Introduction
Gifting can be one of the most rewarding ways to support loved ones, whether you’re helping your children get on the property ladder, assisting grandchildren with education, or simply passing on your wealth. However, in Ireland, gifts can sometimes come with unexpected tax consequences. Thankfully, Section 73 of the Capital Acquisitions Tax Consolidation Act (CATCA) provides a strategic way to save money and maximise the value of your gift.
What is Section 73?
Section 73 is a special provision in Irish tax law designed to encourage people to save specifically for the purpose of making a gift. It allows individuals to set up savings policies, the proceeds of which can be used to make a tax-efficient gift to someone else, such as a child or grandchild.
How Does Section 73 Work?
Under Section 73, if you take out a qualifying savings policy and keep it in force for at least eight years, the proceeds of that policy can be used to pay the Capital Acquisitions Tax (CAT) liability arising from the gift. In effect, this means that you can help your loved ones receive more of your intended gift, as the tax is paid from the proceeds of the policy rather than from the gift itself.
Why Use Section 73 for Gifting?
- Tax Efficiency: The key advantage is that the proceeds of a Section 73 policy are not themselves subject to CAT, provided they are used to pay the CAT arising from a gift. This can substantially reduce the tax burden for your chosen recipient.
- Planned Giving: Section 73 encourages structured savings and forward planning, making it easier to accumulate a meaningful sum to gift in the future.
- Protecting Your Loved Ones: By using a Section 73 policy, you ensure your gift is protected from erosion by tax, maximising the benefit to the person you wish to help.
Who Can Benefit From a Section 73 Gift?
Anyone looking to make a significant financial gift in Ireland can benefit from Section 73. Parents often use it to help children get started in life, while grandparents might use it to contribute towards education or housing. It is also useful for anyone who wants to make a tax-efficient gift to a relative or even a friend.
How to Set Up a Section 73 Policy
- Speak to a qualified financial advisor to ensure Section 73 is right for your gifting goals.
- Take out a qualifying life assurance savings policy and maintain regular contributions for at least eight years.
- After eight years, use the proceeds of the policy to make your intended gift, with the policy proceeds used to pay any CAT due.
Important Considerations
- The policy must meet Revenue’s qualifying criteria, including the minimum term and regular premium structure.
- You must plan ahead—Section 73 relief is only available if the policy has been in place for at least eight years before the gift is made.
- Section 73 relief only applies if the proceeds are used to pay CAT arising from the gift, not for inheritance tax or any other purpose.
Conclusion
Section 73 offers a powerful and flexible way to save for a future gift, ensuring that your generosity is not diminished by unnecessary tax. With careful planning and advice, you can use Section 73 to make a significant difference in the lives of those you care about, turning your gift into a lasting legacy.
Next Steps
If you are considering making a substantial gift in Ireland, talk to your financial advisor about Section 73. With the right approach, you can maximise the impact of your gift and provide meaningful support to your loved ones.
You can read more blog posts here.
