Inheritance Tax Planning
What is Inheritance Tax?
In simple terms, Inheritance Tax is a tax on the value of property and all other assets that people receive from you, when you die. Although there is no limit on the amount you can inherit from your wife or husband, you should remember that if your children / other relatives inherit assets from you they may be liable to pay a significant tax bill.
When is the tax payable?
The Inheritance Tax must normally be paid in one lump sum within four months of the date of the inheritance. This requirement can, of course, create a severe financial strain – and it is often necessary for part of the inheritance to be sold (if possible), in order to raise the money to pay the tax. In some cases, the beneficiaries may have to take out a bank loan to pay the Inheritance Tax.
Does the tax always have to be paid?
Yes, your beneficiaries will always have to pay Inheritance Tax on what you leave them – unless their total gifts and inheritances stay within their tax-free thresholds (these thresholds vary, depending on the relationship between the person who dies and the person who is inheriting). There are a range of other reliefs and exemptions that can reduce the value of the “taxable inheritance”. Your local AIB Financial Adviser and/or your solicitor can help you to value your assets, less the relevant thresholds & reliefs, so you can estimate the likely tax bill your beneficiaries could face.
Solution – Section 72 Inheritance Tax plan
If you are planning to leave property and assets which would take a beneficiary over the tax-free threshold, a practical solution is to arrange a Section 72 policy on your life (and that of your spouse, if applicable), which would be used to pay the Inheritance Tax when it falls due.
A Section 72 policy is a life assurance policy, set up under trust for your beneficiaries. It is designed to pay them sufficient money, on death, to meet the Inheritance Tax that will then arise.
Provided that the proceeds of the policy are used to pay the Inheritance Tax bill due, they will not themselves be taxable. Only by taking out a Section 72 policy will you know that your chosen beneficiaries will be able to receive and enjoy the full value of your estate.
If you would like advice on Inheritance Tax Planning OR a copy of AIB’s Inheritance Tax guide, please complete our contact form & your local AIB Financial Adviser will be in touch.