When drafting or reviewing your will, you should consider the potential exposure to Capital Acquisition Tax (CAT) for those receiving the assets. Otherwise the recipient could end up in the unfortunate position where they need to sell the asset in order to pay the tax due.
Where there is a potential exposure to CAT, a Section 72 insurance policy or Section 73 savings policy are possible options. The first is a life assurance policy and the latter a savings policy, which can taken out specifically to pay CAT liabilities on death. In both cases the proceeds of the policies themselves are not taxable where they are used to pay inheritance tax liabilities. These are useful planning tools and are becoming increasingly popular.
If you are considering gifting an asset during your lifetime, as apposed to leaving it in your will, a number of different taxes need to be considered. The gifting of assets can have CGT implications for the person making the gift, and CAT and stamp duty implications for the recipient.
All of these taxes are calculated on the market value of the asset at the date of the gift. In light of increasing capital taxes, the likelihood of further restrictions on reliefs and the current depressed value of land, property and many businesses, now could still be an opportune time to transfer and minimise or possibly eliminate the taxes.
Also consider the annual gift exemption. You can gift up to €3,000 per annum to a beneficiary tax free. It may not sound like much but if, for example, a husband and wife both gave €3,000 per year (a total of €6,000) to each of their two children every year for ten years they will have passed on €120,000 to them tax free.
What might the future hold?The Government’s four year plan states that the level of tax reliefs and exemptions applying to gifts and inheritances will either be abolished or greatly restricted in the future. With the threshold for children more than halved and the rate of Capital Acquisition Tax (CAT) and Capital Gains Tax (CGT) increased from 20% to 33%, this process is well under way. We don’t know exactly how far it will go but it is clear that fewer reliefs may be available in the future.
It is therefore more important than ever that you look at your position now to ensure that you are not missing out.
For further information on CGT, CAT and stamp duty visit www.revenue.ie or contact McLaughlin McGonigle, St Helens, St Oran’s Road Buncrana, Co. Donegal. Tel +353 (0)74 9321420 / Fax +353 (0)74 9321421/or email: firstname.lastname@example.org
McLaughlin McGonigle t/a MLMG Financial Advisors is authorised to undertake investment business in Ireland by the Association of Chartered Certified Accountants