The 2022 Goodbody Investor Summit provided an opportunity for investors to step away from the noise and volatility of financial markets and focus on some of the key building blocks of a long-term investment strategy. Beyond core allocations to benchmark equity and bond indices, there are a number of important strategies, including private equity and real estate, which can seek to enhance long-term expected returns, diversify portfolio risks, enhance local and global sustainability, or some combination of all three.
Watch back presentations from our most favoured strategies that Goodbody offers in-house or through exclusive investment partnerships across private markets, real estate and public markets and the key trends shaping the economic and investment landscape.
High property prices, rent increases and cost of living hikes are increasingly driving parents to seek advice about ways to pass on wealth to their children now versus leaving it to them when they pass.
Longer life expectancy is also
making this urgent for clients. They want their adult children to benefit from
their wealth today, when they need it most, rather than waiting for
inheritance, which can come long after the children start families of their
For parents who want to engage "giving while living", these are some of the potential options:
Under current legislation effective from 9 October 2019, parents can give a child gifts or an inheritance of up to €335,000 tax-free (the Group A threshold). This threshold is cumulative, so all of the gifts and inheritances received since 5 December 1991 must be counted when calculating whether the threshold has been reached. The standard rate of CAT for gifts and inheritances received above this threshold is 33%.
There is one small exemption from CAT that can make a considerable difference over time, if applied early enough: the small gift exemption. This €3,000 annual tax-free gift allows people to transfer wealth easily and incrementally. Parents and grandparents are increasingly doing this to help the following generation get a start in life, for instance to help fund childcare costs or provide a deposit for a property. This practice is especially meaningful as life expectancy improves and the next generation is in middle age before inheritance becomes a realistic possibility.
Anyone can receive a gift of up to €3,000 from any other person in a calendar year without having to pay CAT. Gifts can be taken from multiple people, as well, and the same €3,000 exemption applies to all of them. That means that parents and grandparents together can give €6,000 (as a couple) to each child/grandchild (or any other person) every year. This could potentially accumulate over a longer period, underlining the value of planning and incorporating all available reliefs into any inheritance plan. These gifts are not included when ascertaining whether the tax-free threshold has been reached either, meaning the tax liability of the remaining estate on inheritance is unaffected by these exempt gifts.
Such payments to minor children or children up to age 25 in full-time education can be exempt from CAT.
Under Dwelling House Relief, a property can only be gifted/inherited without the beneficiary paying CAT, in very limited circumstances. A number of restrictive conditions have to be met to avail of this relief. The relief may be applicable for a child who is permanently and totally incapacitated.
Known as Section 73, this relief is a valuable succession planning instrument that can offer the option of paying a beneficiary’s CAT bill on a gift without the payment itself being considered a further taxable gift. Depending on the value of the assets being transferred, the relief can mean a substantial difference in the ultimate cost to fund the tax. Effectively, use of Section 73 plans means that less of the asset value is used to cover tax costs - and more of it goes to beneficiaries.
Section 73 relief simply entails investing in an insurance policy, such as a qualifying investment savings plan, for a minimum of eight years from the date on which the policy is effected. After that period, a parent for example is free to cash in the proceeds to settle their child’s gift tax liability. The proceeds must be used within one year of the policy maturing to pay gift tax in order for those proceeds not to count as a gift for tax purposes.
For a parent wishing to help a child during their own lifetime and looking to structure their succession plans tax efficiently, Section 73 can be very useful. For instance, gifting property assets early can come with both practical and tax-efficient outcomes. A property gift made alongside a Section 73 plan provides the child with a property and a means to fund the gift tax liability. Significantly, future capital appreciation on that property will accrue to the child, for whom no charge to CAT will arise, rather than in the hands of the parents. This can work especially well when the asset being gifted does not attract a Capital Gains Tax (CGT) liability and where the Stamp Duty liability may also be minimal.
Section 73 can also assist in the tax-efficient transfer of family businesses and agricultural land to the next generation which would not otherwise benefit from CAT relief.
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