BY JOHN ELLIS, FINANCIAL ADVISOR
Inheritance tax also know as Capital Acquisitions Tax (CAT) is in the papers again. Former Justice Minister Alan Shatter once said: “It is nothing short of State-sanctioned graveside robbery of assets.” Others believe it is not an issue for them, as one client said to me recently, “I have nothing to leave anybody”, thinking that only a minority of people will end up paying this tax.
No matter where you stand in the argument the truth is difficult to ignore. After a lifetime’s work people are now reviewing their assets to ensure their loved ones are not left with a large tax bill after their death. And, with property values continuing to rise, inheritance tax rises in tandem affecting more families than before.
The tax-free thresholds have increased recently but not enough. Inheritances passed from a parent to a child stands at €400,000. That might seem generous until you consider that the average price of a home in Ireland is now €359,000 with areas, (as I commented in a previous article) including Kilkenny and the wider South East seeing annual price growth up by 8%. Therefore, it is not hard to see how a “modest inheritance” could quickly push beneficiaries into the taxable bracket.
The thresholds for other relationships are ridiculously low. €40,000 for close relatives like your brothers, sisters, or grandchildren and just €20,000 for what are termed ‘strangers’, a category that includes cousins, in-laws, and more troubling even long-term cohabitants in some cases. Anything above these threshold levels attracts tax at the rate of 33%. So, what can you do to eradicate or ease the burden – no tax heaven! – on your family and heirs?
Most people are beginning to plan by transferring assets during their lifetime. This not only reduces the size of the estate that will be taxed on death, but it can also help younger generations get on the property ladder earlier or cover other costs.
However, gifting is not without its risks or rules. There are annual gift exemptions in place, currently €3,000 per donor per recipient, which can be used strategically over time. But substantial gifts may still fall under the CAT regime, especially if the donor dies within a certain period.
According to a guide prepared by Head of Tax Catriona Coady and Chief Economist Dermot O’Leary in Goodbody, “families need to tread carefully”. They advise: “It is about balancing generosity with prudence. You want to help, but you also want to avoid unintended tax consequences.”
Whether you have property, investments, or even modest savings it pays to have a plan. With tax thresholds behind property prices and the rules around inheritance constantly changing now is the time to take control. Waiting until it is too late could mean leaving your family with an avoidable tax bill.
In the first instance contact your Financial Advisor who can help identify the most efficient ways to meet the problem which may include using trusts, spreading out gifts over time, and if further complex advice is required, they will have the necessary contacts.
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