Inheritance tax, or Capital Acquisitions Tax (CAT) in Ireland, can be a significant financial burden on beneficiaries, especially if a large estate includes valuable assets like family homes. Proper inheritance tax planning helps ensure that your beneficiaries don’t have to sell these assets to cover tax liabilities.
Whole of life policies and Section 72 policies are often utilised to cover potential inheritance tax liabilities. These insurance policies are specifically designed to provide a tax-free lump sum, which can be used by your beneficiaries to pay the inheritance tax, preserving family assets.
Calculating potential inheritance tax requires a thorough review of your estate’s total value and Ireland’s CAT thresholds. For example, Group A threshold, for inheritances from parents to children, is €400,000 as at October 2024. Any inheritance exceeding this threshold incurs a 33% tax.
A whole of life policy can be structured to cover this €132,000 liability, ensuring your family won’t need to liquidate assets.
You can also complement tax planning with long-term savings and investment strategies to grow and preserve your estate efficiently.”
John and Mary, a retired couple in Ireland, have a combined estate valued at €1.2 million. This includes their family home worth €750,000 and other assets totalling €450,000. They want to leave their estate to their two children.
To cover this amount, John and Mary take out a Section 72 policy for €132,000. Upon their passing, this policy provides a tax-free payout for the exact inheritance tax amount, ensuring their children can retain the family home and other assets without financial strain.
For business owners, inheritance tax planning should also be paired with business succession and assurance planning to ensure a smooth transition of assets.
Yes, a whole of life policy can also cover inheritance tax but lacks the same tax exemptions as a Section 72 policy. However, it provides lifelong coverage, making it ideal if you want flexible, long-term protection.
Beyond tax-focused policies, you may also benefit from life insurance options tailored for legacy planning, ensuring comprehensive financial protection for your loved ones.
Section 72 policies are often best suited for individuals who are at least 50 years old and are likely to be accepted for coverage. Whole of life policies also offer flexible options for those at various life stages, depending on health and lifestyle factors.
It’s wise to integrate inheritance tax planning with your retirement strategy to ensure that both your future income and estate are safeguarded
Serious illness cover is essential in helping to financially protect individuals and families when facing life-altering health conditions.
Pension Term Assurance is a type of life insurance specifically designed to provide financial security if the policyholder passes away before reaching retirement age.
Executive Pension Term Assurance is a life insurance policy tailored for company directors, providing life cover with tax efficiency. Businesses can fund it as a company expense, potentially reducing corporation tax.
When planning long-term financial security for your loved ones, Whole of Life insurance is a key product that ensures protection throughout your life.
Level Term insurance provides affordable protection by guaranteeing a payout to beneficiaries if the policyholder passes away within a set term.
Get help from Smart Financial knowledgeable life insurance advisers to discover coverage that meets your requirements.
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A Section 72 policy is a life insurance policy that allows the payout to be used exclusively to cover inheritance tax, thus exempting the payout from inheritance tax itself.
Yes, but regular life insurance payouts may still be subject to tax, unlike Section 72 policies, which are specially exempt.
Premiums for Section 72 policies vary based on age, health, and coverage amount.
Whole of life policies offer coverage for your lifetime, regardless of age, making them a good option if you’re younger and want to begin planning early.
Calculate the total value of your estate, then subtract the applicable CAT threshold based on your relationship to your beneficiaries. Multiply any remaining balance by 33% to determine the liability.
Yes, the inheritance tax thresholds in Ireland will increase in 2025 as part of Budget 2025. This change provides higher exemptions for beneficiaries, reducing their tax liability when inheriting property or assets.
The inheritance tax rate remains at 33% on any amount that exceeds the threshold. For example, if an heir in Group A inherits €450,000, they would pay tax on the €50,000 above the €400,000 threshold.
