How to minimise Inheritance Tax

[Tpper!]

Minimising Tax
I am looking to minimise the amount of inheritance tax payable in the future. The estate will be made up of Shares (in UK & Ireland) as well as a house in Ireland.
The anticipated amount of the estate is over the tax free exemption for leaving to a son or daughter. I will also look to leave the maximum tax free amount directly to grandchildren as well as a lesser (still) amount to son/daughters-in-laws.
Is there anything else I should be looking at?

Leaving Shares Directly to Children
Finally, is there an advantage of leaving shares directly to my children? Rather than them receiving cash and probably re investing back into shares.
Do I save on brokers fees?
Do I save on government levys?


Any suggestions welcome

 

[ClubMan]

You really should get independent, professional advice on this. Such matters will depend a lot on your specific individual circumstances, would probably be beyond the scope of a voluntary site like this and a professional assessment could save you significant amounts of money and hassle compared to trying to roll your own solution possibly based on feedback here.

 

[Satanta]

You already seem to have some knowledge of what's involved if you know that the amount will be over the tax free limit of gift/inheritance tax. As you seem to be planning ahead it's very tough to know what the limits will be when the time for the actual transfer happens... obviously hoping it won't be for a long time yet.

To help minimise the tax you could start to use up the yearly gift exemption for each of the people concerned, so €3000 per person, without impacting the aggregate payment from a single group (e.g. this isn't included when calculating the total payment from parent to child/grandchild/etc.).
[details here]

If a child is resident in a property you own and have no holding in another property they may be able inherit this tax free

f you receive a gift or inheritance of a house that has been your main residence, it may be exempt from tax if you do not own or have an interest in any other house. There are conditions on how long you must be resident in the house before and after receiving the benefit. For more information on Dwelling-House Exemption see the 'More about this topic' tab at the top of this page.

Details again in the above link.

Considering the sums of money which appear to be involved your best bet is to consult a tax expert to do a more detailed appraisal of the situation and provide professional advise.

 

[murp]

As Satanta mentions you could start using the annual gift exemption limit to distribute some of your assets during your lifetime, under the €3,000 (current annual limit) no gift tax liability will arise.

You could also look at taking out a section 60 inheriance tax policy, this effectively insures your life for the amount of any estimated inheriatance tax liability that may arise on your death. There are certain conditions applying to such policies so independent advice should be sought.

You could also consider (although this is not a guaranteed planning mechanism) gifting some of your wealth to the proposed beneficiaries during your lifetime (above the annual gift limit).

In years gone past the Minister for Finance occasssionally has move the date of aggregation for gift/ingeritance tax purposes, i.e. gifts or inheritances received before a certain date fall out of the net in determining any future gift/inheritance tax liability.

This move effectively restores the CAT threshold where is can have been lost due to prior gifts/inheritances.

 

[Nermal]

If a child is resident in a property you own and have no holding in another property they may be able inherit this tax free

Does this mean 'can't have any holding in another property at the moment of inheritance' or 'can't have ever had any holding in any other property'?

Also, let's say one child fit this category and so inherited the property and paid no tax. Could that child then split the property with any other siblings without incurring tax liability?

 

[Satanta]

Does this mean 'can't have any holding in another property at the moment of inheritance' or 'can't have ever had any holding in any other property'?

Neither really, to be honest.

What is the relief?
The dwelling-house will be exempt from tax provided certain conditions are met.
Dwelling-house relief applies to gifts and inheritances.
Conditions for the relief
The following conditions must be met:

The beneficiary must have occupied the dwelling-house continuously as his or her only or main residence for a period of three
years prior to the date of the gift or inheritance. Where the dwelling-house has directly or indirectly replaced other property,
this condition may be satisfied where the beneficiary has continuously occupied both properties as his or her only or main
residence for a total period of three out of the four years immediately prior to the date of the gift or inheritance.

The beneficiary must not, at the date of the gift or inheritance, be beneficially entitled to any other dwelling-house or to an
interest in any other dwelling-house.

The beneficiary must continue to occupy the dwelling-house as his or her only or main residence for six years from the date of
the gift or inheritance. Where the dwelling-house is directly or indirectly replaced by other property, this condition may be
satisfied where the beneficiary continuously occupied both properties as his or her only or main residence for a total period of
six out of the seven years commencing on the date of the gift or inheritance.
This latter condition does not apply if the beneficiary was over 55 years at the date of the gift or inheritance or has died.
A beneficiary, absent during any time through an obligation to work abroad is considered to remain in continuous occupation of
that dwelling-house.

[broken link removed]

Also, let's say one child fit this category and so inherited the property and paid no tax. Could that child then split the property with any other siblings without incurring tax liability?

No. The child would have to hold the property for six years to avoid a clawback.

Not to mention....
This would be treated as a single transfer from the parent to the children as the middle transfer (parent to child, child to other children) would be viewed as a transaction simply to avoid CAT.

 

[Tpper!]

Thank you all for your advice, a few points below.

Clubman, I agree that I need (and will take) professional advice but the ideas here are interesting to know prior to that advice.

Satanta, I am already looking to use the €3,000 per year as planning purposes. Unfortunately the children all have interests in other houses.

Murp, Interesting idea abot the Section 60 Inheritance Policy. I must look into that.
I'm also interested in the idea as to gifts being potentially time limited due to the movement of the date of aggregation for gift/ingeritance tax purposes. Does that mean that gifts prior to that date attract no Inheritance Tax?

Finally, did anyone have any thoughts as to my question as gifting the actual shares rather than selling them and giving them to the children.

Finally

 

[murp]

Trapper, the potential movement of the date for aggregation will not in itself avoid any CAT arising on a gift, however it could potentially give the beneficiary of the gift a greater threshold amount.

E.g. you gift €500,000 to a chlid in 2007 - say this is the threshold amount and no CAT is payable

Sometime in the future the date of aggregation for gifts and inheritances is moved to 2008

The CAT threshold is €800,000 in 2012

You can then gift another €800,000 in 2012 or therafter to the same child with no CAT payable.

Gifting shares etc will not avoid CAT, you will be deemed to have disposed of the shares at their market value and pay Capital Gains Tax (CGT) on any gain.

The beneficiary will still potentially pay CAT.

Death does not trigger CGT so you could avoid any CGT payable by passing assets on death via your will.

There are certain exemptions when passing shares in a company holding heritage property and certain government securities but onerous conditions apply.

 

[Nermal]

Neither really, to be honest.

The leaflet seems to imply the former with the phrase 'at the date of the gift or inheritance'. So one can previously have owned other properties, so long as they are not owned at the time of inheritance. I'm interested in the phrase 'beneficial entitlement'... What does it cover? If I own a business which owns a property, or own a property abroad, are these included?

No. The child would have to hold the property for six years to avoid a clawback.

Not to mention....
This would be treated as a single transfer from the parent to the children as the middle transfer (parent to child, child to other children) would be viewed as a transaction simply to avoid CAT.

Even if one waits the six years? Certainly the purpose would be the avoidance of CAT, but that in itself isn't illegal.

Edit: Another question comes to mind - is there anything excluding multiple family members qualifying for the exemption?