Section 72 – Inheritance Planning

Efficient Tax Planning

You have the choice to designate who you wish to receive your assets, such as your property, savings, or personal items when you die. If you decide to leave these to anyone other than your spouse or civil partner, the amount of the estate beyond a certain exemption level may be subject to an inheritance tax at the rate of 33%. The tax bill awaiting your beneficiary could be substantial, presenting a financial challenge that might be difficult to meet.

For example, if Marta passes away and bequeaths her family home, valued at €600,000, to her son, David, he would face an inheritance tax bill of €87,450. Such a significant amount could pose a considerable financial challenge for David to meet. 

With a short time frame to pay this tax bill, there may be no other option but to sell the family home to meet this bill. Having a Section 72 life insurance policy can prevent your loved ones from having to sell the family home or secure a loan for tax payments, effectively easing the financial strain of inheritance tax.

What is a Section 72 policy?

A Section 72 policy is a unique insurance plan authorised by the Revenue Commissioners in accordance with the Capital Acquisitions Tax Consolidation Act of 2003, Section 72. Usually, parents purchase this policy to protect their children from inheritance taxes. It works similarly to a traditional life insurance policy, where premiums are paid, and beneficiaries get a tax-free lump sum payment upon the policyholder’s passing.

Note that a Section 72 life insurance policy is designed to directly address and pay off inheritance tax liabilities arising at the policyholder’s passing. It’s crucial that the individual planning to leave an inheritance is the one to set up and pay for the Section 72 policy.

Proceeds from a Section 72 policy that exceed the inheritance tax liability will form part of the estate. You can choose which beneficiary will benefit from the Section 72 policy, and this can be amended as time goes on.

What is Capital Acquisitions Tax?

Capital Acquisitions Tax, commonly referred to as the gift and inheritance tax, applies to all gifts and inheritances received. Individuals are permitted to accept a specified amount of gifts and inheritances throughout their lifetime without triggering this tax. Should the cumulative value received surpass this lifetime exemption limit, the tax is then imposed at a standing rate of 33% (as of April 2024).