Category: Gift and Inheritance Tax

What Steps Can Be Taken to Avoid Inheritance / Gift Tax Liabilities

August 19, 2015

Advice in advance is the only way to plan for this tax in the hope of reducing future liabilities or else providing funds in a tax efficient manner to meet the liabilities that fall due.

Here are some useful tips in this regard:

  • Take advantage of the special relief for residential property transferred to children.
  • Gifts made during your lifetime will reduce the value of your estate and reduce inheritance tax liabilities. However when you make a gift you are treated as disposing of an asset for Capital Gains Tax purposes and you must compare the Capital Gains Tax liability with the Gift Tax liability. In certain circumstances both Capital Gains Tax and Gift Tax can arise. In addition Stamp Duty may arise thereon.
  • Including children in the purchase of investments at an early stage ensures that they share in the growth of the asset thereby reducing their future benefit. This involves using up the tax-free threshold during your lifetime so that future increases in equity accrue to your children.
  • You can defer tax liabilities for as long as possible by leaving all of your assets to your spouse if you are married and your spouse in turn then leaves all assets to your family. This takes advantage of the tax exemption for transfers between spouses.
  • Use special Life Assurances policies that will pay out on your death to meet any inheritance tax liabilities that may arise. The value received is not treated as part of your estate.
  • Plan the transfer of your business to your family once you reach fifty-five years of age and take advantage of the special retirement relief from capital gains tax and also the very significant reduction in value for gift tax purposes of the business assets. This can be done without you losing control of the business.
  • When making gifts or inheritances to married children note that sons-in-law / daughters-in-law are strangers for tax purposes and only qualify for the lowest tax free threshold of €15,075.
  • Spreading out the benefits of your assets to your children, sons-in-law / daughters-in-law and grandchildren where applicable ensures a greater number of tax free thresholds when calculating the tax liability due.
  • Every year children can receive a of €3,000 from each parent. This is a useful way of gradually reducing your assets that might otherwise be liable for tax.

We can provide specific advice on any of these matter by way of consultation.

Business Assets

August 19, 2015

There is a special relief where the benefit obtained consists of certain business assets e.g. shares in a family trading company or taking over a business previously carried on by parents in their own names.

This is a very valuable relief and the market value of the benefit received is reduced to 10% of its true value for inheritance and gift tax purposes.

The intention of the relief is to allow for the transfer of businesses within families without incurring major tax liabilities. Needless to say there are numerous rules and regulations for dealing with this relief.

Because of the complexity of these rules and the fact that everybody’s circumstances are different we deal with such matters by way of consultation and an additional charge will arise in respect of same.

 

Agricultural Property

A similar relief to the business relief explained above is available in respect of agricultural property. The market value of qualifying agricultural property is reduced to 10% of its true value when calculating inheritance or gift tax liabilities.

 

Favourite Nephew or Niece Relief

Where an individual leaves a business or farm to a nephew or niece who has worked substantially on a full time basis for a period of five years up to the date of the gift or inheritance in running the business then the relevant class threshold between them will be treated as a parent/child situation. This means the tax-free threshold will increase to €280,000.

Property Investors – Inheritance and Gift Tax

August 19, 2015

This tax needs to be borne in mind if property is intended to be passed on within the family. There is no tax due on transfers between spouses. However, tax is payable on transfers to children where the value of all benefits obtained since 4th December 1991 exceeds €280,000.

Bearing in mind property values it would not be difficult to exceed this threshold. For lifetime transfers capital gains tax may also arise on the transfer of a property to a child. However, only the greater of the two taxes is payable.

Different approaches have evolved over the years in finding methods of reducing the level of tax payable and also to provide funding for whatever tax is payable.

Acquiring properties in the names of children can help avoid tax on future transfers to them. The use of Trusts can also have a role to play in this area particularly where substantial tax liabilities may be involved.

Advice in advance is the only way to plan for this particular tax combined with the use of life assurance products to provide funds to pay whatever tax liability may arise.

 

Lifetime Transfers to Children

As already mentioned a lifetime transfer of a property to a child may give rise to Capital Gains Tax, Gift Tax and Stamp Duty. It may be possible to offset the Capital Gains Tax against the Gift Tax so that only the greater of the two taxes is payable.

However, the benefit of a lifetime transfer is to ensure that all future increases in value arise for the child and will not be part of your estate for inheritance tax purposes so that a tax saving is obtained in the future.

Relief for Residential Property

August 19, 2015

This relief is of particular importance for parents transferring properties to their children, which they will use as their private residence. The relief also arises where elderly siblings are living together sharing a private residence and one of them dies leaving their interest in the property to the survivor. A brief summary of the rules applying is as follows:

  • The relief applies to a residential property plus gardens up to one acre.
  • The beneficiary must have lived in the property as their only or main residence for a period of three years immediately preceding the date of the gift or inheritance. From the 1st February 2007 new rules apply for gifts of the family home from parents to children who reside in the family home with the parents. To qualify for this exemption parents will have to move out of the family home at least three years before they gift the property to their child. This amendment does not affect children who inherit the family home once all other conditions are satisfied.
  • The beneficiary must not own or have an interest in any other residential property.
  • If the beneficiary is under fifty-five years of age they must continue to occupy the property as their private residence for a period of six years thereafter. If the property is sold within the six-year period and not reinvested in the purchase of a new property then the benefits of the original relief may be taken back. This also applies if the property ceases to be used as the beneficiary’s private residence within the six year period. There are also special rules for dealing with situations where the property is sold to fund medical care or the beneficiary ceases to use the residence because of moving to a nursing home or because the beneficiary is working abroad.
  • There is a complete exemption from tax in these circumstances and it does not erode the tax-free threshold otherwise available.

This is a very good relief and of great benefit for planning ways to reduce inheritance tax liabilities.

Payment of Tax Due

August 19, 2015

 

Gift and inheritance tax (capital acquisitions tax) is dealt with under the self assessment tax system and the obligation is on you to ensure that proper returns are made in time and whatever tax due is paid to the Revenue by the due date.

 

Tax is due and a capital acquisitions tax (‘CAT’) return must be filed by –

– on or before 31 October, if the valuation date falls between 1 January and 31 August in the same year, or

– on or before 31 October of the following year, if the valuation date falls between 1 September and 31 December in the previous year.

 

There is a requirement to file a CAT return where the total value of gifts / inheritances received since 5 December 1991 is in excess of 80% of the relevant tax free group threshold.

 

 

How Do I Plan My Affairs To Reduce Inheritance / Gift tax in the Future?

August 19, 2015

Step 1- List out all your assets and their estimated value. Deduct any mortgages or liabilities from the value of the assets.

Step 2- Decide who you would like to leave your assets to. Remember as a short term measure assets left to your spouse are completely free of tax.

Step 3- Examine the special tax reliefs available for certain assets e.g. residential property, business assets and agricultural property.

We can give more advice on this matter by way of consultation for which an extra charge will arise.

How Do I Plan My Affairs To Reduce Inheritance / Gift tax in the Future?

August 19, 2015

Step 1- List out all your assets and their estimated value. Deduct any mortgages or liabilities from the value of the assets.

Step 2- Decide who you would like to leave your assets to. Remember as a short term measure assets left to your spouse are completely free of tax.

Step 3- Examine the special tax reliefs available for certain assets e.g. residential property, business assets and agricultural property.

We can give more advice on this matter by way of consultation for which an extra charge will arise.

Annual Gift Tax Exemption

August 19, 2015

Annual Gift Tax Exemption 

Every person can receive up to €3,000 per annum by way of gift from any one donor. This means in the case of children they could receive €6,000 per annum from their parents. Each parent can make an annual gift of €3,000 from their own resources to a child which would be completely ignored for gift tax purposes.

Example 1- Use Of Annual Gift Tax Free Allowance

Married couple

With 3 children who are married and who each have 3 of their own children.

3 children

3 in-laws

9 grandchildren

15 x €6,000 per annum= €90,000 Future Tax Saving @ 33% is €29,700.

In this example there is a very substantial future tax saving if the parents can take maximum advantage of the annual gift allowance.

Example 2 – Using all available Tax Free Exemptions 

Assume Following Facts:

  • Parents have assets of €2m which they want to give to their children
  • They have 2 children, each married with 3 kids of their own

Questions: How can they distribute the money to minimise tax?

By spreading the benefit over all the family members a large amount of capital acquisitions tax can be saved.

If you need further details or would like to arrange for a consultation to discuss the above please see here.

Tax Free Thresholds

August 19, 2015

Everybody is entitled to a certain amount free of any capital acquisitions tax. This is known as your tax-free threshold. The amount of tax-free threshold depends on your relationship with the person from whom you receive the gift or inheritance.

The most common threshold relates to assets transferring from parents to children and the current tax-free threshold for same is €310,000. No liability to tax will arise unless the value of the benefits exceeds this amount.

The second tax-free threshold which amounts to €32,500 applies where benefits are received from other close family relations apart from your parents e.g. grandparents, brothers/sisters & uncles/aunts.

Finally the third tax-free threshold which amounts to €16,250 applies in all other circumstances.

These tax-fee thresholds cover all transfers to you within your lifetime. However any benefits received prior to the 5 December 1991 are ignored. Transfers of assets between spouses are exempt from both gift and inheritance tax.

Where assets are being transferred in or out of Trusts, or limited interests are being acquired, the rules and regulations applying to same are very complicated. Because of the complexity of these matters and the fact that everybody’s circumstances are somewhat different we deal with this type of situation by way of consultation and a separate charge will arise for advice on such matters.

For Further Details Please Email Your Queries to barry.maxwell@paylesstax.ie or Contact Us On 01 524 2332

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