The importance of inheritance tax planning is not in question. However it may not be well known that there are measures you can take to alleviate at least some of the burden of same.
The standard Gift and Inheritance tax rates currently at 33% (after the relevant threshold), so putting in place policies that can assist with this is most certainly worth considering.
Section 72 Policies deal with covering off Inheritance Tax (on death) while Section 73 policies are set-up to cover Gift Tax.
Section 72 Whole of Life Cover:
Section 72 policies are revenue approved whole of life assurance policies that are unique as the proceeds of the policy, when paid out on the death of the policyholder, are tax-free as long as they are used to pay an inheritance tax bill.
These policies are ideal for individuals or couples who wish to provide for any future inheritance tax liability for their children as beneficiaries of their estate.
The monthly premium that a life assurance company will quote will be dependent on the sum assured and the age and health status of the policyholder(s).
Section 73 Policies:
A Section 73 policy is a regular premium savings policy that can be set up to reduce future Gift Tax. This contrasts with Section 72 policies, which are insurance policies that pay out on death only.
This policy is set up with a life insurance company and a monthly, regular contribution is made into the policy every month. The market value of the policy will depend on fund performance and the amount of contributions, the same way any investment policy would work
The policy must be maintained for 8 years. After 8 years of consistent monthly contributions, the policy then becomes tax-efficient as such. At any time after 8 years, the proceeds of a Section 73 policy can be gifted to a third-party beneficiary and these proceeds are exempt from 33% Gift Tax as long as, in the same 12 month period, that same beneficiary had Gift Tax payable from a separate gift from the disponer.
If you would like to review your inheritance tax planning, we always recommend a combined legal, taxation and financial approach. If you would like to discuss this in further detail, please contact us at 053 9233640.