CAT is a tax you pay when you receive a gift or an inheritance. CAT comprises two separate taxes – a Gift Tax payable on lifetime gifts and an Inheritance Tax payable on inheritances received on death. It is the person receiving the gift or inheritance who is liable to CAT and not the person or estate providing the benefit.
With effect from 1st December 1999, a charge to CAT will arise where either the disponer ( the person giving the asset ) or the beneficiary ( the person receiving the asset ) is resident or ordinarily resident in the State at the date of the Gift or Inheritance. Where both the disponer and the beneficiary are not resident or ordinarily resident in Ireland, a charge to tax would only arise in relation to Irish property.
33% is the current rate of tax on gifts or inheritances received by a beneficiary.
The amount a beneficiary can receive tax-free depends on their relationship to the ‘disponer’.
| Group 1 €280,000 | Where the person receiving the property is a child of the disponer or of the civil partner of the disponer, or a minor child of a deceased child of the disponer or of the civil partner of the disponer, or a minor child of the civil partner of a deceased child of the disponer, or of the civil partner of the disponer. |
| Group 2 €30,150 | Where the person receiving the property is a lineal ancestor, descendant, a brother/sister, or child of a brother/sister or the child of a civil partner of a brother or sister of the disponer. |
| Group 3 €15,075 | All other cases |
The threshold amounts are those applying with effect from midnight on 14th October 2015.
Child includes a child (blood-related), a stepchild and an adopted child.
The tax-free threshold amount is the total amount you can receive tax-free in your lifetime, from each different ‘group’.
Under the current rules ( called aggregation rules ) all benefits from Group 1 will be added together with an overall threshold of €280,000. Benefits from Group 2 members (brother, sister, grandparent etc) will be added together for the purpose of the €30,150 threshold, and benefits from Group 3 members (strangers) for the purpose of the €15,075 threshold.
So in effect, a beneficiary can potentially receive up to €325,225 tax-free if the benefits come through different “groups”.
While tax is payable on all assets you receive certain reliefs and exemptions apply to certain types of assets. The main reliefs are:
Agricultural Relief –the value of farmland, buildings and stock can be reduced by 90% where the beneficiary is a qualifying farmer and hold the property for a minimum of 6 years.
Business Relief – can provide a similar reduction of 90% in the value of certain businesses or private companies, where both the business and the beneficiary meet the qualifying conditions.
Family Home Relief – exemption from Gift and Inheritance Tax is available on the value of certain “dwellings” with up to an acre of land where the beneficiary meets certain conditions.
Life Assurance Relief – the proceeds of life assurance policies, where the plan was effected specifically for the payment of Inheritance Tax or the tax payable on the value of an ARF inherited by a child over the age of 21, will not be subject to Inheritance Tax – provided the money is actually used to pay the relevant tax bills.
| Section 72 Relief | |
| Life Assured | Person leaving assets / disponer |
| Policy Owner | Person leaving assets / disponer |
| In Trust | Yes – Special Section 72 Trust Form |
| Payer of premiums | Person leaving assets / disponer |
| Premium payment rules etc … | Yes |
For relief under Section 72 CAT Consolidation Act to apply the person leaving the assets must be the plan owner, must be the life assured and must pay the premiums on the qualifying policy.
If the person who is going to be paying the tax bill, the beneficiary, wants to pay the premiums on the policy themselves then that is simply just a ‘life of another’ contract with the beneficiary as the plan owner, and the payer of premiums and the ‘disponer’ or the person who is leaving the assets, as the life assured. The insurable interest is the fact that the beneficiary will have a tax liability to pay on the death of the life assured.
In line with Revenue Guidance Notes for eligibility for Section 72 relief, the life assured, the payer of the premiums and the person leaving assets must be same person.
However, if the person who is going to be paying the tax bill, the beneficiary, wants to pay the premiums on the policy themselves, then that is simply just a ‘life of another’ contract with the beneficiary as the plan owner, and the payer of premiums and the ‘disponer’ or the person who is leaving the assets, as the life assured. The insurable interest is the fact that the beneficiary will have a tax liability to pay on the death of the life assured.
The policy has to be taken out specifically from day 1 as a ‘special’ policy to pay inheritance tax. What the Revenue Guidance Notes state is that the policy has to be taken out expressly to pay Inheritance Tax
The amount of the sum assured actually used to pay inheritance tax is exempt from inheritance tax. Any proceeds not used to pay inheritance tax (excess sum assured over inheritance tax bill) are a taxable inheritance
Only legal spouses or registered civil partners can effect a joint life Section 72 plan. Where a non-married couple wish to use Section 72 relief they will have to effect two separate single life plans.
The relief will NOT be lost as long as the plan was set up for a term of more than 8 years from the outset.
Where the policy terms and conditions allow it yes the sum assured can be reduced BUT the life cover must never be lower than 8 times the annual premium, or 6 times the annual premium where there is a loaning on the contract.
Again, where the policy terms and conditions allow it, the premium on a ‘qualifying’ plan can be reduced.
However, if the premium doubles or halves in any eight year period this COULD result in the plan losing its’ eligibility for relief IF THIS CHANGE IS NOT AS A RESULT OF A CHANGE TO THE SUM ASSURED OR AS A RESULT OF A POLICY REVIEW ON A UNIT LINKED CASE.
So on the current Irish Life GUARANTEED plan, because any changes to the premium will ALWAYS result in a change to the sum assured, the plan will NOT lose it’s eligibility for relief as a result of a premium change …..just remember though the sum assured must always be at least 8 or six times the annual premium (see the previous question).
Technically yes you can but Irish Life’s approved plan is a guaranteed whole of life arrangement. Please note, however, that if a term assurance plan is effected with another company for the purpose of using Section 72 relief the term of the plan must be at least 8 years.
Revenue Guidance Notes for ‘qualifying’ policies recommend that the plan be issued in Trust ‘with an appropriate trust instrument specifying whether all or merely some of the successors on the insured persons death are to benefit from the proceeds of the policy’.
This will ensure that:
The Settlor is the Life Assured on the plan and under our special Inheritance Tax Trust Form the Settlor is also the initial Trustee.
At Section 1 of the Trust Form fill in the name and address of the Life Assured (i.e. First Person to be covered ), along with the date the application form for cover was completed.
The Settlor has the power to appoint a new or additional Trustee and could also remove any such Trustee.
Section 4 of the Trust Form allows the Settlor to nominate someone who has the power to appoint a Trustee after the Settlor’s death, in the case where there is no Trustee available. This person is called the ‘appointor’.
This nominated person can be changed by the settlor at any time.
If no-one has been nominated, the Legal Personal Representative of the Settlor’s Estate has the power to appoint Trustees after the death of the Settlor.
The Trustees are the legal owners of the plan and are directed to hold the plan for the benefit of the Beneficiaries.
The Trust form provides that the Settlor is the initial Trustee and gives him/her the power to appoint additional Trustees if he/she so wishes. The form does not make any provision for the appointment of such additional Trustees at outset, but they may be added at any time. Irish Life must be informed in writing of any such appointment of additional Trustees.
The powers of the Trustees are outlined in Section 5 of the Trust Form.
Irish Life can only deal with Trustees, the legal owners of the plan, in all future events. We request that we be notified in writing by the Trustees of any change in circumstances of this Trust, such as any appointment, resignation, dismissal, removal, retirement, revocation or any other act of the Settlor or Trustees.
Section 4 of the Trust form makes provision for the appointment of a nominated person, the appointor, who has the power to appoint a Trustee after the Settlor’s death, where there is no Trustee available.
If this power is to remain with the Settlor and on his/her death, to go to the Legal Personal Representative of the estate, please leave Section 4 blank.
If a nominated person is to be appointed, please insert their name and address in the space provided.
A Beneficiary is a person for whom the plan is held on Trust by the Trustees.
If no Beneficiaries are specified under Section 3(a) of the Trust form, the life cover amount will be paid out to all beneficiaries of the Estate, in their respective proportions. Therefore, if you / your client wish to provide for the liabilities of all beneficiaries of the Estate, please leave Section 3 blank. The life cover amount will then be split between all beneficiaries of the Estate in the same proportion as their liability bears to the entire inheritance tax liability. Any surplus will be paid into the Settlor’s estate and will be taxable.
The Settlor can specify in Section 3 who the Beneficiaries of the plan will be on death and the life cover amount will be paid out to those Beneficiaries in the same proportion as their individual liability bears to their combined liabilities.
Any surplus will be paid into the Settlor’s estate and will be taxable.
On the death of the Settlor, the life cover amount will be paid to the Trustees, who will pay it over to the Beneficiaries, who will use it to pay their inheritance tax liabilities.
If the Settlor is the only Trustee, we will then either pay over to the Legal Personal Representative of the Estate or to whoever has been appointed by the nominated person under Section 4 of the trust form, as Trustee.
If there is a surplus remaining, after paying the inheritance tax of the Beneficiaries, it is paid into the Settlor’s estate and will be taxable.
If the plan no longer qualifies for relief under Section 72, the life cover amount will be paid into the Settlor’s estate and will be taxable.
Global Life & Finance Ltd is regulated by the Central Bank of Ireland.
Global Life & Finance Limited – Reg in Ireland No. 323964
Reg. Office: Brook House, Unit C4, Donnybrook Commercial Centre, Douglas,
