In Ireland we have one of the highest death taxes in the world.
The current inheritance tax rate in Ireland is 33%. That means that one third of what you wish to leave behind for your children if above the €335,000* threshold must be given to the taxman unless you have a plan in place to avoid inheritance tax.
What is Inheritance Tax?
When you die and leave an inheritance, depending on the amount of the inheritance and the person whom receives it, there may be inheritance tax to be paid. The only exemption is to a spouse or a civil partner.
However your children could be hit with a massive tax bill. In 2022 the tax threshold for a child or, minor child of a deceased child is €335,000.Anything above €335,000 is taxed at 33%.
Example: You have a family home worth €450,000, an investment property worth €300,000 and shares & savings worth €50,000. You wish to leave these to your child upon death. Let’s assume they have not yet received any inheritance from you.
Upon your death your child would inherit the first €335,000 tax free, however the remaining €465,000 would be liable to 33% inheritance tax or €153,400. If your child does not have access to €153,400 they may be forced to sell the family home to pay the tax bill.
If you don’t want your child to be faced with this scenario, there is a solution! You can take out an inheritance tax life assurance policy. An inheritance tax life assurance policy is a special type of whole of life insurance where the proceeds of any pay-out are tax-free if used to pay an inheritance tax bill. It’s also called a Section 72 Life Insurance policy.
In the example above you could take out a Section 72 life insurance policy for €153,400 on your life. Upon your death your child would not have to pay any inheritance tax as the Revenue would get the proceeds of your life insurance policy to pay the inheritance tax bill.
*€335,000 Threshold for Child, or, minor child of a deceased child as of 2022