What Steps Can Be Taken to Avoid Inheritance / Gift Tax Liabilities
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. We set out below 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 your 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/Daughters-in-Law are strangers for tax purposes and only qualify for the lowest tax free threshold of €15,075.
- This is the reverse of the previous point in that spreading out the benefits of your assets to your children, Sons/Daughters-in Law and grandchildren where applicable ensures a greater number of tax free thresholds when calculating the tax liability due. See Example 2 above.
- Every year children can receive a tax free gift of €3,000 from each parent. This is a useful way of gradually reducing your assets that might otherwise be liable for tax. See Example 1 above.