MoneyTimes - August 13, 2013

Posted by Jill Kerby on August 13 2013 @ 09:00

WILL OCTOBER’S BUDGET FURTHER ERODE TAX-FREE INHERITANCES? Do you have a Will? Fewer than half of all adults in Ireland have bothered to write one and for any number of reasons. Some people say they have nothing of value to leave behind, or they don’t have any dependents who will be counting on them to make their departure from this world an orderly, if regrettable event. Others who do have goods, chattel and dependents don’t like the idea of facing their own mortality…so ignore the whole matter. Some just don’t care. Too many of us just haven’t got around to it yet. Writing a will is one thing, but it’s just one part of a wider, and important process. And from this October’s Budget will-makers may have to take account of the fact that the amount that Irish people can leave their loved ones will decrease…again. Back in 2008, just before the economy had the financial stroke that has kept it on foreign life-support (the tubes are coming out early next year and we should be eating and breathing on our own again, the government promises) a parent could leave an estate worth €521,208 tax-free to each of their children(Group 1). Grandchildren, siblings, nieces and nephews (Group 2) could inherit (or be gifted) €52,121 tax-free while more distant relations (like cousins) and strangers (Group 3) could receive €26,060. (In Ireland “favoured nephew relief” applies where a niece or nephew who works in a family business are entitled to the same status as a son or daughter.) The capital acquisition tax (CAT) payable on amounts in excess of those thresholds was just 20%. Several budgets later, these tax-free inheritance limits for the respective groups are now €250,000, €33,500 and €16,750 and the CAT has risen to 33%. A child receiving a €500,000 inheritance from their parent today would pay €82,500 in tax. The collapse in property prices has slashed the value of most family inheritances since so much of our wealth is tied up in our homes. But it does highlight the even greater need for some people - with a home, pension fund, some cash or other assets that altogether might be worth €500,000 or more – for some proper legal and especially tax advice. Some people are unaware that anyone who has continually lived in the same house as the disponer for at least three years immediately prior to their death, can inherit the property tax-free though they must continue to live in it for six more continuous years and not be a property owner themselves. But did you know that step-children and foster children are not considered as natural or adopted children under our inheritance laws; nor can they claim a share of an estate under the Succession Acts where there is intestacy (where no will has been made.) Special provisions need to be made in a will for such step/foster children. Divorce and separation are other life events that require extra care when making a will and need specialised tax advice (especially where judicial orders are being made regarding property, pensions and life assurance.) So what should we expect from the October budget regarding CAT provisions? Financial advisers I’ve spoken to say there is a very good chance that the tax-free thresholds will fall again, perhaps by another 3%-5% (bringing that top €250,000 Group 1 threshold down to between c€242,500 and €237,500 respectively), mainly because there has been no public outcry. The CAT rate itself could increase to say, 35%, again because it is seen as a more painless tax hike than raising income or consumption taxes like VAT. (Water charges will be calculated from late next year, payable from January, 2015.) Once these taxes are introduced, like, alas, death itself there is no avoiding them unless you act now at current rates by gifting a property or asset you may have been thinking of doing anyway. Also, there has been no tampering since 2008 with the minimum annual tax free gift amount of €3,000 which anyone can give to anybody they please without having to report the transaction to Revenue. Tax advisers say that despite the low sum it is an excellent way for older people, grandparents perhaps, who have surplus wealth (you need to work out your own needs first) to drip-feed their assets to their loved ones without triggering a large tax bill. Three thousand euro a year to adult children and to their children every year, whether to help with day to day household bills, to pay for big ticket items like utilities, health insurance, education costs is (where say, five or six family members are concerned) another €15,000-€18,000 that will escape the tax-man’s net. Perhaps most importantly these days, it is money that is needed now, when expenditure is greatest, and not when the adult recipients are in their 50s or 60s. Write that will…just write it with an eye on the tax and other unforeseen consequences.

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