A Will is one of the most important documents a person will execute during their lifetime in relation to their assets yet nearly two thirds of Irish people do not have a Will in place.
Ireland has one of the highest death taxes in the world (currently at 33%) which forces families annually to sell inherited family homes or mortgage them in order to fund inheritance tax. In order to minimise Irish inheritance tax, ensure you have a tax efficient Will in place.
Some key things to consider to make your Will more tax efficient:
1. Have you suitable structures in place in relation to the family home to ensure it can pass tax free to a child?
The family home is often a person’s most valuable asset. Despite the exemption from gift and inheritance tax (Dwelling House Exemption) being substantially restricted by the Finance Act 2016, there are still opportunities to pass on the family home by Will to a child free of inheritance tax. Certain conditions apply and it is important suitable tax and legal advice is taken at the time of making a Will.
2. Should you consider leaving assets to grandchildren?
Leaving assets to grandchildren and certain ‘in laws’ can reduce inheritance tax for your children.
3. Do any of the beneficiaries of your estate have a disability (physical or mental)?
A beneficiary with a disability can receive certain inheritances free of inheritance tax if the proper structures are put in place from the outset under the Will. Indeed, such a beneficiary may not be suitable to inherit an asset outright and a trust structure can be put in place to hold assets for the beneficiary’s benefit, often tax free.
4. Do you have agricultural assets?
The market value of agricultural property (such as a farmland, farmhouses, buildings, livestock, pasture etc.) situated in Ireland or in a member state can be reduced by 90% for the purposes of calculating inheritance tax (for example, a qualifying agricultural asset with a value of €400,000 would have a value of €40,000 for inheritance tax purposes). In addition, it is possible to leave cash to a beneficiary to be invested in agricultural property within two years which can have its market value reduced by 90%.
5. Do you have business assets?
Similarly to agricultural assets, the taxable value for inheritance tax purposes of qualifying business assets can be reduced by 90% provided certain conditions are met. For example, shares in a family business having a value of €300,000 would have a taxable value of €30,000 for inheritance tax purposes.
6. Always consider the use of Trusts.
More often than not, it is through the use of correctly drafted trusts in Wills, that beneficiaries can avail of the relevant inheritance tax reliefs for the family home, agricultural assets and business assets. A trust can be used to hold the assets until a point in time when the beneficiary can satisfy the conditions of the relevant relief.
For example, a mother wishes to leave shares in a family business to her daughter tax efficiently. The mother leaves the shares in the business to her daughter under her Will absolutely. On the mother’s date of death she owned the shares for one year and eleven months. The shares do not qualify for the 90% reduction for business relief as the legislation requires that the mother must have owned the shares in the family business for a minimum of two years prior to her death. In this instance the daughter will pay inheritance tax on 100% of the value of the shares. If the shares in the business had been left in a trust under the mother’s Will for the benefit of the daughter they could have been held on trust until such time as all of the conditions of the business relief could have been satisfied and inheritance tax paid on a 10% value of the shares (instead of 100%).
7. Do you have minor children or other vulnerable beneficiaries?
Children under eighteen do not have legal capacity to hold assets. Always ensure a proper trust is in place to hold assets until children are suitable to inherit. You may have beneficiaries who have addictions, banking issues or marital issues and a trust is a very useful tool to protect such persons.
8. Are you in a relationship but unmarried?
There is no such thing as a ‘common law spouse’ and persons in a relationship who are unmarried have no legal or tax rights. It is very important to ensure you have a proper Will in place to protect each other on death and understand the tax implications of doing so.
The above information should be treated as a guide only.
If you would like us to review your Will or provide you with assistance in making a tax efficient manner (we work closely with a local legal and trust advisor), please contact Coll & Co Chartered Accountants, Barna, Galway.
We can be contacted by phone: 091 592080 or by email: firstname.lastname@example.org.
Coll & Co specialise in personal tax and pensions advice.
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