Friday, 27 February 2015 11:51

Revenue Commissioners take in €357M in Capital Acquisition Tax in 2014

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Capital Acquisition Tax (i.e. Inheritance Tax, Gift Tax and Discretionary Trust Tax) raised €279m in 2013, but this figure increased by 28% to €357m in 2014. The estimate is that this will increase to €396m in 2015. The increase is due to changes in the 2014 finance bill. In 2008 a parent could leave €521,208 to each son or daughter without incurring a tax liability. The rate of tax over this threshold was only 20%. In 2015 this has been reduced to €225K, wuth the surplus being taxed at 33%.

Many people do not know that it is possible to take out an insurance policy which will pay the inheritance tax (known as a section 72 policy)

The Revenue Commisioners has also tightened up on what transfers qualify. The 2014 Finance Bill changed the rules regarding what parents can provide for the support, maintenance or education of their children. Prior to the 2014 Bill, there was no limit on such payments.

Only children under 18 years of age or those in full-time education under age 25 will be exempt from tax on such payments. Children who are permanently incapacitated because of mental or physical infirmity are also excluded.

Revenue was concerned that this exemption was being abused by wealthy individuals passing on large gifts to their children and claiming an exemption – however this does not extend to adult children receiving routine family support, such as bed and board in their parents’ home.

Using second homes or investment properties

Parents could save their children thousands of euros in tax if they encourage them to move into any second home or investment properties that they intend to leave to them in their Will. Revenue has stated that if you own a second home and allow your child to live there rent free - the free use of the house is equal to a gift of the annual rent forgone.

If the house would have normally earned a rental income of €1,000 per month, the €12,000 per annum (less the annual small gift exemption of €3,000) is considered a gift and is offset against the Group A threshold of €225,000. However should this house be ultimately gifted to the child, that inheritance could be eligible for exemption from CAT under the principle private residence in Section 86 CATCA 2003 once the conditions governing the relief were satisfied. These conditions are:

  • The property must have been continuously occupied by the beneficiary as his or her main residence for a period of 3 years prior to the gift or inheritance;
  • in the case of a gift, the property must have been owned by the disponer (person making the gift) during that 3 year period;
  • the beneficiary must not be entitled to an interest in any other dwelling-house at the date of the benefit; and
  • the beneficiary must continue to occupy the property as his or her only or main residence for 6 years after the date of the gift or inheritance.

5 Simple Steps to Take
  • Make a Plan - Often assets can be passed on in a rather ad-hoc fashion, even when a will has been made. You should begin by making a list of what their assets are, what the values are, and who they wish to leave them to.
  • Split the assets for a family – While many parents may wish to leave their assets directly to their own children, it is often forgotten that your daughter/son-in-law and your grandchildren also have individual Group B allowances of €30,150 each and that the overall tax bill can be significantly reduced by leaving some assets directly to each of them also.
  • Use the annual €3,000 gift tax exemption – This exemption is useful if you can afford to drip feed your inheritance while you are still alive. We can advise you on Child Savings Plans where ownership is assigned to the child on issue and is a very effective means of achieving this aim.
  • Set up a Section 72 Life Insurance plan – This is a life insurance plan which can be taken out on either a Single or Joint Life Last Survivor basis and all current providers only allow this for Whole of Life Plans. It is set up under a Section 72 trust (formerly known as Section 60) for your beneficiaries and the proceeds are exempt from Inheritance Tax if they are used to pay an inheritance tax bill that arises from receiving other assets.
  • Get sound professional advice - Cregan Kelly O'Brien not only provide financial and insurance advice but also taxation advice
  • Last modified on Monday, 02 March 2015 16:03
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    About Cregan Kelly O'Brien

     

    In 2007 Maurice Cregan and Colm Kelly established CK Financial Services to provide independent financial planning and advice to business owners and individuals. Tommy O'Brien, a General Insurance expert, then joined them in 2010, enabling them to meet the full financial needs of their clients. Financial Life & Planning Limited would deliver Financial Services, and O'Brien Cregan Kelly Insurances would deliver Insurance Broking services. Two Business Names were registered Cregan Kelly O'Brien Financial Planning and Cregan Kelly O'Brien Insurances

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