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Inheritance tax and how to plan for it

By: Tom Leahy | Posted on: 21 Feb 2020

Inheritance tax and how to plan for it

Figures from the OECD show Ireland has one of the toughest inheritance tax regimes in the world. Revenue collected total of €327.95 million in inheritance tax nationally. This can put added pressure on people to try to settle a tax bill at a time when they may be distraught after suffering bereavement.

According to Andrew Fahy, tax and financial planning director with Investec, “The key thing is not to ignore it.”

It’s an area to which the Revenue Commissioners are paying close attention. The Revenue says between 2013-2014 it investigated about 750 cases involving capital acquisitions tax, and these resulted in an additional yield of more than €20 million, or an average of €26,666 per case.

Here are some of the best ways to plan for Inheritance Tax:

Take out some life insurance

If you take out a life insurance policy, it won’t reduce the amount of Inheritance Tax due on your estate. But the payout might make it easier for your surviving family to pay the bill. It could mean that they are able to prevent the family home from being sold. But if you do this, make sure the life insurance payout goes into trust – if you don’t it will make your estate bigger and it will have to pay more tax.

Move your Adult child into your home

If you have children and fear they may face taxes due to the size of their estate, you could consider availing of family-home relief as a way of preserving their exemption thresholds.

Under this relief, if a child lives in the family home for three years leading up to the gift or inheritance (and has no other property themselves), the parent can then gift it to them tax free, as long as the child then stays in the property for six years after the handover and doesn’t own other property in that time.


Set up a trust

Another option is to set up a trust fund. According to Maguire, availing of such a structure can be useful when someone has cash they don’t need. If this is the case, they can put funds up to the child threshold of €320,000 into a trust fund,  and allow it to grow.


Leave something to charity

Anything you leave to charity is free of Inheritance Tax so it can be a useful way of reducing your Inheritance Tax bill, while benefiting a good cause. And if you leave at least 10% of your estate to charity, it will cut how much Inheritance Tax is due on the rest.

Spend your money

The simplest way of not leaving your family with a hefty tax bill is to not leave them any money – or at least nothing in excess of the thresholds. For a child the first €320,000 of all gifts / inheritances will be taken tax free by the child. Where a niece, nephew, sibling or grandchild takes a gift or inheritance, the first €32,500 of such gift / inheritance will be taken tax free by the beneficiary. Where an individual takes a gift / inheritance from a cousin or friend, the first €16,250 of such gift / inheritance will be taken tax free by the beneficiary.