With Irish property and investment values having risen substantially, inheritance tax is no longer an issue confined to the very wealthy.
Children can currently inherit €400,000 from their parents tax-free. Amounts above this threshold are generally subject to Capital Acquisitions Tax (CAT) at 33%.
Example: One Child Inherits an Estate of €1 million
Consider a parent leaving an estate of €1 million to one child. Ignoring other reliefs and previous gifts or inheritances, the first €400,000 is tax free. The remaining €600,000 could create an inheritance tax bill of €198,000.
The problem? Property or investments may have to be sold quickly to pay the tax.
How can a Section 72 policy help?
A Section 72 Life policy could be arranged to provide a payout of €198,000 on the death of the parent. This means the child does not have to sell property or investments simply to fund the tax bill.
What is a Section 72 policy?
It is a special Revenue-approved whole-of-life policy designed specifically to provide funds to pay inheritance tax when someone dies.
Are the proceeds of a Section 72 policy deemed an additional inheritance for the child?
No. This is the real beneficial part, as if the policy proceeds are used to pay the inheritance tax then the funds received are exempt from CAT. This contrasts with a normal life policy where the proceeds are liable to CAT.
Is it very expensive to put in place?
As a broad indication, €250,000 cover for a healthy 60-year-old non-smoker can cost around €500 per month.
The Bottom Line
Section 72 policies are not cheap, but for families with valuable property, businesses or investments, a policy can ensure liquidity to pay the tax while allowing family assets to remain in the family.
Contact us for advice on inheritance tax planning. Click here to book a consultation.
This information should be treated as a guide only. Contact us for tax advice tailored to your needs.
