Succession Planning - Practical Insights 2 - Gift V Inheritance
Succession Planning – Practical Insight 2 – Gift or Inheritance?
Rather surprisingly, this year’s Finance Bill 2017 (the legislative detail behind Budget 2018) provided no increase to the CAT tax free thresholds (e.g. currently parents can still only pass €310,000 value to each child). The age old question still remains - should I pass assets by way of gift during my lifetime or should I wait until death and pass assets by way of inheritance?
The simple answer is both. In my opinion, it is never too early to pass to the next generation if the individual is financial secure, the wealth transfer suits the family situation (i.e. the beneficiaries are of suitable age and responsibility or the individual can retain some level of control) and capital taxes can be kept to a minimum.
A gift of assets involves consideration of the three capital taxes, namely Capital Gains Tax (CGT) for the person making the Gift with Capital Acquisitions Tax (CAT) and Stamp Duty being the tax considerations for the beneficiary. A transfer on death by inheritance only requires the consideration of CAT by the beneficiary as no CGT or Stamp Duty arises on death.
Some of the benefits of gifting now are:
Certainty now of current tax legislation, reliefs and exemptions
Transfers now at lower values with future asset growth in the beneficiary name (possible reduction of future inheritance tax liability on a higher value asset passing in the future)
Stamp Duty possibly being the only cost where CGT/CAT exemptions and reliefs are available
Minimal or low CGT is asset capital values have not appreciated back to historically higher levels or where an individual has Capital Losses to shelter chargeable gains arising on a gift
At this point in the process the individual should have financial clarity in addition to a suitable strategy in relation to the timing of the succession plan in the context of a transfer by gift or through inheritance. The focus of the plan can naturally progress towards identification of suitable assets to transfer to the relevant beneficiaries in the most tax efficient manner at the appropriate time.