Ways to minimise payment of inheritance tax
Q HOW can I leave my assets to my children without them paying too much inheritance tax?
A Ireland has one of the highest death taxes in the world - and this tax is crippling families across the country. It has forced some people to sell their family homes or take out mortgages, simply so they can clear the enormous bills they were hit with after inheriting property or other assets. Many of these bills are running into hundreds of thousands of euro.
The recovery in the property market have triggered concerns amongst older people who are considering passing on family homes or investment properties to their loved ones.
More people are now being caught for inheritance tax, thanks to the Government's decision to slash the thresholds for this tax over the last few years.
These thresholds limit the amount of money, property or other assets which you can inherit tax free. For example, in early April 2009, a son or daughter could inherit €542,544 tax free from a parent - the threshold is now €280,000
The rate of inheritance tax charged has also soared - from 20 per cent in early November 2008 to 33 per cent today.
So what can you do to keep the taxman's claws out of the inheritance you're planning to leave to loved ones?
Make a will: You will lose the opportunity to reduce the tax bill faced by those who inherit from you if you die without having a will in place.
Get up to speed on the inheritance tax thresholds (which allow you to inherit a certain amount tax free), and then make your will.
Start passing on your inheritance now: Consider passing any investment properties you have on to your children now, while the recovery in the property market is still in its early stages. This could help your children avoid inheritance tax bills - particularly if you own an apartment or a property outside Dublin which hasn't yet recovered from the housing bust. Your son or daughter won't have to pay any inheritance tax on a property left to them if that property is worth less than €280,000.
You could pass your family home on to your children while you are still alive. Remember to hire a solicitor if you're transferring any property to your children or other relatives.
Find out if you can eliminate the tax bill: Get up to speed on the exemptions to inheritance tax as you could take action now which could slash or eliminate the tax bill which your children would otherwise face.
For example, you could save your children hundreds of thousands of euro in tax by encouraging them to move into any properties you intend to leave to them.
The small gift exemption is also useful, particularly if you own a lot of stocks or shares, land or cash and can afford to drip-feed your inheritance while you are still alive. Under this exemption, relatives can get gifts worth up to €3,000 a year without paying tax.
Have cash in your estate: It's a good idea to have some assets in your estate which can be easily cashed in, such as deposit accounts or investment funds.
Set up a trust: Consider setting up a trust if you have young children or grandchildren. This will help you to pass on your wealth to them more tax efficiently - and at a time when they are mature enough to handle their inheritance.
This would be a particularly wise step if you own a lot of property or assets, or if you have your own business or farm.