Risk Management:

Inheritance Tax

An inheritance is a benefit taken on a death. Once the taxable value of an inheritance has been determined, the amount of inheritance tax payable will depend on whether the appropriate threshold amount has been exceeded. The relationship between the person who provided the inheritance and the person who receives the inheritance determines the maximum tax free threshold available – known as the “group threshold”.

Group Thresholds from 12th October 2016

The rate of tax charged on amounts over the above thresholds is 33%.

With such low tax free thresholds the amount of tax levied on beneficiaries to an estate can be very significant. Also, if the assets of the estate are illiquid (e.g. property) then the beneficiaries may be forced into a fire sale of certain assets in order to pay the inheritance tax bill. Thankfully there is an efficient way to help make provision for such potential problems.

Section 72 Life Cover

Section 72 of the Capital Acquisitions Tax Consolidation Act 2003 allows for the establishment of a specific type of life policy which pays the inheritance tax due on an estate. Normally the policy is established on a joint life second death basis (e.g. payable on the death of the last surviving parent) with the proceeds of the life policy used to pay the inheritance tax liability on the benefits received. It is worth noting that the proceeds of post-retirement benefits (e.g. ARF or vested PRSA) are also covered with Section 72 life assurance.