The death of a loved one is a terrible time for families, with the grief, loss and uncertainty that has to be dealt with. Unfortunately, some people are not aware of other unwanted surprises that can arise from death – a significant tax bill in some cases.

 As Benjamin Franklin once said, “in this world nothing can be said to be certain, except death and taxes.” The good news is though, that with careful planning, there are steps you can take to reduce the tax bill. 

The Background

One of the outcomes of the financial crash back in the late noughties was changes to the Capital Acquisitions Tax (CAT) code for inheritances. The “tax free” thresholds were significantly reduced, and the tax rate was increased. While there have been some increases in the thresholds over the last decade, the CAT rate is still stuck at 33%.

This has caused a lot of financial strain to people receiving inheritances, including having to sell precious assets (such as a family home) in order to pay the tax bill. The good news is that there are some actions that you can take today to try and avoid this situation in the future.  

Get good advice… now

It is important to have a plan. Having clarity about your assets, your likely beneficiaries and how you will want your wealth shared out is the important starting point. We can then discuss a number of actions that you can take to avoid leaving behind (or at least reducing) a tax liability after you’re gone.

Check your will

Your will is the legal document that sets out how you want your money to be shared out. Make sure this is all in order and exactly reflects your wishes.

Start distributing your wealth today

If you can afford it, it may be tax efficient to start sharing your wealth now. Any individual can give up to €3,000 p.a. to someone else without tax being payable, under the “Small Gifts Exemption”. This means two parents can gift €6,000 p.a. to each of their children (and indeed to each of their grandchildren, other family and even friends). The inheritance tax thresholds for each individual are not reduced by gifts below this exemption limit.

You may not want your children to get hold of the money at this stage – talk to us about how you can best achieve this.

Get the right life cover in place

There are life assurance policies designed specifically to pay inheritance tax bills called Section 72 policies. If you are likely to leave behind significant assets at death and your beneficiaries are going to inherit above the CAT thresholds, you can effect a policy with the purpose of paying the tax bill on their behalf. With the tax paid, you are leaving your beneficiaries both the full value of the assets, and also the flexibility to retain those assets, without being forced to sell them. Now that is some legacy to leave!

Getting good advice is the key. Let us guide you on how to avoid leaving behind a nasty tax bill, and instead how to leave behind a wonderful legacy.