Little-known plan could save you inheritance tax

Consumer advice with Gráinne McGuinness

I recently wrote about the importance of estate planning and the fact that many Irish people do not make adequate provision to deal with the taxes that arise from inheritance.

There is a widely-available product specifically designed to deal with this issue, and insurance professionals believe a lack of awareness is preventing more people using it.

A Section 72 life assurance policy is a Revenue-approved whole of life policy, the proceeds of which are tax-free if used to pay an inheritance tax bill.

I spoke to financial adviser Nick McGowan of lion.ie, who says Section 72 policies are even more important now that inheritance thresholds are lower.

Earlier this month, the Minister for Finance announced an increase in the inheritance tax threshold from parents to children, from €310,000 to €320,000 — but it is still a far cry from the €521,208 allowance available in 2008.

Anything in excess of the threshold is taxed at 33% and, for inheritances from anyone other than a parent, the tax-free threshold is far lower.

There is a perception that the family home is exempt from inheritance tax but, except in a very limited range of circumstances, that is not the case.

“Plus property prices have gone up so there are huge bills,” Mr McGowan said. “The people worst hit are only children who only have one threshold, but receive all the assets.

If you get any asset, house, investment, bank account through a gift or inheritance, you are liable to pay tax, there is no way around it. If it is cash or investments it is not too bad, but when it is a family home or property it can be a nightmare.

“You can either have that saved up in cash, which is fairly unlikely, or the person leaving the gift puts this policy in place and the proceeds are used to pay your inheritance tax liability.”

The policy-holder must be the person leaving the inheritance, but some insurance companies will allow the children to pay the premiums.

“Usually these policies are not put in place until people are in their late 60s and early 70s and at that stage the premiums can be quite high,” Mr McGowan said.

“So if the parents are managing on a pension or social welfare it can be hard for them to pay the premiums on their own.

"The kids are going to get the benefits of the policy anyway so in many cases they would like to pay it. But there has to be agreement from the insurer to allow them pay it.”

A family will have to prove to the insurance company that there is a financial need for the policy as normally a child cannot insure the life of a parent. This can be done by showing a copy of the will to the insurance company.

The maximum age to apply for one of these policies is 74 and, given that it is medically underwritten, Mr McGowan suggests putting them in place as early as possible in order to keep the premiums low.

“If people are in their late 60s, that is time to be looking at it,” he said.

“Particularly if you are healthy, because you might not be as healthy in your 70s. If your parents are in good health, that is the time to take it out.”

He said people who take preventative medication fear it will make them ineligible but that is not generally the case.

“Speak to a broker and have a chat,” he said.

People worry about things like blood pressure and cholesterol but almost everyone over the age of 60 has some issue with things like that these days and insurance companies take that into account.

"Once it is under control with medication you will be fine. Of course the more serious issues may cause a problem but your run-of-the-mill old age problems won’t.”

As with any major financial decision, the best advice is to consult an independent adviser before purchasing a policy.

“There are three providers of Section 72 life insurance policies in Ireland and their quotes vary wildly,” Mr McGowan said.

You can find out more about Capital Acquisitions tax and Section 72 policies at revenue.ie.

Deal of the week

Budget-conscious parents have an opportunity to tick a few items off important lists this week, with Aldi’s major toy sale hitting stores on Thursday.

The highlight of their offering this year is the Little Town collection, a whole range of sturdy and attractive wooden toys that should delight younger children.

Highlights include a slot-together Wooden Doll’s House with painted interior for €39.99. The underside of the roof panels lift off to reveal a front and rear garden. The house has two sets of stairs and is suitable for 3+ years. There is also a large and well-equipped wooden kitchen for €44.99, where budding chefs can play cook with an oven, gas hobs, knobs with realistic clicking sounds, and a host of accessories. Other toys include a wooden rocking horse, railway, kids’ teepee, pirate ship and garage.

Aside from the wooden toy collection,

Aldi are also selling an inline deck electric scooter for €79.99 and a 3ft football table for €34.99. All in store on Thursday October 25.