You might not be familiar with Capital Acquisitions Tax (CAT), but you’ve almost certainly heard of it by its other name: Inheritance Tax.

Without proper planning, your family could be faced with a huge tax bill after your death. Throughout your life, you will pay VAT, property tax, income tax, PRSI, USC, and other levies and fees – so you don’t want to pay a final tax after death!

Fortunately, Irish Life can help more of your estate go to your family and less to Revenue with a Section 72 Life Long Insurance plan.

Contact our specialist wealth advisors to discuss Section 72 planning

How Inheritance Tax works in Ireland

Inheritance Tax is a way for governments to tax generational wealth.

Unfortunately, due to the rising cost of property and assets in Ireland, this tax now often hits ordinary people and not just the ultra-rich.

The lifetime tax-free threshold for leaving or gifting assets to your children is €400,000. However, the median Irish house price is now €390,000. In other words, inheriting a house from your parents is almost the full tax-free limit; in Dublin or other more expensive areas, you will almost certainly be subject to some tax.

Inheritances and gifts are taxed at 33% under CAT in Ireland, which can significantly reduce the inheritance your family receives from your estate. Each €10,000 increase in the value of your home could result in an extra €3,300 in tax liability for your children.

What is a Section 72 life insurance plan?

A Section 72 plan is a specific type of life insurance designed to help cover an inheritance tax bill. Remember, it’s your family and not your estate that is liable for this bill.

The plan is named Section 72 because it qualifies for tax relief under Section 72 of the CAT Consolidation Act. When set up correctly, a Section 72 plan is not taxable when it is paid out to your beneficiaries, so long as it is used to pay an inheritance tax bill.

In other words, you can use a Section 72 plan to create a tax-free lump sum that can only be used to pay an inheritance tax bill. To qualify for this tax relief, the person leaving the assets must:

• Be the owner of the life insurance plan.
• Be the life assured person.
• Pay the premiums on the life insurance plan.

How does a Section 72 plan fit into my financial strategy?

Planning for your inheritance fits in neatly with retirement planning and indeed a wider financial plans. Now, you probably feel as though you’re far too young to plan your pension and retirement seriously, never mind writing a will!

That said, it doesn’t matter if you’re 25 or 65 – your retirement and inheritance is a huge part of your overall financial strategy, and if you’re reading this then it’s something you should think about.

Whether or not you feel as though you’re on track with your pension and retirement plans, inheritance planning goes hand-in-hand with this. Both a pension and a Section 72 plan can be used to pay less income tax and ensure that you and your family are better provided for.

Contact our specialist wealth advisors to discuss Section 72 planning