By utilising a ‘qualifying’ savings plan you could potentially save your beneficiaries 33% on their tax bill.
The Section 73 Gift Tax Plan is a valuable estate planning tool designed to help individuals in Ireland manage the potential tax liabilities associated with passing on wealth to their family/next generation via gifts.
If you are planning on gifting assets to your beneficiaries, Section 73 Relief from Gift Tax can be a valuable part of your estate planning solution. While most are familiar with the ability to be able to gift anyone up to €3,000 per year, less are familiar with the benefits of taking out a Section 73 savings plan.
The advantage of utilising a ‘qualifying’ Section 73 life assurance savings plan to cover future gift tax payments is that, provided the funds from the plan are used to pay the gift tax bill, it will not add to your beneficiaries’ gift tax liability. In order to illustrate the benefit, I have provided an example below.
Mary aims to transfer an investment property worth €750,000 to her son Kieran in 8 years’ time. Kieran’s gift tax liability will be €136,950, assuming he has received no other gifts or inheritances from his parents (for simplicity we have ignored the annual small gift exemption). In simple terms, this essentially means a loss of approx. 20% of the value of the gift when the gift tax has been accounted for.
As Mary has a high level of disposable income on a monthly basis, she could save €1,426 for 8 years to a Section 73 life assurance savings plan to mitigate this. After 8 years Mary gives Kieran the accumulated savings pot of €136,950 to Kieran who then uses it to pay his Gift tax liability on the property. Due to the Section 73 relief, this money is not seen as an additional gift, therefore does not increase the gift tax liability.
If Mary had simply saved the €136,950 in her bank account and given it to Kieran to cover the tax due on the investment property this would have increased Kieran’s gift tax liability.
Why Consider a Section 73 Gift Tax Plan?
- Protecting Beneficiaries: Without proper planning, the recipients of your gifts might face substantial CAT bills, potentially forcing them to sell assets or use their own funds to cover the tax.
- Maximising Inheritance: By using a Section 73 policy, you maximise the amount of wealth that is actually transferred to your beneficiaries.
- Legacy Planning: Helps in maintaining family wealth and ensuring a smooth transition of assets to the next generation.
The Section 73 Gift Tax Plan is an essential tool for anyone looking to manage the tax implications of transferring wealth to their loved ones. By taking out a life assurance savings policy under Section 73, you can ensure that your beneficiaries receive the full benefit of your gifts without the burden of substantial tax liabilities. This proactive approach to estate planning not only maximises the inheritance but also provides peace of mind, knowing that your financial legacy is secure.
About MyWealthManagement
Established in 2008, MyWealthManagement Limited together with its sister company MyMortgages.ie have built a reputation for delivering bespoke wealth management and financial planning advice in Ireland.
Working from Dublin and Cork, we service clients throughout Ireland providing financial reviews and determining based on the individual and family needs, the best solutions for Life Insurance, Serious Illness Cover, Income Protection, Mortgage Protection, Pensions, Investment and Savings. Whether you are starting out, or making a step-change in your career or preparing for retirement, taking some time to consider your financial future and security is important. We can help you with the first step of reviewing your current plans and discuss any requirements you may have on portfolio management, insurance protection, asset allocation & security selection, previous employment buyout bonds, PRSA & personal pensions, Executive schemes & SSAPs, post retirement ARFs & AMRFs, succession & inheritance planning as well as an independent audit & review service.
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