There is no tax liability for a spouse but the thresholds reduce dramatically when money is being left to people other than your children. The threshold for siblings, nieces/nephews and grandchildren etc. is only €30,150 and €15,075 for “strangers” (co-habiting couples, interestingly, fit into this category).


As the thresholds have fallen, there has also been a steady increase in the level of Capital Acquisitions Tax (CAT), which now stands at 33%.


But the question remains, why has this become so topical in recent months when thresholds have been dropping for 6 years now and CAT has been increasing steadily? The answer lies, as it so often does, in the Irish property market. House prices have been on the rise for the last number of years, especially in Dublin, and due to falling CAT thresholds any inherited property is now very often creating a CAT liability.


In a recent article in the Irish Independent, Charlie Weston wrote: “Thousands of families are being unexpectedly hit with huge inheritance tax bills this year as rising house prices push them over exemption limits.” you can read the article here.


If parents have left enough cash that can be used to pay the tax bill, then this isn’t as big an issue. However, a real problem occurs when a house (especially the family home) has to be sold to pay the tax bill. This is also true for other items that may carry sentimental value such as jewellery, art, cars etc.


The recent media exposure has put plenty of pressure on the Government to increase the thresholds and we are confident that this is one area we will see change in the next budget. However, we still believe if the Government does increase thresholds or even decreases the 33% rate of tax, there will still be a lot of beneficiaries forced into the predicament of having to sell off important family assets to meet their CAT bill.


So what, if anything, can be done about this?


The good news for families is that you can limit your CAT liability through sound financial planning. The first step is to make a WILL!! If you have a spouse or civil partner all of your assets can pass to them on death without tax arising. If not, a number of complications can arise which could generate a tax liability for dependants. By drawing up a will in consultation with your Solicitor and Financial Adviser you may be able to structure your estate in a more tax efficient manner.


You also have an option to gift up to €3,000 per annum to your children, family or friends tax free using the ‘Small Gift Exemption’. If you are already retired and have excess cash, it might make sense to start gifting some of your money to your children (or grandchildren for example) in order to reduce the overall value of your estate.


Another popular option is to take out Section 72 life cover. This is a life assurance policy that is specially designed to pay an Inheritance Tax liability on the death of the policy owner. So, for example, if you calculated that your family would have a tax liability of €50,000 in the event of your death, you could apply for a Section 72 policy for €50,000 cover. On your death these funds would be used to pay the tax liability and your family would then be able to inherit all of your estate.


Of course there a number of conditions that must be met when applying for Section 72 life cover, so it is essential that you talk with an independent financial adviser before you make any decisions.


If you are concerned that your estate may leave an undue burden on your dependants or that they may be forced to dispose of sentimental family assets in order to pay a tax bill, then call us at Metis Ireland today for honest, expert Estate Planning.


Cian Callaghan
Financial Planner

Metis Ireland Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland. All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.