Inheritance & Succession Tax Planning

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, Ireland
Managing 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 Plan
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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 1991
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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.
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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 value
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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 August
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7. Exemption Thresholds
Year 2013 2012 2009
Child 225,000 250,000 545,544
Lineal Ancestor 30150 33208 54544
Stranger 15075 16604 27127
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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 free
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9. CAT Examples
Example:
 Couple Aged 60
 Estate Worth €1 Million
 2 Children, 4 Grandchildren
Potential CAT €000
Inheritance 1,000
Exemption (225 x 2) ( 450)
Taxable 550
CAT @ 33% 181
7th 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) 240K
7th February 2012 10

11. CAT Calculation
€’000
Net Estate after 5 Years 760
Beneficiaries
 2 Children (225 x 2) 450
 2 In-laws (15 x 2) 30
 4 Grandchildren (30 x 4) 120
Total Exemptions 600
Taxable 160
CAT @ 33% 53 k
Tax Saved 128k
Consider S72 Relief to elimate 53K CAT liability
Zurich 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)
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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.
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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!!!!
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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 350k
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16. Business Relief
Example
€
„000
 Revised Taxable Value 350
 Group 1 Threshold 225
 Less Annual exemption 3
 Taxable Figure 122
 Tax 33% 40.26K
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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.
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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.
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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) = 541
7th February 2012 19

20. CAT & CGT on Same Transaction
Gift Asset to Nephew:
€000
CAT (1,000 – 30 @ 33%) 320
Less CGT (1,000 @ 33%) 330
Credit restricted to CAT 320
Net liability €330 (saving €211k)
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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)
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22. Recent Changes
 Reduction in threshold
 Increase in Capital Tax Rates
 Self Assessment
 Electronic Filing and Payment
 Surcharge for late returns
 PPS Numbers
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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)
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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% Annual
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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 policy
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26. Various Structures
 Corporate/limited partnerships
 Family Arrangements
Trusts:
 Bare trusts-Nomineeships
 Fixed interest trust (Life interest)
 Protective trust
 Discretionary trust
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27. Company Structures
 Trading Companies
 Issuance of shares to children
 Shareholders /partnership agreements
 Use of Preference Shares
 Deferred Shares
 Key man insurance
 Partnership Insurance
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28. Taxation on Structures
 On creation of each asset protection structure
 Ongoing taxation
 Implications on unwinding the structure
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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 Relief
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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 Investments
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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
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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/inheritance
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33. Banking Issues
 Preservation of assets/wealth
 Gifting assets to financially challenged children
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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.
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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
 Trusts
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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 !!)
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37. Opportunities
 Contribute Items Of Heritage
 Generation Skipping
 Regularly Review Wills
 Open Lines of Communication with spouse/partner, children
and advisers
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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 plan
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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.
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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 items
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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 insurance
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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.
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43. “I intend to live forever or die trying”
Groucho Marx
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44. Questions/Comments
Thank You
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