succession planning seminar
DESCRIPTION
Inheritance & Succession Tax PlanningTRANSCRIPT
Inheritance Tax &
Succession Planning Seminar
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T +353 (0)21 4840721 I F +353 (0) 21 4840726 I E [email protected] 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
December 2012
Andrew GuerinEmail:
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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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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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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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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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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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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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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
CAT Examples
7th February 2012
Example:
Couple Aged 60
Estate Worth €1 Million 2 Children, 4 Grandchildren
Potential CAT €000
Inheritance 1,000Exemption (225 x 2) ( 450)Taxable 550CAT @ 33% 181
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CAT Calculation
7th February 2012
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
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CAT Calculation
7th February 2012
€’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 !!!!!!!!11
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ReliefsSpouses 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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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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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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Business ReliefExample:
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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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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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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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.
CAT & CGT on Same Transaction
7th February 2012
Example:Asset (shares costing €1) valued €1m sold and proceeds gifted to nephew
CGT €000
Proceeds 1,000CGT 330Net Cash 670
CAT €000Gift 670Exemption ( 30)Chargeable 640CAT @ 33% 211Total Tax (330+211) = 541
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CAT & CGT on Same Transaction
7th February 2012
Gift Asset to Nephew:€000
CAT (1,000 – 30 @ 33%) 320Less CGT (1,000 @ 33%) 330
Credit restricted to CAT 320
Net liability €330 (saving €211k)
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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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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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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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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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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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Various StructuresCorporate/limited partnerships
Family Arrangements
Trusts:Bare trusts-Nomineeships
Fixed interest trust (Life interest)
Protective trust
Discretionary trust
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Company StructuresTrading Companies
Issuance of shares to children
Shareholders /partnership agreements
Use of Preference Shares
Deferred Shares
Key man insurance
Partnership Insurance
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Taxation on Structures
On creation of each asset protection structure
Ongoing taxation
Implications on unwinding the structure
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Filing RequirementsCAT 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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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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Implications of no WillDie intestateNo input into distribution of estateSuccession Act 1965 rules will applyS.67 (2) states that if an individual dies intestate
with spouse and issue that:a) spouse takes two thirdsb)Remainder is taken by childrenNon existence of will make makes CAT planning
impossible
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Asset ProtectionTiming of transfersBankruptcy Act 1988Personal Insolvency Bill 2012Nama Act 2009Land & Conveyancing Act 2009Transferring to Companies(Cash flow)Sham/intention/credibilityAnticipated gift/inheritance
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Banking Issues
Preservation of assets/wealth
Gifting assets to financially challenged children
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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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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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Annual Exemption ThresholdAmount €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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Opportunities
Contribute Items Of Heritage
Generation Skipping
Regularly Review Wills
Open Lines of Communication with spouse/partner, children and advisers
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Practical ApproachSensitive 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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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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Cash Flow PlanningProperty 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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Action PlanStart communicating with clients, family and
friendsMake a will and appoint guardiansReview existing willsPrepare schedule of assetsPrepare a CAT computation to quantify liabilityBad news is this liability will get worseConsider powers of attorney Utilise the €3000 annual exemption.(Gifts)Consider gifts sooner rather than later.Consider benefits of insurance
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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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“I intend to live forever or die trying”
Groucho Marx
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Questions/Comments
Thank You