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 spouse, 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 the following timeframes:
- If the valuation date occurs in the period from 1st January to the 31st August, the inheritance tax is due for payment by 31st October of that year.
- If the valuation date occurs in the period from 1st September to the 31st December, the inheritance tax is due for payment by 31st October of the following year.
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 / tax advisor can help you to value your assets, less the relevant thresholds and 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, the proceeds themselves will not be taxable. Taking out a Section 72 policy will you give you the peace of mind, knowing that your chosen beneficiaries have the best chance of being able to receive and enjoy the value of your estate.
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