Using a Life Insurance Plan to fund for Gift Tax

news Nov 10, 2017

Using a life assurance savings plan to fund for Gift Tax

Planning for your financial future will give you peace of mind today. This week, our Expert
Qualified Financial Adviser, Philip Sicat, Premier Financial Services, discusses how you can fund for gift tax through a savings Policy.

Relief is given in Section 73 of Capital Acquisitions Tax (CAT) Consolidation Act 2003 to allow people to plan for the payment of gift tax (Section 73) in a tax efficient way.

If a life assurance savings plan is put in place to provide for the ‘relevant’ tax, Revenue will not charge Capital Acquisitions Tax on the plan proceeds if the money is actually used to pay gift tax.

What is the benefit of you taking out a Section 73 savings plan?
The benefit of using a ‘qualifying’ life assurance savings plan to fund for the payment of gift tax is that, as long as certain conditions are met, the proceeds of the plan when used to pay your clients beneficiaries gift tax bill, will not increase their gift tax liability.

Are there certain restrictions to these plans?
There are some revenue restrictions and requirements. If these rules are not satisfied for any reason, the plan will lose its exemption from gift tax and could actually increase the beneficiaries’ liability.

Conditions

The plan must be expressly effected under the provisions of Section 73; normally the plan is endorsed to this effect when it is issued.

To qualify for Section 73 relief the person who owns the plan must also pay the premium.

A joint-life plan can only be taken out by a married couple or registered civil partners.

You must continue to make regular premium payments for at least eight years.

If you stop paying regular premiums, even after the eight-year period, you cannot restart.

Your premium cannot increase or reduce by more than 50% in any continuous eight-year period unless as a result of a plan review by the life company.

Once regular premiums have been paid for at least 8 years, any encashment from the plan after the plan has been in force for 8 years will be exempt from gift tax when used to pay gift tax within one year of making the encashment.

Each individual’s circumstances will determine which type of protection option meets their needs, but whichever route you chose, all it’s really about is putting life cover in place to ensure that the necessary funds will end up in the right hands at the right time, in both a cost efficient and a tax efficient manner. We advise that you seek professional advice as the information given is a guideline only and does not take into account your particular circumstances.

Premier Financial Services is a registered trade name of PCS Financial Services (Kerry) Ltd. PCS Financial
Services (Kerry) Ltd. T/A Premier Financial Services is regulated by the Central Bank of Ireland

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