Some people argue that it\u2019s only a minority who actually pay it, so why the fuss? Others, such as former minister Alan Shatter, describe it as \u201cState-sanctioned graveside robbery of assets\u201d. But whatever side you\u2019re on, there\u2019s no doubt that reducing a tax bill on your life\u2019s work is something most people would look to do. <\/p>\n
When it comes to inheritance<\/a> tax<\/a>, or capital acquisitions tax (CAT) as it is more formally known, tax free thresholds are on the way up. The parent-to-child allowance now stands at \u20ac400,000; other close linear relatives is \u20ac40,000; and so called \u201cstrangers\u201d, which includes cousins and in-laws, is \u20ac20,000. However, given the rapid rises in house prices over the past few decades, some families may feel that these levels are still too low.<\/p>\n So, what should you do if you fear leaving your loved ones with a hefty tax bill?<\/p>\n Gifting, or passing on your assets while you\u2019re still alive, may be one route to lower taxes. The author of a new report on inheritance tax planning has some tips on how to do it.<\/p>\n Tread carefully<\/p>\n While once upon a time families may have been happy to leave bequests to be acted upon after their death, many are now being more proactive, mindful of potential tax bills that they might leave behind.<\/p>\n Catriona Coady, head of tax at Goodbody Stockbrokers<\/a> and author of A Lasting Legacy: Guide to Inheritance and Estate Planning in Ireland<\/a>, says that people often start looking to gift during their lifetime after they\u2019ve done their own financial review.<\/p>\n \u201cI wouldn\u2019t rush to gift without having considered my own position,\u201d says Coady. \u201cIt mightn\u2019t be in your best interest to provide a lump sum to a child that you may need.\u201d<\/p>\n So, if you are considering passing on your assets, the first bit of advice is to look after yourself first.<\/p>\n \u201cYou can make a more informed decision when you look at your own cash flow position. There can be a sort of a lack of awareness around what your own requirements can be as time goes by,\u201d advises Coady.<\/p>\n The last thing you want is to leave yourself short as you age. And bear in mind that money offered as a loan to family may never end up being paid back.<\/p>\n \u201cLoans very often become outright gifts, where there is no prospect of them ever being paid back, so it is important for the giver to be mindful of this and that the expectations on both parties to the loan are clear,\u201d advises Coady.<\/p>\n Apart from possible tax savings, another benefit of gifting is that it can help end speculation as to what might become of the family\u2019s assets.<\/p>\n \u201cYou will often hear, \u2018There was a collective sigh of relief when I explained what my plans were\u2019,\u201d she says. Good communications are key. As Coady notes, parents are often very keen not to repeat the mistakes of the past in their own families. <\/p>\n Small gifts<\/b><\/p>\n Among those for whom it is viable, there can be tax savings when getting ahead of the game.<\/p>\n \u201cWhen the potential growth in the value of an estate is determined, taking into account annual living expenses, it can make sense to gift assets early,\u201d she says.<\/p>\n One of the main tools to avail of when gifting to reduce possible taxes is the small gift exemption. Through this, it is possible to gift anyone \u20ac3,000, tax free, each year. As a family\u2019s wealth increases, so too does their use of this.<\/p>\n \u201cI would say that there\u2019s definitely more awareness of it,\u201d says Coady, noting that while some people proactively avail of the exemption, others say \u2018Oh, we must get around to doing that.\u2019<\/p>\n Of course, the main value in the scheme is its use over a long period of time rather than as a one-off.<\/p>\n Consider an annual gift of \u20ac6,000 (\u20ac3,000 from each parent) to a child from birth until they reach age 18, growing at a rate of 3 per cent annually. <\/p>\n \u201cThis could be as much as \u20ac140,000 by age 18, meaning that this value has been removed from the estate. It is important to remember that with the small gift exemption, any amount up to \u20ac3,000 annually is exempt,\u201d she adds. \u201cIt doesn\u2019t have to be \u20ac3,000 \u2013 it can be what you can afford.\u201d<\/p>\n