Section 72

 

The following information notes any changes made

during the Budget 2016 (w.e.f. 12/10/2016) release.

 

When you die and your estate is passed on to your nominated beneficiaries, there may be inheritance taxes payable. The current rate payable is 33% on any amount over the personal thresholds allowable. The purpose of a Section 72 policy is to provide an additional lump sum on death that should cover all or part of the tax liability due on inheritance of your assets. The proceeds of this policy do not form part of the estate for tax purposes.

The value of your estate is made up of the open market value of all of your assets – property / land / cash / art  / jewellery – anything that is of any value.

 

Example: You have an estate valued at €3,000,000 on death. If you leave your estate to 2 children, they would each have an inheritance threshold of €310,000, so they can currently each inherit up to €310,000 without any tax being payable. Tax would be payable at a rate of 33% on the balance.

In this instance, tax of €788,700 would be due (€3,000,000 – €610,000 = €2,390,000 * 33%).

 

Your children will most likely not have access to this amount of money, so assets would have to be sold in order to clear the CAT dues. This may involve selling the family home which would have an emotional attachment and it may also be very difficult to sell a property at that time, much like it is now.

The Inheritance tax must normally be paid, in one lump sum, within 4 months of the date the inheritance is received by the beneficiary and within 1 year of the date of death.

A section 72 policy is a very easy and straightforward solution to this potential problem.

When a couple are organising a Section 72 Insurance Policy, it will be set up on a joint life, second death basis.  There is no CAT / inheritance tax due on one spouse passing assets to another, so no cover is required.  A joint life second death section 72 policy will pay out a benefit on the death of the second parent, when a CAT liability arises on the passing of assets to a child.

You should always speak with a qualified accountant or estate planner before committing to a particular amount of cover as there may be other ways to reduce your children’s CAT tax liability through effective planning.  Different levels of thresholds or reliefs apply to different beneficiaries.  The example above deals with the most common situation of parent passing assets to a child.

 

Whilst the explanation listed above is by no means comprehensive, it should provide you with enough information on the theory or the need for this type of policy. We can discuss full benefits and details with you separately.