Inheritance Tax: Changes in the air – Guest post by Fonz Scanlan
This article appeared in the June 2016 edition of our Blackrock Bulletin. Read more from that issue here or click the image right for a PDF.
Inheritance Tax: Changes in the air
With the new government discussing new inheritance rules, financial planner Fonz Scanlan of MoneySmart.ie, outlines how it could effect you.
The Definite Bad News
Not only has Ireland the highest ‘death taxes’ in the western world, in recent years increasing property prices, smaller families and lower exemption thresholds have throttled unsuspecting Irish people with massive tax bills.
If, for example, you are an only child who inherits the €800,000 family home, you owe the taxman 33% of the estate less the €225,00 exemption. That’s an immediate tax liability of €190,000 you probably hadn’t bargained on.
The Potential Good News
The Irish Times reported last week that Fine Gael are discussing a raise in the parent-child exemption from €225,000 to a substantial €500,000. So in our previous example, the tax bill would be almost halved to €99,000. That’s a significant improvement for sure but that’s still quite a cheque to have to write. In reality most families will still be forced to sell the property to pay this bill.
What you can do to reduce your family’s tax bill
- Pass on your property earlier. It’s often wise to downsize sooner and distributing your wealth over time.
- Alternatively move your child into your main home – if they live there for 3 years before inheritance it’s tax free.
- Start annual gifting. Up to €3,000 per parent and per child and grandchild is exempt. Maximise this by spreading them among children, in-laws and grandchildren.
- If you own a farm or a business, there are additional important exemptions you should know about.
- Consider a Section 72 Insurance Policy, designed to cover inheritance taxes.
- Setting up a trust can also work in certain situations.
- Get married. Spousal inheritance is tax exempt.
- And finally, don’t forget to write a will.