John McColgan and Shona Chambers
DID YOU KNOW? It is the person receiving the gift or inheritance who is liable to Capital Acquisitions Tax and not the person or estate providing the benefit.
In recent times, we have all seen the amount of tax we pay increase. Many people are paying more in income tax. Traditional taxes like VAT and DIRT have gone up, while other taxes like the Universal Social Charge and the Local Property Tax have been introduced. Some of these tax changes have attracted headlines and even public protests.
by Shona Chambers
But many people may not be aware that, since 2008, the government has also made very significant changes to Capital Acquisitions Tax, sometimes referred to as “inheritance tax” or “gift tax.”
Many of us hope to leave an inheritance for our children or other relatives after we are gone. If you are a business owner, you might want to pass your business on to the next generation. If you are a farmer, you might want to transfer a farm that has been in the family for generations. We all know that we should go to our solicitor and make a will so that our wishes in regard to our assets are clear. But it can be every bit as important to plan ahead for the taxes that may be incurred on any inheritance.
The good news is that there is no tax liability for transfers of assets between spouses, meaning that if you die, your husband or wife can inherit all your assets without paying a penny. However, Capital Acquisitions Tax rates and thresholds for children and other relatives have changed dramatically over the past few years, which is of particular concern if you have significant assets that you wish to pass on to them.
In 2008, a child could inherit up to €521,208 free of tax and pay 20% on the balance. Now, that tax-free threshold has been reduced to just €280,000, while the rate of Capital Acquisitions Tax has gone up to 33%. For transfers to a brother, sister, niece, nephew, or grandchild, the tax-free threshold is now just €30,150. For a transfer to anyone else, it is €15,075.
This could affect children’s inheritance significantly. Suppose Joe passes away, leaving an inheritance worth €525,000 to his daughter Mary. The government will exempt the first €280,000 from tax, but will assess the remainder at a rate of 33%, meaning that Mary would face a bill in excess of €80,000 from Revenue.
There are options to help cover the cost of inheritance tax bills. Depending on your circumstances, you could set up a special savings plan or set up a special kind of life policy which will cover the cost of the tax.
There are also certain reliefs and exemptions available and with proper planning and good financial advice from an independent financial advisor like me, you can minimise the amount of tax you pay.
Call Shona Chambers BA QFA RPA, on 074) 9124366 to find out more.
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