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Using A Life Assurance Protection Plan To Fund For Inheritance Tax

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Contact us today and book your consultation and see how Quigley Financial Brokers can help you choose the best options available or contact richard@quigley.ie for further information.


Relief is given in Section 72 of Capital Acquisitions Tax (CAT) Consolidation Act

2003 to allow people to plan for the payment of inheritance tax (Section 72) in a tax

efficient way.


If a life assurance protection plan is put in place to provide for the ‘relevant’ tax,

Revenue will not charge Capital Acquisitions Tax on the plan proceeds if the money

is actually used to pay inheritance tax.


What is the benefit of your client taking out a Section 72 protection plan?


The benefit of using a ‘qualifying’ life assurance plan to fund for the payment of

inheritance tax is that, as long as certain conditions are met, the proceeds of the plan

when used to pay inheritance tax, will not increase the beneficiaries inheritance tax

liability. Whereas, if the money was left in a bank account, for example, this money

will be seen by Revenue as an additional inheritance and will increase the tax bill.


How the Section 72 relief from inheritance tax works in practice is shown

below


Mick and Liz are married. Their estate is valued at €1,000,000 and will be inherited

by their only child, their daughter Michelle.


  • Total inheritance €1,000,000

  • Tax free threshold €335,000 (assuming no previous gifts/inheritances received)

  • Taxable inheritance €665,000

  • Taxable at 33% €219,450 or nearly 22% of inheritance taken in tax

Therefore, when Mick and Liz die, their daughter Michelle will lose up to 22% of the

estate as she will have to pay €219,450 in inheritance tax.


To fund for this, Mick and Liz could affect a (Section 72) life assurance

protection plan, which would pay out €219,450 when they die. This amount will

be tax free if used to clear Michelle’s inheritance tax bill.


We advise that you seek professional tax advice as the information given is a guideline only and does not take into account your personal circumstances.

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