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Inheritance Tax - How to reduce the amount you pay



As the old phrase goes – gifts are best given with a warm hand. This applies to inheritance too.

There are 3 categories for inheritance tax in Ireland:

  Category A Category B Category C
Relationship Children Non-Direct family members. Sisters/Brothers, Grandchildren, Grandparents Friends, Inlaws, Cousins
Tax-Free threshold €335,000 €32,500 €16,250
Tax payable 33% 33% 33%

The tax implications can be considerable especially as mostly inheritance is made up of illiquid assets like properties.

Take for example an inheritance like this:

  • Property valued at €1,350,000
  • Cash/Pensions/Investments worth €550,000
  • Total inheritance worth €1,900,000 The 2 beneficiaries are a Daughter (who is married with 2 children and 1 grandchild) and a Son (who has a partner with 3 children).

The Daughter will receive 50% of the inheritance and the Brother 50%. Without any tax planning, the Daughter and brother face a substantial tax liability:

  Daughter Son
Total Inheritance €950,000 €950,000
Tax-Free Threshold €335,000 €335,000
Taxable Inheritance €615,000 €615,000
Total Tax Bill €202,950 €202,950
Net Inheritance €747,050 €747,050
Total Inheritance €950,000 €950,000

As you can see, there is over €400,000 in tax paid on this inheritance. The unfairness of this is often highlighted by the fact that this inheritance is quite often net of taxes already. The person whose inheritance was generating net of tax (be it income tax or property tax). In many ways, this is double taxation.

Reducing your inheritance tax exposure

There is something you can do about this and this requires planning. There is a number of ways on reducing the inheritance tax burden on your children especially. In the above scenario, the scope of the will can be broadened to include spouses, partners, grandchildren, and great-grandchildren.

  Daughter Son
Total Inheritance €950,000 €950,000
Child Free Threshold €335,000 €335,000
Grandchild Tax-Free Threshold €65,000 €97,500
Great Grandchild Tax-Free Threshold €32,500  
Spouse Tax-Free Threshold €16,250 €16,250
Taxable Inheritance €501,250 €501,250
Total Tax Bill €165,413 €165,413
Net Inheritance €784,587 €784,588
Tax saving €37,537 €37,537

So just by simply including the wider family in the will, there is a tax saving of over €75,000. But, it does not stop there. As the parents have reasonably large reserves of cash, they can decide to give a tax-free gift of €3,000 to each child, partner, grandchild, and great-grandchild a year. If they plan ahead, this can be span over 10 or so years.

This reduces the taxable income by over €300,000 which gives an extra saving of 99,000.


Next steps

There are substantial tax savings to be made here and many well-organised families are currently doing this. The cost of the planning is a fraction of the cost of the tax savings. If you are keen to reduce your inheritance tax, get in contact with us below:

Get in touch with our team

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We’re looking forward to working with you.

Corporate Solutions - Nathan Trust