WHAT IS ESTATE AND SUCCESSION PLANNING?
Estate planning is planning the transfer of assets to the next generation in a tax efficient way.
While making a Will is certainly the first step in planning ahead there are other issues to consider depending on your own particular circumstances. In certain circumstances it might be appropriate to make gifts to the next generation during your lifetime. For instance, you may wish to transfer your business or farm to one of your children who are working in the business or on the farm. Or, you may want to give your children a benefit now as they start out in their adult lives to help get them set up. It is always vital to remember that you take measures and retain enough assets to maintain yourself for your lifetime, such as a nest egg for nursing home care or retaining a right of residence in the family home on the transfer the ownership.
WHAT RIGHTS DO SPOUSES AND CIVIL PARTNERS HAVE TO INHERIT?
Under the law in Ireland, spouses and civil partners have an automatic right to inherit half of their spouses estate if they die leaving no children and one third of the estate if they die leaving children if a will has been made. If there is no will and no children the spouse is entitled to all and if children to two thirds.
If you decide to leave your spouse or civil partner out of your will completely then this right automatically kicks in.
Not only that, but if you decide to give them a gift in the Will which is less than their legal right, they can then elect to choose between the gift in the Will or the legal right share.
If there is no will and no children the spouse is entitled to all and if children to two thirds.
CAN A TRANSFER OF ASSETSBEFORE DEATH BE MADE TO AVOID THIS?
It is very important to be aware that if a person decides to gift assets during their lifetime for the sole purpose of avoiding their legal obligations a court if satisfied this was the sole reason for the disposition can nullify any transaction which was made within 3 years of the death of the deceased.
WHAT RIGHTS DO CHILDREN HAVE TO INHERIT?
As with spouses and civil partners, there are also legal obligations owed to children.
However, while children have a right to look for something out of the estate of their deceased parent, this is not an automatic right. They have to prove that the parent failed in their moral duty to make proper provision.
WHAT TAXES IN THE UPCOMING BUDGET AFFECT ESTATE PLANNING?
Capital Gains Tax
CGT is payable on lifetime gifts and is payable on the increase in value of the asset from the date of acquisition of the asset by the donor to the date of disposal.
Stamp duty is payable on the transfer of property during the lifetime of the donor it does not apply where property is transferred on the death of the donor. The current stamp duty rates vary depending on whether the property is commercial or residential:
Residential 1% of value of property up to the value of €1 million and 2% on anything above €1 million
Commercial 2% of the value of the property
Capital Acquisitions Tax
CAT is payable by the person receiving any gift whether by inheritance or lifetime gift and is probably one of the most important issues to consider when planning for the next generation. The current rate of CAT 33% since December 2012 applies to anything inherited above the applicable threshold. The current thresholds are:
Group A (child) €225,000
Group B (parent, sibling, niece / nephew, grandchild) €30,150
Group C (any other person) €15,075
One of the most noteworthy implications of the current tax regime is that spouses and civil partners are not liable for CAT.
However, in a society where co-habiting couples are becoming the norm, the tax threshold is a mere €15,075. This could result in a high tax bill for the surviving person depending on the circumstances.
Planning ahead is vital in these circumstances to avail of reliefs such as family home relief or putting in place an insurance policy or mortgage protection policy to assist with the tax implications.
There are a number of reliefs available for CAT such as family home relief, dwelling house relief, business relief, agricultural relief and even favourite niece and nephew relief. However, these reliefs may not always be available.
In 2009, the threshold for a child who received a gift from a parent was in excess of €540,000. This threshold now stands at €225,000. It remains to be seen what this year’s budget will bring.
WHAT ABOUT FARMERS – WERE TAX INCENTIVES NOT INTRODUCED LAST YEAR TO ENCOURAGE LAND TRANSFER AND MORE PRODUCTIVE USE OF AGRICULTURAL LAND?
Changes in Budget 2015 were generally welcomed by the farming community in a move that was said to encourage long term farming. The government’s aim through the measures was to try to maximise land use and efficiency while making it easier for farms to be transferred or gifted so as to assist the younger generation of farmers coming through the ranks.
In summary some of the available tax measures introduced last year were:
- A Stamp Duty exemption for leases of agricultural land to active farmers lasting between five and 35 years;
- Allowing reduced Stamp Duty of 1% (instead of 2%) on transfers of non-residential property to certain relatives (who are active farmers) until the end of 2017;
- Capital Acquisitions Tax Relief continuing for agricultural property gifted to or inherited by active farmers or those who are not active farmers but lease the land to active farmers on a long term basis;
- Capital Gains Tax retirement relief expansion so that the relief would still apply if land is leased out for up to 25 years prior to disposing it (previously up to 15 years was allowed);
- Allowing Capital Gains Tax farm restructuring relief to the end of 2016 and broadening it to allow for restructuring through whole farm replacement;
- Extending Capital Gains Tax retirement relief to land let under conacre which is disposed of, or converted to long term lease before the end of 2016;
- Income tax exemption threshold increasing by 50 % for those leasing out farmland and also allowing relief to companies and those who are under 40 years of age;