As we previously noted, Capital Acquisitions Tax (CAT) is a “painful” tax payable at 33% of any gift or inheritance you may receive from parents or others.
CAT allows a threshold of €335k to be deducted from the value of a gift or inheritance between a parent a child, above which CAT is payable at 33%.
There may be situations when the CAT arising can be “covered” by what is called a Section 72 saving life policy to cover CAT on a gift, or a Section 73 life policy to cover CAT on an inheritance.
The benefit is that the proceeds of a S72 or S73 CAT policy are not included in the taxing of a gift or inheritance.
Example
John and Jean have an estate of €1m and one child Jazmine.
The potential CAT liability for Jazmine is €1m-€335k=€665k@33%=€219,450.
That’s a lot of tax!
It is amazing to think that you could accumulate an estate of that size. But, over a lifetime, all things going well, these things add up. And, as CAT is payable by the beneficiary, this could be a problem if it is not planned for.
Solution
A solution here to set aside funds to pay for the CAT, is that John and Jean could pay some of their estate, before they depart!, into a section 73 policy to cover the CAT.
Effectively, John and Jean can use €219,450 of their estate to pay the CAT which Jazmine will have to pay when she inherits the estate.
Some thoughts
John & Jean might think, sure we’ll leave the money in the bank account for Jazmine and she can use it to pay the CAT. The problem with that is that money is then included in the CAT calculation! So John & Jean need to have the CAT s73 policy in place well before their departure!
Talk to us
Interested in talking to us about this? Call Dave on 091 586020 or dave@dvmannion.ie