Section 72 Inheritance Tax Planning

 

The type of policy most commonly used is either term assurance or a whole of life policy. These policies provide a cash payment on death and this cash payment is used to fund inheritance tax liabilities.

 

If you are concerned about Inheritance Tax then the life policy you take out must be set up under the provisions of Section 72 and must be endorsed to this effect when it is issued.

 

To qualify as a Section 72 policy the person covered must also be the person paying the premiums and premiums must be paid on a regular basis for at least 8 years. There are other conditions amongst others such as you can’t stop and start payments and that a joint policy can only be taken out by a married or registered civil partner couple.

 

If any beneficiary has received a gift or inheritance, it may impact on their potential inheritance liability. There are certain reliefs and exemptions as well as residency considerations so it is important to seek good independent financial advice. Remember, it is the person receiving the inheritance is liable to the tax and not the person or estate providing the benefit.

 

Example:

 

A couple in their mid-fifties have an estate valued at €1,000,000. They have two children and the estate is to be divided equally amongst them. They have discovered their children would have an inheritance tax bill of €181,500

 

Solution:

 

The couple decide to put a Section 72 Inheritance Tax plan in place. The amount of life cover they need to provide is €181,500 for the whole of their lives.  The approx. cost of such a policy would be around €2,100 a year.

 

 

 

John Geraghty  MD of LABrokers.ie