FOUR STEPS To boost the value of your legacy
If you're planning to leave money or assets to a relative or friend, consider sharing the inheritance with their spouse or children, advises Oonagh Casey, tax partner with Fagan & Partners.
Doing so should reduce or even eliminate the amount of tax that is paid on the inheritance – particularly if the inheritance you have in mind for your relative or friend is above the tax-free threshold.
If for example you're planning to leave an inheritance of €300,000 to your son, your son would only be able to inherit €225,000 of that tax-free. Your son's children, however, could inherit up to €30,150 each from you tax-free while your son's spouse can inherit up to €15,075 tax-free. So if you left €225,000 to your son, €30,150 to two of his children, and €14,700 to his spouse, no inheritance tax would have to be paid on the €300,000.
Get up to speed on the exemptions to inheritance tax – as you could be able to take action now which would keep the taxman's claws out of your children's inheritance.
For example, 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. As long as your child has been living in the house for at least three years before inheriting it, he or she should not have to pay any inheritance tax on the property.
If you intend to go down this route, ensure your children understand the conditions of the exemption – otherwise, they could be hit with a hefty tax bill. To be eligible for the 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 it. 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 own a business, this should also reduce the slice of the pie that the Taxman can get from your children's inheritance. "There remain generous reliefs from inheritance tax – particularly for business owners, but there are conditions to be met," says Cormac Brennan, partner with O'Connell Brennan Solicitors.
If you have young children, consider setting up a trust. "In some cases, particularly where children are young, trusts can be an effective way of passing on assets tax efficiently, on death or otherwise," says Brennan. "Where inheritance tax arises, assets can be disposed of in an orderly way to meet the tax bill."
If you have more than your fair share of nieces, nephews, grandchildren or whatever, maybe you could start to dish out your legacy while you're still alive.
Relatives can get gifts worth up to €3,000 a year without paying tax. Gifts can include cash, land, stocks or shares. Before drip-feeding your savings, however, make sure you can afford to do so.