Many people plan to make gifts to their children in the future but are concerned about the gift tax liability their children will face.
Setting up a qualifying savings policy to avail of Section 73 relief allows you to pay gift tax without it causing another taxable gift.
Capital Acquisitions Tax (CAT)
If you receive a gift or inheritance, you may have to pay Capital Acquisitions Tax.
Gifts and inheritances can be received free from CAT up to a certain amount. The tax-free amount varies depending on the persons relationship to the person giving the gift. There are three different groups (Group Threshold). Each group has a threshold that applies to the total amount of gifts and inheritances they have received in that group since 6 December 1991.
|A||Child (including adopted child, step-child and certain foster children) or minor child of a deceased child of the person making the gift||€310,000|
|B||Brother, sister, niece, nephew, grandchild of lineal ancestor or descendant||€32,500|
|C||All other relationships, other than those mentioned in A or B||€16,250|
CAT is currently 33%*
Small Gifts Exemption
A small gift is any amount up to €3,000. Your client can give a gift of up to €3,000 each to any number of different people in a calendar year. This gift will not reduce the reciptient’s Group Threshold*.
This Small Gifts Exemption can be a useful tool when planning how to share your client’s wealth with their family in a tax efficient way.
For more information, contact your business manager.
*As at November 2017
Main Revenue requirements
Certain Revenue conditions must be met for the savings policy to qualify for relief under Section 73 Capital Acquisitions Tax Consolidation Act 2003.
- The policy must be expressly set up under Section 73 of Capital Acquisition Tax Consolidation Act 2003 for the purpose of paying gift tax
- Premiums must be paid continually for at least 8 years (premiums can be paid monthly, quarterly, half yearly or yearly).
- The policy must be in the name of one person (only a married couple or civil partners can have the policy in joint names).
- The policy owner(s) must pay the premiums
- The maximum difference between the highest and lowest annual premium over the period is not more than 100%
- If premiums are not paid for 1 year, no further premium may be added
- If premiums stop for 1 year before the end of 8 continuous years, the relief can’t be applied
- The proceeds must be used to pay gift tax due on a gift made within 1 year of the proceeds being paid
- The policy owner has 1 year from the date they withdraw the money from the policy to pay the gift tax due. After this date the relief will not apply.
Once all Revenue requirements are met, it means that if the money withdrawn from the policy is used to pay the beneficiary’s gift tax liability, it will not increase their overall gift tax liability. The payment of gift tax on their behalf is relieved from CAT.