Tax Allowance and Capital Gains ( Overheard pub conversation)

[yupyaboyo]

Hi,
This is a random question as I overheard a conversation at the weekend! The gist of the conversation is this;

1. Take a family, two parents and two children
2. Parents pay into a fund (best description I have)
3. When they die, this fund can be used to pay the property capital gains tax on the property being passed to the children
4. The assumpation is, the property(s) are more than the inheritance threshold
5. The childrens tax inheritance threshold amount is not impacted upon by the capital acquisitions tax (CAT) being paid when using this fund
6. The remaining amount, if any, from this fund, is then passed to the children, more than likely incur CAT.

There are many gaps in this conversation but essentially its how the fund can pay the CAT when the property is being passed to the children upon the death of the parents without impacting on the tax inheritance threshold of the children.

This was a conversation between two men in a pub! Soo you'll apreciate the context and the gaps in the conversation! But sounded really interesting...

Thanks.
Yupya Boyo

 

[T McGibney]

Your questions don't make a whole lot of sense. For starters, there is no capital gains tax on disposals arising from a death.

 

[fistophobia]

Its likely they are talking about a life insurance policy known as section 60, covers CAT liability on estates.

To encourage people to plan ahead and to have cash available to pay Inheritance Tax when they die relief is available on certain life assurance plans. This relief was introduced by Section 60 of the 1985 Finance Act to allow people to plan for the payment in a tax efficient manner.

 

[AAAContributor]

2. Parents pay into a fund (best description I have)

Sounds like a Section 72 policy (fund) they would pay into: https://www.cornmarket.ie/blog/inheritance-planning-options/

3. When they die, this fund can be used to pay the property capital gains tax on the property being passed to the children

As T said above, CAT is the liability the proceeds of the fund would pay, not CGT.

 

[yupyaboyo]

Yes, after some further investigation it seems its a section 73 policy which the conversation was referring to! Allowing the fund to pay the childrens gift tax. Had never heard of this before and would be really benefit alot of people!

 

[Brendan Burgess]

Not a lot of people really.

Is a Section 72 policy good value?

This was raised in another thread . I have never seen an example of how it works in practice. Let's say I am 65 and am worth €1m which I want to leave to one daughter. I am in good health. I take out insurance for the CAT bill. The CAT bill if I were to die today would be about €220k (€1m...

www.askaboutmoney.com

 

[Conan]

A S72 policy is where the parents (or the children) take out a particular Life Assurance policy on the lives of the parents (typically payable on the death of both parents) whereby the sum assured is used to pay any Capital Acquisitions Tax (Inheritance Tax) which the children may have a liability for (assuming the value of the inheritance is in excess of their Threshold - currently €335,000). In so far as the S72 sum assured is used to pay such tax, the sum assured itself does not form part of the estate of the parents.