Considering retiring and passing on the family business or other assets to your children? Don’t leave them all with a large tax bill to pay.
The Category A threshold, which governs inheritances and gifts from a parent to a child is now just €310,000 down significantly from the 2009 tax free amount of €541,000.
This means that parents with two children leaving an estate of €1 million would leave them with a potential inheritance tax bill of €125,000.Fortunately with some proper planning, one can potentially avoid some or all of that tax bill.
Area to consider include:
1. Ensuring your will is tax efficient — A Will is one of the most important documents a person will execute during their lifetime in relation to their assets yet nearly two thirds of Irish people do not have a Will in place.
2. Use of CAT thresholds and Skipping generations — If your children’s CAT free thresholds have been fully utilised, you could consider splitting a benefit to a child by leaving it to their spouse and your grandchildren.
3. Transferring business or agricultural assets? —The taxable value for inheritance tax purposes of qualifying business or agricultural assets can be reduced by 90% provided certain conditions are met. E.g., shares in a family business of €1,000,000 would have a taxable value of €100,000 for inheritance tax purposes.
4. Always consider the use of Trusts. — The use of correctly drafted trusts in wills ensures that beneficiaries can avail of the relevant inheritance tax reliefs for agricultural and business assets. A trust can be used to hold the assets until the beneficiary can satisfy the conditions of the relief.
5. Small gift exemption — An annual tax free gift of €6,000 can be made by you and your spouse to your children, grandchildren etc.
6. Family Partnerships — This can be a tax efficient way to ensure that investments can pass to children today tax free (within their threshold ) but you and your spouse retain control until some future date.
7. Life assurance policies — A life assurance policy can be taken out to pay the CAT arising on the gift or inheritance on behalf of the child.
For details, contact Coll & Co, Chartered Accountants, Pier Road, Barna, Galway H91 V6KV Phone 091-592080