It's better to discuss succession planning sooner rather than later
It’s better to discuss succession planning sooner rather than later

Many people have thought about leaving their house, business or other assets to their family during their lifetime or after their death. However, in our experience, most do not have a clear plan – or any plan.

We’re all inclined to put tasks like this on the long finger – seeing them as tedious financial chores. They will eventually have to be dealt with, however.

Experience in dealing with families in this situation has taught me that it’s better to discuss succession planning sooner rather than later.

Changes to Capital Acquisitions Tax (CAT – also known as inheritance or gift tax) in recent years are a big consideration for those with assets to pass on. The parent-to-child CAT tax-free threshold (the amount that a child can inherit from their parent tax-free) has reduced from €434,000 in 2009 to €225,000 under the current government. That is a huge reduction.

People with big assets in their estate often tend to be business and property owners. High property values have traditionally been a disincentive for clients to engage in succession planning due to the capital tax costs that could arise. However, there are now compelling reasons to be more pro-active when passing on your assets. Here are six ways that you could do so.

1 Consider gifting some or all of your estate while you are still alive and the value of your assets are relatively low – particularly if the value of those assets have been suppressed by the recession.

2 There is an annual small gift exemption where an individual can receive €3,000 a year tax-free from any number of givers. So two parents could gift a child €6,000 each year without the child incurring a gift tax liability.

3 Tax relief is available on certain life-assurance plans – known as section 72 policies. Under the relief, where a life-assurance policy is taken out to cover a potential inheritance tax bill, the Revenue Commissioners will not seek to tax the proceeds of the policy. If, however, you left money in a bank account with the intention of covering the inheritance tax bill of a loved one, that money will be seen by the Revenue as an additional inheritance and will ultimately increase the tax bill your loved one would face. So if there is going to be a significant tax liability for children when they inherit assets, consider setting up a special section 72 life assurance policy.

4 Remember, under the spouse or civil partner exemption, gifts or inheritances from one spouse or civil partner to another are totally exempt from CAT.

5 With agricultural relief, the value of farmland, buildings and stock can be reduced by 90pc where the beneficiary is a qualifying farmer and he or she holds on to the property for a minimum of six years. This can significantly reduce the tax bill faced by the person who inherits a farm.

6 Business relief, which works in a similar way to agricultural relief, can also slash the tax bill that would otherwise be faced when you pass on your business. With business relief, the value of certain business or private companies can be reduced by 90pc as long as certain conditions are met.

Declan O’Hanlon is taxation partner with RSM Farrell Grant Sparks.

Sunday Indo Business