In our article this week Noelle O’Connor, Director of Business Services discusses inheritance tax saving measures that will help reduce the Capital Acquisitions Tax liability on the death of a relative.
The only certainties in this world are death and taxes and inheritance tax combines them both. The current rate of gift/inheritance tax in Ireland is 33%, which has increased from 20% in 2008.
Ireland has one of the highest death taxes in the world and this tax is crippling families across the country. It has forced some people to sell their family homes or take out mortgages simply so that they can discharge the enormous tax bills they are hit with after inheriting property or other assets.
So the question is what can you do to keep the inheritance tax liability low on what you’re planning on leaving to your loved ones?
Make a Will
If you decide not to make a will you will lose the opportunity to reduce the tax bill faced by those who inherit from you .It is important to seek legal and financial advice in relation to this to ensure your will is monitored and maintained when circumstances change.
For example if there are any changes within your family or you acquire or dispose of other assets your will should be updated for these changes.
Start Passing on your Inheritance now
Consider passing any investment properties you have on to your children now, while the recovery in the property market is in the early stages. This could help your children avoid inheritance tax bills. As you are aware if the property is worth less than €225,000 your son or daughter will be able to inherit the property without any capital acquisitions tax, provided they have received no prior gifts in the past from you.
This threshold decreases to €30,150 for gifts/inheritances between brother, sister, niece, nephew and grandchild. The threshold for gifts/inheritances between all others is €15,075.
By passing property assets to children now will mean any future growth on that property would be in the child’s name rather than the parents.
You could also pass your family home to your children while you are still alive, although this is not something that is done very often. If this is done, parents tend to protect themselves by retaining a life interest in the property.
Be Aware of the Dwelling House Exemption
If an individual lives in a property for three years prior to inheriting it, the recipient is exempt from the associated inheritance tax and the capital acquisition tax thresholds mentioned above do not apply.
To avail of this relief the recipient must have occupied the dwelling continuously as his/her only/main residence for a period of 3 years prior to the date of gift/inheritance.
Also the recipient must not at the date of the inheritance/gift be beneficially entitled to any other dwelling house or to any interest in any other dwelling house.
Have Cash in your Estate
It is a good idea to have some assets in your estate that can be easily cashed in, such as deposit accounts or investment funds.
By doing this there will be easily accessible cash in the estate to pay any capital acquisitions tax liabilities that may arise.
Drip Feed the Inheritance
Relatives can receive up to €3,000 a year without paying tax on it in the form of the small gift exemption. This gift can happen once a year and be from both parents, so a child can receive up to €6,000 per annum from their parents.
This also includes a €3,000 gift to son/daughters in law. Grandparents can also utilise this relief by gifting €3,000 each year to their grandchildren.
Budget 2016
It is anticipated that Budget 2016 will bring above some changes to the Capital Acquisitions Tax system but we will have to wait a couple of weeks to see the extent of these changes.
Don’t Leave Behind a Burden
By taking action now you can ensure that your loved ones will inherit as much of your estate as possible without paying too much inheritance tax.
Good financial advice is essential for succession planning so call us today and see how we can preserve your wealth for the next generation.
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