Inheritance Tax Relief


What is Inheritance Tax Relief?

In the past “estate planning” was something we believed to be only for the elite, very few wealthy individuals and their families in our society.

However, this is no longer the case. Despite the recent downturn in the economy, it is still important to protect estate values. Reductions in the tax free thresholds, together with increases in the capital acquisitions tax rate, have resulted in more and more people who previously did not have to give consideration to this area now needing to do so.

What is Inheritance Tax Relief

Inheritance Tax Relief also known as Section 72 of the Capital Acquisitions Tax Consolidation Act 2003 introduced a relief on the proceeds of certain life assurance policies used to pay inheritance tax. The relief is sometimes referred to as ‘Section 60 Relief’, after the relevant section of the Finance Act 1985 which originally introduced this relief.

The relief given is that the proceeds of policies affected under Section 72, are exempt from Inheritance Tax, in certain circumstances, to the extent that they are used to pay Inheritance Tax, arising from the death of the policyholder.

Arranging The Cover

Most Section 72 policies are issued on a joint life last survivor (second death) i.e. the sum assured becomes payable only on the 2nd death of a couple. Joint life last survivor Section 72 policies can only be affected by legal spouses. This type of policy is suitable where spouses have wills which will leave everything to each other on the first death and then onto their children on the death of the last survivor of them. In this case the inheritance tax liability will not arise until both parents have died.

Any excess or surplus proceeds of the policy, not used to pay the Inheritance Tax are treated as a separate taxable inheritance in the hands of the beneficiaries.

Trust

We would recommend that the Inheritance Tax Plan be arranged under Trust. The advantages of this are:

It ensures that the plan proceeds are used only, in the first instance, to pay Inheritance Tax. Any surplus may revert to next of kin.

The proceeds will be paid immediately on death to the nominated Trustee. The proceeds would not go into the estate.

The Trust gives flexibility in determining which beneficiaries are to benefit from the plan, and in what proportions. The plan can be arranged under Trust by completing a Trust form along with the life assurance application.