Family & Business Succession Planning

Death as we all know is an unavoidable part of life, while none of us like to think about it, putting the correct financial measures in place now may make this time less difficult for your loved ones.

In the past, “Estate planning” was something we believed to be only for the few wealthy individuals and their families. However, as a result of increasing asset values and lower tax-free thresholds, this is not the case anymore. If you are planning to leave your house or any other assets to your family – you need to make sure the real value of these assets is not reduced by Inheritance Tax.

What is Capital Acquisitions Tax (CAT)?

Inheritance Tax comes under the heading of Capital Acquisitions Tax. Capital Acquisitions Tax (CAT) is the tax you are charged when you receive a gift or an inheritance. CAT encompasses two distinct taxes – a Gift Tax payable on lifetime gifts and an Inheritance Tax payable on inheritances received on a death.

The benefit (the gift or inheritance) is taxed if its value is over a certain limit or threshold. Different tax-free thresholds apply depending on the relationship between the disponer (the person giving the benefit) and the beneficiary (the person receiving the benefit). There are also a number of exemptions and reliefs that depend on the type of the gift or inheritance, some of which I will address later.

What is the rate of tax?

Capital Acquisitions Tax is currently charged at 33%. This only applies to amounts over the relevant group threshold. For example, if you have received gifts from your parents with a taxable value of €550,000, you only pay tax on the amount over the appropriate threshold (Group A threshold is €310,000). So, in this example, the amount of €240,000 would be taxed at 33%, which would equate to a tax bill of €79,200 for the beneficiary.

It is important to note that it is the person receiving the gift or inheritance (the beneficiary) who is liable to CAT and not the person or estate providing the benefit.

Reliefs and Exemptions

There are certain reliefs and exemptions available and they apply to certain types of assets. These have been introduced over the years primarily to encourage private initiative and family / business succession planning. Reliefs and exemptions can help avoid the forced sale of a family farm, business or the family home in certain circumstances.

The main exemptions/reliefs are:

• Spouse Exemption- Gifts or inheritances received by one spouse from the other are totally exempt from CAT.
• Agricultural Relief –the value of farmland, buildings and stock can be reduced by 90% where the beneficiary is a qualifying farmer and he or she holds 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 certain qualifying conditions.
• Small Gift Exemption – The small-gift exemption allows anyone to gift up to €3,000 in any tax year to anyone else. It is a very tax efficient way of helping family members (or non-family members) through a small financial emergency, or for those saving up for things like mortgage deposits, starting a business etc.
• Life Assurance Relief – If you take out a life assurance plan, specifically for inheritance tax purposes (Section 72 Policy), the funds paid out on the plan will not be subject to capital acquisitions tax (CAT) – provided the funds are actually used to pay the CAT bill.

Making Your Will

A will is a witnessed document that sets out in writing the deceased’s wishes for his or her possessions, after death. If you die without structuring your will properly, the law on intestacy decides what happens to your property. A will can ensure that proper arrangements are made for your dependents and that your property is distributed in the way you wish after you die, subject to certain rights of spouses/civil partners and children.

It is also advisable to keep an updated a list of your assets. It will make it easier to identify and trace your assets after you die. You should keep the list in a safe place ( keep one copy at home, another at your Solicitors).

Whilst some universal guidelines can be made about inheritance and succession planning, it is always necessary to tailor a plan to meet with your specific requirements and wishes. Your detailed, bespoke plan must take account of your unique circumstances and goals.

Barry Kerr BBS QFA CFP® is the owner of Wealthwise Financial Planning, Bridge St, Carrick on Shannon, www.wealthwise.ie. Barry Kerr T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland. All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use.