What is Section 73 Policy?
Section 73 Policy is a savings plan taken out by a person who owns assets (Parent/Grandparent) in order to pay for the potential gift tax liability when certain assets (property/cash etc) are passed onto someone else (usually children).
The policy owner pays into this savings plan as normal and after year 8, the funds accumulated in the plan can be used to pay a gift tax liability triggered when assets are transferred. It is very popular for parents who has quite a lot of assets and wish to pass these on to their children while they are still alive.
Who takes out this Policy?
The person(s) giving the gift takes out the policy; they are also the owner(s) of the policy. If you wish to endorse your policy under section 73 of CATCA 2003, the lives assured and the policyholder must be the same person(s). Joint applicants must be spouses or civil partners.
Section 73 policies are most suited for parents/grandparents who have a significant Estate/asset valuation to pass down to their next of kin and wish to pass down some of these assets to their children/grandchildren while they are still alive.
Normal Savings Plan vs Section 73 Savings Plan
Section 73 policies are more tax-efficient than normal savings plans. The accumulated funds in a Section 73 savings plan do not trigger a Capital Acquisition Tax liability (gift tax). The funds can be directly deducted from a potential gift tax (CAT) bill that arises from a gift/transfer of assets.
For example, if a parent saves €100,000 into a normal savings plan and subsequently gifts these funds to a child, this will trigger a potential gift tax liability of 33% (€33000) – assuming the lifetime limit of €335000 has been already used up. The child will only receive €77000 of the €100000 in this case.
However, if this €100,000 was invested in a Section 73 plan, the full €100,000 could be used to pay a potential gift tax liability. If, for example, a parent gifts a property to their child with a market value of €350,000, this will trigger a gift tax liability of €115000 (33% of €350000) – assuming the lifetime limit of €335000 has already been used up. The full €100000 from the Section 73 plan can be used to pay most of the gift tax liability.
Frequently Asked Questions (FAQ's)
What happens if I no longer wish to use the policy for gift tax relief?
You are under no obligation to use the proceeds of your Aviva Savings Plan policy that has been endorsed under section 73 of CATCA 2003 for the payment of gift tax. It is simply an option available if all Revenue qualifying conditions have been complied with.
What if I act outside of the qualifying conditions of section 73?
If you act outside of the qualifying Revenue conditions the policy will cease to be in a form approved by the Revenue, and you will not be entitled to avail of section 73 relief. If you transfer the proceeds of a policy, that no longer qualifies for section 73 relief, then this will increase the beneficiary’s gift tax liability.
Does exit tax apply to my Savings Plan endorsed under section 73?
Yes, exit tax will apply if there is any investment gain on your policy.
How long do I have to fund my policy to qualify for section 73 relief?
You must pay premiums into your policy for a minimum of 8 years. If annual premiums cease to be paid in the first 8 years, the policy will cease to be in a form approved by Revenue for the purposes of section 73 relief.
Once I encash my policy, what happens next?
If you wish to use the proceeds of your policy for section 73 relief, you have one year to pay the gift tax liability. The gift should be made as soon as possible after the policy proceeds have been encashed. The proceeds of an Aviva section 73 Savings Plan policy will not qualify for relief on the payment of inheritance tax.
Can an existing savings policy become a section 73 policy?
No, you must take out a new policy. To qualify for section 73 relief, the policy must be specifically endorsed under section 73 of CATCA 2003 from the date of commencement.
What happens if I die before the minimum 8-year term?
If you die before the minimum 8-year term or before the gift tax liability is paid then the proceeds of the policy will form part of your estate
IF YOU WISH TO MAKE AN ENQUIRY, PLEASE COMPLETE THE FORM BELOW
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Inheritance Tax Planning is the process of planning for the transfer of a person’s wealth and property after death.
Section 72 Policy calculates the expected tax bill of the property beforehand so that your children inherit your property tax-free upon death
There is a lifetime limit from Parent to Child of €335,000 per child of either gifts or inheritance. Once your total assets value exceeds this threshold, a 33% tax is payable on this excess