Is your savings plan generating little or no return?

Is your savings plan generating little or no return? Consider converting it to a life assurance savings plan and have the option of saving 33% in gift tax in the future.

There has been a renewed focus on Capital Acquisitions Tax (CAT ) planning recently, particularly since the current amounts that can be gifted or inherited tax free are as follows:

Class A Parent to Child €320,000

Class B Sibling, grandchild, etc. €32,500

Class C Anyone not in Class A/B threshold €16,250

Any sums received in excess of these amounts will give rise to a Capital Acquisitions Tax (CAT ) liability at a rate of 33%.

In certain cases where your child has or may receive the maximum amount €320,000 tax free, all future amounts either gifted or inherited will be subject to tax at 33%.

So how can one avoid this tax?

There is a little availed of policy called a Section 73 savings plan where if the proceeds are used to pay the gift tax then revenue will not charge additional CAT to the person receiving the gift

An example may help. Jim and Margaret wish to gift cash or property to their Daughter Mary in 8 years time when she reaches the age of 25. The value of the gift will be €470,000 and they agreed to pay any CAT arising.

As can be seen above the use of the savings plan to pay Mary’s tax bill avoids any additional gift tax payable by Mary thus saving €24,380 in tax.

As with all tax reliefs there are certain rules to be followed the principal ones being:

How long must the savings plan be in existence for: 8 years

Does the plan have to invest in certain assets? No.

Can I cancel the plan? Yes at any time.

Must the plan be used to pay for gift tax? No. The plan allows you the option of using it to pay gift tax but you don’t have to.

A S.73 savings policy is a great option to be considered to avoid gift tax depending on your family circumstances. Contact us now for more information.

Coll & Co offer an hourly consultation service, so if you require our services please call the office to arrange an appointment 091 592080 or email [email protected]

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