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Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
Succession planning seminar
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Succession planning seminar

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Inheritance & Succession Tax Planning

Inheritance & Succession Tax Planning

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    • 1. Inheritance Tax &Succession Planning Seminar December 2012 Andrew Guerin Email: andrew.guerin@aguerin.ie 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, IrelandManaging Director – Andrew Guerin C.P.A A.I.T. Authorised Investment Intermediaries 1
    • 2. Introduction  Basic mechanics of CAT  Reliefs  Statistics  Legal issues  Recent Changes  Banking Issues  Examples and illustrations  Pitfalls and planning opportunities  Action Plan12/17/2012 2
    • 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 199112/17/2012 3
    • 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.12/17/2012 4
    • 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 value12/17/2012 5
    • 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 August12/17/2012 6
    • 7. Exemption Thresholds Year 2013 2012 2009 Child 225,000 250,000 545,544 Lineal Ancestor 30150 33208 54544 Stranger 15075 16604 2712712/17/2012 7
    • 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 free12/17/2012 8
    • 9. CAT ExamplesExample: Couple Aged 60 Estate Worth €1 Million 2 Children, 4 GrandchildrenPotential CAT €000Inheritance 1,000Exemption (225 x 2) ( 450)Taxable 550CAT @ 33% 1817th February 2012 9
    • 10. CAT Calculation 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) 240K7th February 2012 10
    • 11. CAT Calculation €’000Net Estate after 5 Years 760Beneficiaries  2 Children (225 x 2) 450  2 In-laws (15 x 2) 30  4 Grandchildren (30 x 4) 120Total Exemptions 600Taxable 160CAT @ 33% 53 kTax Saved 128kConsider S72 Relief to elimate 53K CAT liabilityZurich Quote€500k cover joint life 2nd Death (50 Year Old)Cost €322 p/m - €3864 p/a ,Cost for 60 Year Old !!!!!!!!7th February 2012 11
    • 12. Reliefs  Spouses 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)12/17/2012 12
    • 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.12/17/2012 13
    • 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!!!!12/17/2012 14
    • 15. Business Relief Example:  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 350k12/17/2012 15
    • 16. Business Relief Example € „000  Revised Taxable Value 350  Group 1 Threshold 225  Less Annual exemption 3  Taxable Figure 122  Tax 33% 40.26K12/17/2012 16
    • 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.12/17/2012 17
    • 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.12/17/2012 18
    • 19. CAT & CGT on Same Transaction Example: Asset (shares costing €1) valued €1m sold and proceeds gifted to nephew CGT €000 Proceeds 1,000 CGT 330 Net Cash 670 CAT €000 Gift 670 Exemption ( 30) Chargeable 640 CAT @ 33% 211 Total Tax (330+211) = 5417th February 2012 19
    • 20. CAT & CGT on Same TransactionGift Asset to Nephew: €000CAT (1,000 – 30 @ 33%) 320Less CGT (1,000 @ 33%) 330Credit restricted to CAT 320Net liability €330 (saving €211k)7th February 2012 20
    • 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)12/17/2012 21
    • 22. Recent Changes  Reduction in threshold  Increase in Capital Tax Rates  Self Assessment  Electronic Filing and Payment  Surcharge for late returns  PPS Numbers12/17/2012 22
    • 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)12/17/2012 23
    • 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% Annual12/17/2012 24
    • 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 policy12/17/2012 25
    • 26. Various Structures  Corporate/limited partnerships  Family Arrangements Trusts:  Bare trusts-Nomineeships  Fixed interest trust (Life interest)  Protective trust  Discretionary trust12/17/2012 26
    • 27. Company Structures  Trading Companies  Issuance of shares to children  Shareholders /partnership agreements  Use of Preference Shares  Deferred Shares  Key man insurance  Partnership Insurance12/17/2012 27
    • 28. Taxation on Structures  On creation of each asset protection structure  Ongoing taxation  Implications on unwinding the structure12/17/2012 28
    • 29. Filing Requirements  CAT 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 Relief12/17/2012 29
    • 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 Investments12/17/2012 30
    • 31. Implications of no Will Die intestate No input into distribution of estate Succession Act 1965 rules will apply S.67 (2) states that if an individual dies intestate with spouse and issue that: a) spouse takes two thirds b)Remainder is taken by children Non existence of will make makes CAT planning impossible 12/17/2012 31
    • 32. Asset Protection  Timing of transfers  Bankruptcy Act 1988  Personal Insolvency Bill 2012  Nama Act 2009  Land & Conveyancing Act 2009  Transferring to Companies(Cash flow)  Sham/intention/credibility  Anticipated gift/inheritance12/17/2012 32
    • 33. Banking Issues  Preservation of assets/wealth  Gifting assets to financially challenged children12/17/2012 33
    • 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.12/17/2012 34
    • 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  Trusts12/17/2012 35
    • 36. Annual Exemption Threshold  Amount €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 !!)12/17/2012 36
    • 37. Opportunities  Contribute Items Of Heritage  Generation Skipping  Regularly Review Wills  Open Lines of Communication with spouse/partner, children and advisers12/17/2012 37
    • 38. Practical Approach Sensitive area Substantial wealth still exists Balancing act-distribute wealth but retain self preservation Prepare Schedule of assets Do Calculation- results frequently stimulate an action plan12/17/2012 38
    • 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.12/17/2012 39
    • 40. Cash Flow Planning  Property 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 items12/17/2012 40
    • 41. Action Plan  Start communicating with clients, family and friends  Make a will and appoint guardians  Review existing wills  Prepare schedule of assets  Prepare a CAT computation to quantify liability  Bad news is this liability will get worse  Consider powers of attorney  Utilise the €3000 annual exemption.(Gifts)  Consider gifts sooner rather than later.  Consider benefits of insurance12/17/2012 41
    • 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.12/17/2012 42
    • 43. “I intend to live forever or die trying” Groucho Marx12/17/2012 43
    • 44. Questions/Comments Thank You12/17/2012 44

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