Section 72
Section 72 whole of life insurance cover
Section 72 insurance cover makes more than just financial sense.
Section 72 Insurance: Tax-Free Inheritance Planning for Your Estate
Section 72 Insurance – Well worth considering when planning your estate.
Formally known as Section 60 insurance in Ireland, Section 72 insurance is a Revenue approved, whole of life policy, the proceeds of which are tax-free if used to pay an inheritance tax bill. A Section 72 policy allows people to plan for the payment of inheritance tax in Ireland efficiently and in advance. For a correct Section 72 policy, Whole of Life means just that… it will pay out on your death no matter what age you are when it happens.
Section 72 cover allows people to avoid incurring potentially life changing and sometimes unexpected tax demands upon inheritance of a property or asset. Under Irish law, it is the beneficiaries of the estate who are liable to pay the taxes, not the disponer (the person giving the gift).
In addition to the many financial benefits of starting a Section 72 policy, there are also emotional and reassuring benefits. Your beneficiaries won’t have to sell any assets to clear the tax bill, which could very well save the family home. Everything that you worked for over your lifetime, continues in family ownership.
There are only three life assurance companies in Ireland that offer true Section 72 policies – Irish Life, Royal London (formerly Caledonian Life) and Zurich. We deal with all of them.
This is not the type of policy that should be taken out on a whim. It is a long term commitment. It requires careful planning and consideration, but it makes terrific financial & emotional sense when done correctly.
Unfortunately, many people who would benefit from taking out a Section 72 life insurance policy, are not even aware of its existence.
Perhaps you’ve heard of a friend or relative, who upon death of a parent or relative has inherited a property, only to be issued with a hefty Capital Acquisitions Tax (CAT) bill. Everything that you leave in your will is subject to a valuation and subsequent tax (unless specific estate planning has been implemented prior to death).
CAT settlement deadline.
Often children who inherit a property are forced to sell the property just to cover the inheritance tax bill in Ireland. This can cause as many emotional issues as it can financial – having to sell the family home for instance. If you inherit any money or assets from January to August, you must pay your CAT bill by October 31st of that year. If you inherit from September to December, the tax must be paid by 31st August of the following year.
Why do people take out a Section 72 policy?
- To put it simply, it saves a lot of money and potential headaches. Imagine your children having to sell the family home, at short notice, just to settle a tax bill. A Section 72 policy negates the need for this.
- It is a massive benefit to those set to receive a large inheritance. A smart and easy way to plan for your beneficiaries’ future, by taking a few simple steps in the present .
- Parents take out the policy with their children in mind. Children in their thirties and up, take out whole of life insurance policy on their parents, with their own future in mind.
- With ever-fluctuating house prices, it’s becoming a more common part of sensible financial & estate planning.
Requirements for setting up a Section 72 insurance policy.
The policy holder must be the person leaving the inheritance. Although some providers allow the children to pay the premiums, as they are set to benefit.
As a child cannot normally insure the life of a parent, they will have to prove to the insurer that there is need for a Section 72 policy. This is easily done, by showing a copy of the will or proof of assets.
The maximum age at entry for effecting a policy is 74. You need to organise this before your 75th birthday. This is important.
In situations where estates pass over from one spouse to another, or between civil partners, no CAT is payable. A joint life policy is recommended, so upon the second spousal death, the beneficiaries of the inheritance will be covered by the Section 72 policy. This is known as joint life, second death. No inheritance taxes are payable on the transfer of assets from one spouse to another following death. It is on the death of the second spouse and the passing of assets at that stage where inheritance taxes become payable.
EXAMPLE: How much inheritance tax will our beneficiaries have to pay?
Everything of value that you leave to your children is included in your estate valuation. The estate valuation is what the amount of tax is calculated on.
Your home is worth €1,500,000 – Very possible for a 3 or 4 bed home in Dublin in 2024. Between cash, investments, a payout from a life assurance policy and any other assets like an investment property etc., it would be very easy to have an estate value of €2,600,000.
Your 2 children – assuming you leave everything to them 50 / 50 – would have a massive combined tax bill of €594,000. This amount is payable within 1 year of your death. Assuming they don’t have access to this level of cash, assets will need to be sold.
This difficult situation is what a Section 72 policy prevents.
**NB** – This page has been updated to reflect the increases to the lifetime threshold allowances stated for Budget 2025.
Group A: €400,000 allowance / Group B: €40,000 allowance. / Group C: €20,000 allowance.