Section 73 Savings Funding Inheritance Tax

Section 73 Savings Funding Inheritance Tax

by Tim Abrams – Senior Financial Advisor | Walsh Group

For all of our working lives, we save for and buy assets such as houses and land. We also save with financial institutions in cash or investments as well as our pensions. Upon death, all of these assets are left in our estates and divided between our beneficiaries. All beneficiaries except for our spouses are liable to inheritance tax once their thresholds are reached.

What is a Section 73 policy?

Section 73 policies are savings plans. These savings plans need to be earmarked for Inheritance Tax purposes from the start of the plan. They need to be kept for a minimum of 8 years but should you need to cash them in for another purpose, they revert back to a normal savings plan.

Who should take out a Section 73 policy?

The person who owns the assets that they intend to transfer to beneficiaries should take out a Section 73 policy.

Why should you take out a Section 73 policy?

It supports efficient tax planning on behalf of the beneficiaries.

Is there Exit tax on Section 73 policies?

Exit tax will apply on the gain within the savings plan. Exit tax occurs every 8 years or on full or partial encashments within the 8-year cycle.

What happens on encashment of a Section 73 policy?

If you wish to use the proceeds of your policy for Section 73 relief, you have one year to pay the tax. The tax should be paid as soon as possible after the policy proceeds have been encashed to mitigate the risk that if the policyholder dies before transferring assets the potential for Section 73 relief will be lost.

Can I use an existing savings plan as a Section 73 policy?

No, you need to take out a new policy, and it must be specifically endorsed as a Section 73 from the date of commencement.

What happens if I die before the minimum 8-year term?

If the owner of the assets earmarked for transfer dies before the minimum 8-year term, or before the tax liability on transfer of assets is paid, then the proceeds of the policy will form part of the estate of the deceased.

At Walsh Group we are committed to helping our clients throughout their personal financial planning journey. If you have any further questions please feel free to reach out to us or submit our convenient online enquiry form, and a member of our friendly expert team will get right back to you.