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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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