If your clients have a will, then they probably have a plan for what they want to happen to their assets, or home, when they die. Many of your clients will be planning to leave their house, savings or other assets to family and others, but how many of them are aware what tax bill this inheritance will trigger? If they are planning to leave their home and assets to someone in their will, then a conversation with you as their Financial Adviser, could potentially reduce the tax bill payable on their estate.
In the past, estate planning was something we associated with the very wealthy, but reductions in the tax free thresholds, together with increases in the capital acquisitions tax rate, have resulted in more and more people who previously did not have to give consideration to this area now needing to do so.
Your children can only inherit €310,000* from you tax free. Anything in excess of this, per child, is taxable at 33%. Leaving assets to your children may result in them having to pay Inheritance Tax.
€310,000 Where the person receiving the property is a child of the disponer or of the civil partner of the disponer or a minor child of a deceased child of the disponer or of the civil partner of the disponer, or a minor child of the civil partner of a deceased child of the disponer, or of the civil partner of the disponer
€32,500 Where the person receiving the property is a lineal ancestor, descendant, a brother/sister, or child of a brother/ sister or the child of a civil partner of a brother or sister of the disponer.
€16,250 All other cases
*Threshold amounts are those currently applying, since 12th October 2016. Sources: Budget 2017 published 12th October 2016, and Revenue.
Changes to Reliefs
There have been changes to certain reliefs that can apply to certain assets. These were introduced primarily to encourage private enterprise and to avoid the forced sales of family farms or business assets.
The main exemptions/reliefs are:
Spouse or Civil Partner Exemption
Perhaps the most important relief from Inheritance Tax is the ‘spouse or civil partners exemption’ where gifts or inheritances received by one spouse or civil partner from the other are totally exempt from CAT. This relief currently applies only in the case of a “Legal Spouse” or “Registered Civil Partner”. Cohabitants who are not married are currently treated as strangers for Inheritance and Gift Tax purposes. This means that one cohabitant inheriting from the other would be entitled only to the “strangers” threshold of €16,250.
Family Home Exemption – exemption from Gift and Inheritance Tax is available on the value of certain “dwellings” with up to an acre of land where both the donor and the beneficiary meet certain conditions which ensure that the property was, and continues to be, their home.
The Finance Act 2000 introduced a complete exemption from Inheritance Tax on the value of “a dwelling”, subject to certain conditions. Subsequent Finance Acts have added further conditions which have restricted this relief and now both the person passing on the property and the person inheriting the property must meet certain conditions. This exemption is commonly referred to as “family home exemption”. For the exemption to apply, the person passing on the property must be living in the “dwelling house” at the time of their death. In addition to this the person who inherits the house must:
– Have occupied the house as his/her sole or main dwelling for three years prior to the date of the inheritance,
– At the date of the inheritance not hold an interest in any other dwelling house. This includes the inheritance of a second property from the person passing on the property.
– Continue to occupy the house as his/her sole or main residence for 6 years after the date of the inheritance. Thus the “family home” may be exempt from Inheritance Tax if both the donor and the beneficiary meet these conditions which effectively ensure that the property was, and continues to be their family home.
In addition, at the time they receive the inheritance the beneficiary must not own any other “residential property” – even owning a share in another property means this exemption will not apply. The exemption is not restricted to parent / child relationship. It is available between any two individuals, for example, elderly brothers and sisters living together or cohabiting couples. Because of the reference to “family home” this exemption is often misunderstood.
Agricultural Relief –the value of farmland, buildings and stock can be reduced by 90% where the beneficiary is a qualifying farmer and he or she holds the property for a minimum of 6 years. In addition to the relief available on the value of farmland, buildings and stock, agricultural relief can be claimed where a gift of, say, cash from an investment based estate is gifted to a qualifying farmer’ on the basis that the asset received is converted to qualifying agricultural property within two years of the date of the gift or inheritance. What this means in effect is that the asset gifted does not have to be agricultural property but once the gift is made, subject to it being converted to qualifying agricultural property, the relief can still be claimed on the gift or inheritance where the recipient is a qualifying farmer.
Business Relief – can provide a similar reduction of 90% in the value of certain businesses or private companies, where both the business and the beneficiary meet certain qualifying conditions. The relief will only apply to ‘qualifying business assets’. In the case of a partnership or sole trader, that is assets which are used in the course of a qualifying business activity. Where the value of a business includes some exempted assets, relief will be allowed on the value of the qualifying business assets only.
Life Assurance Relief –To encourage people to plan ahead, and to have cash available to pay Inheritance Tax when they die, relief is available on certain life assurance plans. This relief as introduced by Section 60, of the 1985 Finance Act to allow people to plan for the payment in a tax efficient manner. The legislation is now contained in Section 72 of the CAT Consolidation Act 2003.
The Relief provides that where a life assurance plan is put in place to provide for the payment of inheritance tax, Revenue will not seek to tax the plan proceeds to the extent that the money is used to pay Inheritance Tax arising on the death of the lives assured under the plan.
For more information on how Irish Life can help your business talk to your account manager or see www.bline.ie.
Irish Life Assurance plc is regulated by the Central Bank of Ireland.