Inheritance Tax &

Succession Planning Seminar

1

T +353 (0)21 4840721 I F +353 (0) 21 4840726 I E info@aguerin.ie I W www.aguerin.ie A 19 White Street, Georges Quay, Cork, Ireland

Managing Director – Andrew Guerin C.P.A A.I.T. Authorised Investment Intermediaries

December 2012

Andrew GuerinEmail:

andrew.guerin@aguerin.ie

04/10/2023 2

Introduction Basic mechanics of CAT

Reliefs

Statistics

Legal issues

Recent Changes

Banking Issues

Examples and illustrations

Pitfalls and planning opportunities

Action Plan

04/10/2023 3

Relevant Legislation Rules

Legislation- Capital Acquisitions tax Act 1976 CAT consolidation Act 2003

Territorial rules –

Donor or donee is resident or ordinarily resident in state (3 year rule) and /or Gift or inheritance situated in the state

Aggregate gifts/inheritances since 5 December 1991

04/10/2023 4

Charge to Inheritance tax

If a chargeable person becomes beneficially entitled in possession,

to any benefit for less than market value ,he or she is deemed to

receive a gift or inheritance and therefore liable to Capital Acquisitions tax.

04/10/2023 5

Events which Trigger Liabilities

Gift or inheritance

Free use of property

Interest free loans

Write off of loans

Transferring assets at less than market value

04/10/2023 6

2010 Finance Act changes

New pay & file regime

Compulsory electronic filing for all Reliefs

Introduction of surcharge for late filing

Abolition of secondary accountability

Abolition of the 12 year charge on property

CAT year 1 Sept to 31 August

04/10/2023 7

Exemption Thresholds

Year 2013 2012 2009

Child 225,000 250,000 545,544

Lineal Ancestor 30150 33208 54544

Stranger 15075 16604 27127

04/10/2023 8

CAT Rates

Increased from 30% from 5 December 2012

Now 33%

Could reach 40% (Was 50 % in 1984)

UK Rate 40% (Threshold exemption stg£325/€400K)-Gifts tax

free

CAT Examples

7th February 2012

Example:

Couple Aged 60

Estate Worth €1 Million 2 Children, 4 Grandchildren

Potential CAT €000

Inheritance 1,000Exemption (225 x 2) ( 450)Taxable 550CAT @ 33% 181

9

CAT Calculation

7th February 2012

Possible Reductions

5 Year Plan Utilise all thresholds Use annual €3k gift exemption

Estate €1 Million

Beneficiaries

2 Children 2 In-laws 4 Grandchildren Total Beneficiaries 8 Annual Gift of 3K 8 x €6k (3 x 3) 48k Per Annum 5 Years (48k x 5) 240K

10

CAT Calculation

7th February 2012

€’000

Net Estate after 5 Years 760

Beneficiaries

2 Children (225 x 2) 450 2 In-laws (15 x 2) 30 4 Grandchildren (30 x 4) 120

Total Exemptions 600

Taxable 160

CAT @ 33% 53 k

Tax Saved 128k

Consider S72 Relief to elimate 53K CAT liability

Zurich Quote

€500k cover joint life 2nd Death (50 Year Old)

Cost €322 p/m - €3864 p/a ,

Cost for 60 Year Old !!!!!!!!11

04/10/2023 12

ReliefsSpouses and Civil Partners (exempt)

Annual exemption threshold €3000-(Gifts only)

Dwelling House Relief

Favourite nephew/niece relief

Business Property Relief (90 % reduction)

Agricultural Relief (90% reduction)

CAT and CGT on same Transaction (Credit offset)

04/10/2023 13

Dwelling House Relief

Gift or inheritance of private dwelling is exempt from CAT if

The beneficiary has continually lived in the house as his/her only main residence for 3 years prior to the date of gift/ inheritance

At the date of gift/ inheritance the beneficiary is not beneficially entitled to any other dwelling house or to any interest in another dwelling house.

A period of Occupancy by the donee when the house was also occupied by the disponer as their only or main resident, will be disregarded as a period of occupation in that house unless the disponer is compelled, by reason of old age or infirmity, to depend on the services of the donee for that period.

04/10/2023 14

Business Property Relief The relief consists of a reduction of 90% of the value attributable to the relevant

business property taken by the beneficiary.

Applies to “relevant business property” defined as the business or the business interest in the business carried on by a sole trader or by a partnership.

Includes Property used for the purpose of the business if transferred at the same time as the business

Conditions to be satisfied:

The business must be owned by the disponer for at least 5 years prior to the transfer in the case of a gift and 2 years in the case of an inheritance.

The assets must remain business assets for at least 6 years to avoid a claw back of the CAT relief.

Commission on taxation proposed 75%reduction!!!!

04/10/2023 15

Business ReliefExample:

John was gifted the family business on the 1st July 2012 on the retirement of his mother aged 65. The taxable value of the business was €3500.k. Business relief is calculated as follows

Taxable Value Prior To Relief 3500k

Reduction of 90% 3150k

Revised Taxable value after relief 350k

04/10/2023 16

Business Relief Example

€ ‘000

Revised Taxable Value 350

Group 1 Threshold 225

Less Annual exemption 3

Taxable Figure 122

Tax 33% 40.26K

04/10/2023 17

Agricultural Relief

The value of the gift/inheritance will be reduced by 90% where the following conditions are met.

Agricultural property- includes lands, buildings, crops, trees, underwood, farm machinery, livestock.

Disponer an individual owned and worked the lands for 10 years prior to the transfer

80% of market value of the assets of the beneficiary must consist of agricultural property- Lands, buildings, crops, trees, underwood, farm machinery, livestock.

04/10/2023 18

Capital Gains Tax Retirement relief

Retirement relief is available to anyone

Over the age of 55

Held the business assets for 10 years or more

Worked the business assets for 10 years or more.

If they sell the business to a third party and the proceeds are €750,000 or less they will receive all tax free. Excess over €750 k taxed at an effective rate of 50%.FA 2012 reduced the consideration limit from €750k to €500k for individuals >66 in respect of disposals after 1.1.2014. Qualifying disposals to children continue to be exempt .

CGT Relief:

If they Transfer the business to a family member and satisfy all the conditions the transfer will be tax free.

CAT & CGT on Same Transaction

7th February 2012

Example:Asset (shares costing €1) valued €1m sold and proceeds gifted to nephew

CGT €000

Proceeds 1,000CGT 330Net Cash 670

CAT €000Gift 670Exemption ( 30)Chargeable 640CAT @ 33% 211Total Tax (330+211) = 541

19

CAT & CGT on Same Transaction

7th February 2012

Gift Asset to Nephew:€000

CAT (1,000 – 30 @ 33%) 320Less CGT (1,000 @ 33%) 330

Credit restricted to CAT 320

Net liability €330 (saving €211k)

20

04/10/2023 21

Illustrations

Offshore Estate (Beneficiary Irl Resident)

Investment Structure including Preference Shares

Unknown Offshore Gift/deposit account (date of gift)

3 Brothers- Generation Skipping

Nursing home –consideration paid. Documentation.

Cash funds –Joint names (IT 8 clearance letter -€5ok)

04/10/2023 22

Recent Changes

Reduction in threshold

Increase in Capital Tax Rates

Self Assessment

Electronic Filing and Payment

Surcharge for late returns

PPS Numbers

04/10/2023 23

Miscellaneous Loans

Free Use Of Property- Annual rent less maintenance

80% Rule (File a return)

Joint Names- Property ,Investments ,Bank & Insurance

Life Assurance Policies - S.60 /73-(Not taxable)

Capital gains tax –Deemed disposal at market value

Life/limited interests (Schedule 1.Part1 CATA 2003)

Disclaimers -(potential double tax)

Gift within 3 years –(Double tax)

Documentary evidence. (loan agreements, consideration paid etc)

04/10/2023 24

Other Tax Considerations Capital Gains Tax (no CGT on death)

Stamp duty - 2% Commercial / 1% Residential MV < €1M.

Consanguinity Relief (commercial 50% reduction abolished from 1.1.2015)

Residence abolished in December 2010

Discretionary Trust Tax

6% Once off (50% Red)

1% Annual

04/10/2023 25

Provision for Children

Discretionary trusts

Offshore trusts

Partial consideration (Fund CGT)

Pensions (ARF)Transfer to spouse-Marginal IT 41%

ARF inheritance to child 33% CAT

Consider S72 Insurance policy

04/10/2023 26

Various StructuresCorporate/limited partnerships

Family Arrangements

Trusts:Bare trusts-Nomineeships

Fixed interest trust (Life interest)

Protective trust

Discretionary trust

04/10/2023 27

Company StructuresTrading Companies

Issuance of shares to children

Shareholders /partnership agreements

Use of Preference Shares

Deferred Shares

Key man insurance

Partnership Insurance

04/10/2023 28

Taxation on Structures

On creation of each asset protection structure

Ongoing taxation

Implications on unwinding the structure

04/10/2023 29

Filing RequirementsCAT Return (IT 38 ) file by 31 Oct 2012

Extended to 15 Nov 2012 for electronic filing and payment.(Laser card –Electronic fund transfer)

80% rule disponer must file CG15

Details of gifts /inheritances received to be included in Income tax return.

Payment by instalments (5 years)

Expressions of doubt.

Secondary accountability

Double Taxation Relief

04/10/2023 30

Legal Issues Wills (34% of population have wills)

Succession act 1965

Powers of Attorney (Enduring powers of attorney)

Discretionary Trust Wills

Discretionary Trust Levies (6% & 1%)-Deferral of CAT.

Trusts

Structuring Investments

04/10/2023 31

Implications of no WillDie intestateNo input into distribution of estateSuccession Act 1965 rules will applyS.67 (2) states that if an individual dies intestate

with spouse and issue that:a) spouse takes two thirdsb)Remainder is taken by childrenNon existence of will make makes CAT planning

impossible

04/10/2023 32

Asset ProtectionTiming of transfersBankruptcy Act 1988Personal Insolvency Bill 2012Nama Act 2009Land & Conveyancing Act 2009Transferring to Companies(Cash flow)Sham/intention/credibilityAnticipated gift/inheritance

04/10/2023 33

Banking Issues

Preservation of assets/wealth

Gifting assets to financially challenged children

04/10/2023 34

Tax Pitfalls Late Returns

Unaware of potential tax exposure (Free use of property)

Surcharges (5 % and 10%)

Overlooked Gifts/ Free use of Property? Loans Etc

Undervaluing assets (Penalties) _Difficult to Value

Properties not in joint names

Absence of powers of attorney(Enduring powers )

Cant always rely on formal valuations.

04/10/2023 35

Opportunities Use annual €3000 exemption threshold- (Gifts only)

Avail of Reliefs Mentioned

Transfer assets sooner rather then later

Utilise s72 Policies (Tax efficient)

Generation skipping

Trusts

04/10/2023 36

Annual Exemption ThresholdAmount €3,000 –Gifts only

Per Annum /per individual

Each individual can receive €3,000

Potential tax saving per annum

Married couple with two children could receive

€3000 each ,from each disponer (grand parents)

€3k *4*2=€24000.Potential Cat saving p/a €7920 (10 years €80K)Cover college fees.Consider investing in say An Post(Risk free !!)

04/10/2023 37

Opportunities

Contribute Items Of Heritage

Generation Skipping

Regularly Review Wills

Open Lines of Communication with spouse/partner, children and advisers

04/10/2023 38

Practical ApproachSensitive area

Substantial wealth still exists

Balancing act-distribute wealth but retain self preservation

Prepare Schedule of assets

Do Calculation- results frequently stimulate an action plan

04/10/2023 39

Impact of Recent FA Changes Family with 2 children and estate worth €1.4 m

Cat liability 2006 €63K

Cat liability 2013 €313K

Tax liability increased by approx 400% due to reduction in Child exemption threshold by €317K (542k-225k) per child and an

increase in the CAT rate of 13%.

In 2009 estate valued €1,084,416 could be gifted without CAT.

In 2013 the figure is €450,000.

Can draw your own conclusions.

This will only get worse.

04/10/2023 40

Cash Flow PlanningProperty or cash

Due dates 31 October

S.72 Insurance policies

Life assurance

Instalment arrangements

Hardship Provisions s.59 CTA 2003

Payment by transfer of government bonds

Donation of heritage items

04/10/2023 41

Action PlanStart communicating with clients, family and

friendsMake a will and appoint guardiansReview existing willsPrepare schedule of assetsPrepare a CAT computation to quantify liabilityBad news is this liability will get worseConsider powers of attorney Utilise the €3000 annual exemption.(Gifts)Consider gifts sooner rather than later.Consider benefits of insurance

04/10/2023 42

Conclusion

Inheritance tax rates will increase

Liabilities substantially higher than envisaged

Whilst succession planning has frequently been left to evolve this is no longer acceptable particularly bearing in mind that personal wealth has been substantially eroded.

Lets not give the Tax Man more than is necessary.

04/10/2023 43

“I intend to live forever or die trying”

Groucho Marx

04/10/2023 44

Questions/Comments

Thank You