Don’t want to pay too much inheritance tax? This article by By Susan Walsh – Private Client Manager at Metis Ireland, explains strategies to avoid paying too much inheritance tax that can help you transfer wealth efficiently while staying within Revenue rules. You will learn how to make the most of tax-free thresholds, use the annual small gift exemption, and explore reliefs such as Dwelling House, Business, Agricultural and Section 72 life assurance. I will also highlight the importance of updating your will, reviewing your financial plan and understanding the interaction between Capital Acquisitions Tax (CAT), Capital Gains Tax (CGT) and Stamp Duty.
Why planning ahead matters
Planning for the future is essential when it comes to transferring wealth to the next generation. Tax laws change and personal circumstances evolve, so reviewing your estate plan regularly is crucial. Early action can help reduce the inheritance tax burden and ensure that your loved ones receive the maximum benefit.
“I see many families delay these conversations because they feel uncomfortable, but planning early is one of the most valuable gifts you can give the next generation,” says Susan Walsh – Private Client Manager at Metis Ireland.
Understand key taxes and thresholds
Inheritance planning in Ireland mainly revolves around three taxes:
- Capital Acquisitions Tax (CAT): Paid on gifts and inheritances above certain thresholds at 33%.
- Capital Gains Tax (CGT): May arise when non-cash assets are gifted, but can sometimes be offset against CAT.
- Stamp Duty: Applies to certain property transfers.
The amount of inheritance or gift a person can receive tax free in their lifetime depends on their relationship with the person making the gift. The current thresholds are:
- Group A (e.g. child): €400,000
- Group B (e.g. sibling, niece/nephew, grandchild): €40,000
- Group C (others): €20,000
Any amount above these limits is taxed at 33%. There is no tax liability between spouses and civil partners.
Make use of the Small Gift Exemption
One of the simplest and most effective strategies is the Small Gift Tax Exemption. You can gift €3,000 per person per year without it affecting their lifetime threshold.
For example, two grandparents could gift their grandchild €6,000 per year. Over 18 years, that could amount to €216,000 tax free if both grandparents contribute, without touching the child’s Group B threshold. For children under 18, setting up a Bare Trust is a practical way to hold these funds.
Consider family partnerships and other structures
A Family Partnership can be an effective way to pass ownership of assets to children while still retaining control. Any growth in value is treated as occurring in the child’s name, which can reduce the tax burden on your death.
A Section 72 Life Assurance Policy can also be valuable. This policy provides a cash lump sum on death specifically to pay inheritance tax. When used for this purpose, the proceeds are exempt from CAT.
Explore key reliefs
Several other reliefs can significantly reduce inheritance tax if the conditions are met:
- Dwelling House Relief: May allow you to gift or inherit a home tax free if it has been your main residence and certain criteria are satisfied.
- Business Relief: Can reduce the taxable value of business property by 90%, useful for family businesses.
- Agricultural Relief: Reduces the taxable value of agricultural property, including land, by 90%.
It is also worth reviewing situations where CGT and CAT overlap. Sometimes, CGT paid on a gift of a non-cash asset can be offset against CAT, reducing the total tax bill.
Build a financial plan before transferring wealth
Before making any gifts or setting up structures, it is essential to understand your own long-term financial position.
I always encourage clients to ensure their will is up to date and that they are fully using all available tax-free thresholds. Working with your tax advisor and solicitor alongside a financial planner can help ensure everything is structured correctly.
Next steps
Inheritance tax planning can feel complex, but with the right advice it becomes manageable and highly effective.
At Metis Ireland, we help high-net-worth individuals and families design tax-efficient strategies that protect wealth for future generations. Whether you want to make small annual gifts, set up a family partnership or explore Section 72 life assurance, we can guide you through the process.
Contact us today to start planning and make sure your wealth passes on in the most efficient way possible.
Disclaimer
Metis Ireland Financial Planning 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 financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.