Using Life Assurance to fund Gift & Inheritance Tax

Relief was introduced by Section 60, of the 1985 Finance Act (now contained in Section 72 of Capital Acquisitions Tax Consolidation Act 2003) to allow people to plan for the payment of Inheritance Tax in an efficient way.

If a life assurance plan is put in place to provide for the tax, the Revenue will not charge Inheritance Tax on the policy proceeds if the money is used to pay Inheritance Tax arising on the death of the lives assured under the plan.

The relief is granted subject to certain Revenue conditions:

• The plan must be expressly effected under the provisions of Section 72; normally the plan is endorsed to this effect when it is issued.
• To qualify for Section 72 relief the person covered under the plan must also pay the premium.
• A joint-life plan can only be taken out by a married couple or registered civil partners
• The Policy must be a flexible/whole of life plan to be acceptable to the insurer

In essence once the insurance policy is put in force for the payment of the Inheritance tax liability (ie put in trust for the children/beneficiaries to pay the actual Inheritance tax bill) then it is acceptable to the Revenue.

The original Section 72 legislation envisaged a protection plan (term assurance, whole life type plan) being taken out to provide a cash payment on death to be used to fund inheritance tax liabilities.

GETTING PROFESSIONAL ADVICE

If you have a query about Inheritance Tax, you can get qualified expert advice from George Skelton, gskelton@rda.ie  He can also advise on other complex tax issues such as.

• Tax Planning & Consultancy
• VAT Advisory
• Transaction Structuring
• Tax Compliance
• Research & Development Tax Credits
• Company Restructuring
• Succession Planning