For many parents and business owners, one of the biggest concerns is the possibility that their children could be left with a heavy tax bill when inheriting family assets.
Imagine inheriting a home only to discover that the tax liability is so high you can’t afford it. In many cases, beneficiaries are forced to sell part — or all — of the inheritance simply to pay Revenue. This situation often comes as a shock, leaving families with no choice but to part with property or other valued assets that were meant to stay in the family.
If there’s a chance your children could face inheritance tax in the future, taking steps now to protect them is a wise move.
1. Section 72 Life Insurance
A Section 72 policy is designed to cover inheritance tax liabilities. Upon death, it pays out a lump sum that can be used specifically to meet tax obligations, preventing children from having to sell assets.
Example:
Kate, a single mother, owns a family home worth €600,000, which she intends to leave to her son John. When she dies, John faces an inheritance tax bill of €66,000. Without funds, he may be forced to sell the house.
Fortunately, Kate had set up a Section 72 policy, which pays exactly €66,000. John can keep the family home without financial strain.
Key conditions for Section 72:
- Premiums must be paid by the policy owner
- Minimum 8 years of premium payments required
- Couples can opt for joint-life cover
- Proceeds must be used directly to pay inheritance tax
- If death occurs within 8 years, it functions as standard life cover
2. Dwelling House Relief
This relief allows a person to inherit a property free from CAT if strict rules are met:
- The property was the deceased’s main residence
- The beneficiary lived there for the previous three years
- They must continue to live there for six years after inheriting
- They cannot own any other residential property
This relief is especially relevant where the home is the main family asset and ensures children (or dependents) are not forced to move out or sell to pay tax.
3. Small Gift Exemption
Each person can receive €3,000 tax-free per year from any donor. Parents can combine this allowance to give children €6,000 annually, without affecting inheritance thresholds.
This is a useful way to gradually transfer wealth — often used to help fund education, deposits for homes, or general financial support.
4. Section 73 Savings Policy
A Section 73 plan lets parents save specifically to cover future gift tax liabilities. After at least 8 years of regular payments, the proceeds can be used to pay gift tax on assets passed during the parent’s lifetime.
- Must be specifically designated as a Section 73 policy
- Held in one name (though joint policies are allowed for couples)
- Proceeds must be used for gift tax within one year of payout
- Premiums must be maintained for at least 8 years
This ensures children can receive valuable assets, such as business shares or property, without being forced to use their own money to cover tax bills.
5. Agricultural Relief
For children inheriting farmland or agricultural assets, Agricultural Relief can reduce the taxable value of qualifying property by 90%.
To qualify:
- Agricultural property must represent at least 80% of total assets after the transfer (“Farmer Test”)
- The beneficiary must farm the land commercially (or lease it to someone who does) for at least six years
This relief makes it possible for farms to pass from one generation to the next without being broken up to cover tax.
6. Business Relief
If the inheritance involves a trading business, Business Relief can also reduce the taxable value by 90%.
Conditions:
- The business must continue to operate for six years after inheritance
- Specific rules apply depending on business type and structure
This relief is essential for business owners who want to ensure their children can take over without having to sell assets to meet tax demands.
7. Approved Retirement Funds (ARFs)
An ARF can sometimes be a more tax-efficient way to transfer wealth, particularly for children over 21.
- Children under 21: Inheritances are taxed under CAT rules above thresholds
- Children over 21: Inherited ARFs are subject to a flat 30% income tax (rather than 33% CAT), which can be more favorable
This makes ARFs a useful planning tool for retirees seeking to minimize the tax burden on adult children.
8. Favourite Nephew/Niece Relief
Where no children are involved, a niece or nephew who has worked full-time in the family business for at least five years may inherit under the same tax-free threshold as a child (Group A).
This can significantly reduce tax liability and ensures that key contributors to a family business are recognized.
Final Thoughts
Inheritance planning isn’t just about tax — it’s about protecting your children and safeguarding your legacy. With the right strategies, you can ensure assets pass smoothly, minimize Revenue’s share, and preserve wealth for your family’s future.
Each of the elements of an estate plan are an article in themselves with varying tax and legal considerations. Seek out a Certified Financial Planner CFP® or contact us if you would like to find out more information or discuss implementing an effective estate plan.