How to inherit the farm - and get it tax free
If ghosts of Christmas past, present and future have sparked your generous spirit, do your best to keep any wealth you plan to spread around safe from the clutches of the taxman, writes Louise McBride
Published 20/12/2009 | 05:00
IT may be the season for giving -- but unless you're clever about it, the taxman could grab a hefty chunk of any gift or inheritance you're planning to pass on.
Just over a year ago, your beloved could have lost a fifth of any inheritance or gifts received to tax. Thanks to tax increases since, they could now lose about a quarter. Five simple steps could save your relatives and favourites a small fortune in inheritance tax.
DRIP-FEED YOUR INHERITANCE
IF you have more than your fair share of nieces, nephews, grandchildren and great grandchildren, start to dish out your inheritance while you are still alive.
Your relatives can get gifts worth up to €3,000 a year without paying tax. Such gifts can include cash, jewellery, car, land, and stocks or shares. Let's say you plan to leave €90,000 to a grandchild. If you wait until you die before you bequeath that money, they'll lose €11,650 of that in the tax of 25 per cent paid on any inheritance over €43,400. However, if you're a young grandparent with a good chance of living for another 30 years, you could give a gift of €3,000 to your grandchild each year. They won't have to pay any tax on that gift -- even if it adds up to €90,000 after 30 years.
GET YOUR CHILDREN TO MOVE INTO YOUR PROPERTY EMPIRE
IF you own a number of properties which you plan to leave to your children when you die, you could save them hundreds of thousands of euro in tax by encouraging them to move into those properties.
For example, let's say you intend to leave a house worth €2m to a son or daughter. As long as they have been living in the house for at least three years before inheriting, there should not be any inheritance tax to pay on the property. Otherwise, they will usually have to pay a quarter of any balance over €434,000 in inheritance tax. So, on a €2m house, moving in before inheriting it could save your son or daughter almost €400,000 in tax.
To be eligible for the tax exemption, the property inherited must be a dwelling house and your child must not be beneficially entitled to an interest in any other house. Your child must also continue to live in that house for at least six years after inheriting. If the house you plan to leave to your child is your only or main residence, they will usually not be able to inherit it tax-free.
If you're planning to leave a €2m house to your granddaughter or niece, she could save even more than your son by moving into the property.
While your son can inherit up to €434,000 from you tax free, your niece or grandchild can only inherit up to €43,400, while certain other people (such as cousins or strangers) can inherit up to €21,700. So by moving into the house for at least three years before she inherits it (and provided the property is not your only or main residence), your niece or grandchild could save herself or himself almost €500,000 in inheritance tax.
LEAVE EVERYTHING TO YOUR BETTER HALF
YOUR spouse does not have to pay tax on any inheritance you leave to him or her. However, a divorced or separated spouse may have to pay tax on any inheritance or property that was not passed onto him or her if the transfer was not done as part of a court order.
If you're expecting an early death and are worried about your wife losing out on your family inheritance when you die, have a quick chat with your parents. As a surviving spouse steps into the shoes of a deceased spouse, your wife can inherit property on your behalf when you die. So if you die before your parents, your parents could still leave your wife up to €434,000 in a will tax-free.
PASS ON YOUR LOTTO WINDFALL
IF you're loaded and have just won a couple of million euro in the Lotto, pass your winnings, rather than your property, onto those who can only inherit about €22,000 from you tax-free. They won't have to pay any gift or inheritance tax on Lotto winnings.
LEAVE A FOREST TO YOUR BROTHER OR NEIGHBOUR
If you own woodland -- or other agricultural property -- and you leave it to a relative or neighbour who is a farmer, he or she can avoid a massive inheritance tax bill by claiming agricultural relief.
With agricultural relief, the market value of "agricultural property" is reduced by 90 per cent, and as inheritance tax is calculated on that rather than on market value, the tax bill will be a fraction of what it normally would be.
"Agricultural property" can include agricultural land, pasture and woodland; crops and trees; houses and other farm buildings; and livestock, bloodstock and farm machinery. Like those who inherit dwelling houses tax free, agricultural relief may be clawed back if the property is sold or compulsorily acquired within six years of the date of the gift or inheritance.