Navigating inheritance tax can be complicated, but good estate planning can help ensure your loved ones are not burdened with large tax bills after your death. With recent developments in tax legislation, now is an opportune time to explore strategies to minimise inheritance tax on estates.
This guide explores practical ways to legally reduce inheritance tax liabilities, ensures compliance with regulations, and empowers you to make informed decisions.
What is Inheritance Tax?
Inheritance tax is a levy imposed on the value of an estate bequeathed to beneficiaries. While often viewed as a tax affecting the wealthy, recent property value increases have meant this tax impacts a broader section of the population.
Key Changes to Ireland’s 2025 Budget Affecting Estate Planning
Recent updates introduced in Budget 2025 have reshaped Ireland’s inheritance tax landscape, creating more opportunities to protect your family’s financial legacy:
- The parent-to-child tax-free threshold increased from €335,000 to €400,000. This means children can inherit more without paying inheritance tax.
- Other relationships, like siblings or nieces/nephews, saw their tax-free threshold rise from €32,500 to €40,000.
- Agricultural relief now incorporates a requirement for an “active farmer” qualification, ensuring productive farmland use.
- The base inheritance tax rate remains 33%, applied to assets exceeding tax-free thresholds.
These changes apply to inheritances received from 2 October 2024 onwards. Reviewing your estate plan to reflect these updates is essential.
Benefits of Proper Estate Planning
Careful estate management not only ensures your family benefits from your wealth but also minimises tax burdens. Here’s how proper planning helps:
- Preserves Wealth: Higher thresholds allow family members to inherit more tax-free.
- Avoids Disputes: Clear directions in your estate minimise familial conflict.
- Mitigates Tax Liabilities: Efficiency in structuring assets reduces exposure to inheritance taxes.
- Allows for Philanthropy: Provisions can be made for charitable giving.
- Provides Peace of Mind: Knowing your loved ones’ futures are safeguarded can be immensely comforting.
Effective Ways to Reduce Your Inheritance Tax Bill
1. Make Use of the Small-Gift Exemption
The small-gift exemption allows you to gift up to €3,000 per year, per person, tax-free. By gifting regularly over time, you can transfer significant assets to loved ones without impacting the inheritance threshold.
Example: If you gift €3,000 annually to 3 children, over 10 years, you remove €90,000 from your estate tax-free.
2. Give Gifts While Alive
Gifting assets during your lifetime, provided you follow specific guidelines, helps reduce your estate’s taxable value.
- Consider gifting property using Capital Gains Tax (CGT) exemptions or Small-Gift Exemptions.
- Ensure the transfer happens well before your death to avoid Revenue’s Clawback Rules, which apply to gifts made shortly before death.
(Crucially, ensure this doesn’t compromise funds for your later-life care.)
3. Establish Trusts
Creating a trust allows you to transfer assets in a structured way and often minimises tax exposure. There are several types of trusts depending on your goals:
- Discretionary Trusts allow trustees to determine when and how beneficiaries benefit.
- Bare Trusts transfer immediate ownership but defer access until the beneficiary reaches a specified age.
Seek legal guidance to determine the right trust structure for your needs.
4. Plan for Agricultural or Business Relief
For farms or family-run businesses, Agricultural Relief and Business Relief provide significant reductions in taxable values—but meeting eligibility criteria, such as active use of assets, is essential.
- Example: With Agricultural Relief, 90% of a property’s value might become tax-exempt, making it easier for your heirs to retain ownership.
5. Joint Ownership Transfers
Transferring ownership of high-value assets into joint ownership can reduce tax burdens. For example, bank accounts or properties registered as jointly owned assets may (in certain circumstances) pass tax-free to surviving co-owners.
6. Leave Assets to Charities
Gifting to registered charities qualifies as exempt from inheritance tax altogether. If philanthropy aligns with your values, this is a meaningful way to reduce liability while supporting causes you care about.
7. Review International Assets
If you own properties or investments abroad, double taxation agreements (DTAs) can help prevent being taxed in two jurisdictions. Seeking legal advice ensures that your international assets are optimised for beneficiaries.
8. Write or Update Your Will
A well-drafted will ensures alignment with the latest inheritance tax rules. It gives clarity on beneficiaries and reduces legal complications during probate. Make a will with the help of qualified solicitors to:
- Prevent unintended disputes.
- Specify guardians for minor children.
- Allocate assets in line with your wishes within legal frameworks.
Common Mistakes to Avoid in Estate Planning
- Procrastinating Your Planning: Changes in your family situation or legislation could leave your estate plan outdated. Act now to secure benefits.
- Not Considering Tax Timing: Failing to account for Revenue deadlines can lead to unexpected costs. (For example, CGT gifts need precise timing to avoid tax liability.)
- Underestimating International Taxation if You Own Foreign Assets.
- Not Factoring Retirement Needs when gifting or distributing assets. Ensure your finances support your long-term care.
Expert Guidance for Complex Estates
For larger or more intricate estates, professional advice ensures full legal compliance and optimised tax strategy. At HOMS Assist, we specialise in guiding clients through comprehensive estate planning, trust creation, and contentious probate matters.
Our services cover:
- Estate planning and succession strategies.
- Minimising capital acquisition tax.
- Trust design tailored to individual family needs.
- Cross-border estate planning for international asset holders.
Whether for a straightforward will or a more complex solution, our expert solicitors are here to assist.
Safeguard Your Legacy Today
Inheritance tax planning need not be overwhelming. By taking proactive steps, you can reduce liabilities, preserve generational wealth, and ease legal burdens for loved ones. Budget 2025 offers opportunities to retain more of what matters most while passing it on wisely.
To take the next step, contact HOMS Assist for personalised guidance. Start planning today and ensure your legacy benefits your family—not Revenue.
