It is more than 200 years since Benjamin Franklin first suggested that the only two certainties in life are death and taxes. But while we understand the truth of his comment, it appears many seem not to fully appreciate how often death leads to taxes.
Recent research conducted on behalf of Irish Life found that many people in Ireland intend to leave significant sums as inheritance but often have little understanding of potential tax implications. 20% of over 55-year-olds expect to leave over €500,000 in inheritance and a quarter of over 65s expect to leave the same amount to their families. Almost half (47%) of people plan to leave over €100,000 in inheritance.
These are significant sums of money that could mean hefty tax bills for the beneficiaries. But 84% of people asked did not know what the current inheritance tax rate is (it is 33%), and two thirds of people do not know what the thresholds are. The current tax-free allowance for children is €310,000, dropping considerably to €32,500 for other relationships, including siblings, nieces, nephews, and grandchildren.
Irish Life gave as an example a grandparent who wishes to leave a house in Cork City worth €273,894 to a grandchild. With the inheritance tax threshold for grandchildren at €32,500 and an inheritance tax rate of 33% tax on the remaining €241,394 house value, this could result in an inheritance tax bill of €79,660.
The research also found that half of people think that their family home is totally exempt from inheritance tax. But this is not necessarily the case, generally only gifts or inheritance from a spouse or civil partner are exempt from capital acquisitions tax (CAT).
There is a dwelling house exemption but it is strictly limited and will not apply in most cases. One important point that many are unaware of is that in Ireland, cohabiting couples have no automatic right of inheritance on the death of either partner. With property values rising nationwide, thousands of people risk leaving big tax bills behind for their family to face in the future.
“It’s concerning to see that so many people think their family home is automatically exempt from inheritance tax when passing it on to children or grand-children,” said Kate Connor, protection manager, Irish Life. “Although many people intend to leave significant amounts to their children and grand-children when they die, most of them are unaware that those family members could be liable for a very substantial tax bill.”
In many cases, the lack of planning extends further, with less than half of Irish people saying they have a will in place. A quarter of over 55s have no plan for transferring their assets in the future. The research also found that only half of people have discussed their inheritance plans with a solicitor, while another third haven’t yet discussed their financial plans with anyone.
Irish Life recommends as a first step to visit www.revenue.ie for details on the inheritance tax thresholds and rates. You can then establish if your death will lead to a bill for your family. If your bequests will have tax implications, you should get professional financial advice to ensure your estate is taken care of in a tax-efficient manner.
Even if you don’t think there will be tax implications, it is advisable to write a will. If you die intestate (without a will) everything that you own is distributed in strict accordance with the law, with no reference to preferences or plans. It is possible write a will without legal advice, you can get information on what it needs to be valid at www.citizensinformation.ie. But legal fees for getting a will drawn up are, on average, between €50 and €150 — money well spent for peace of mind.
There are ways to help your beneficiaries with the tax bill, in particular a Section 72 Life Insurance plan, which is specifically designed to pay the inheritance tax on your estate when you die. This is a revenue approved life insurance policy and the proceeds are tax-free if used to settle an inheritance tax bill.
For more information on Section 72 life Insurance please get in touch today with our financial advisor Ciarán on 090 6421676, email [email protected] or call in person to our office on Magazine Rd, Athlone.