Inheritance tax can feel like salt in an already painful wound. When a loved one passes away, the last thing grieving families want to face is a substantial tax bill that threatens the very assets their relative worked so hard to build. Yet with inheritance tax rates at 33% in Ireland, this scenario affects thousands of families each year.
The harsh reality is that valuable family assets—particularly the family home—often need to be sold to meet inheritance tax obligations. This forces beneficiaries into difficult decisions during an already challenging time. However, there’s a specialised insurance solution that can prevent this outcome entirely: Section 72 policies.
These unique insurance products are specifically designed to cover inheritance tax costs, ensuring your children and loved ones can inherit your assets without the financial burden of a Revenue bill. Understanding how these policies work could be the key to preserving your family’s legacy for future generations.
Understanding the Scale of Ireland’s Inheritance Tax Challenge
Recent data reveals the true impact of inheritance tax on Irish families. In 2024, Revenue collected €861.9 million in capital acquisitions tax, which covers both inheritances and lifetime gifts. While this represents just 0.7% of total tax revenue, the 33% rate creates significant financial pressure for affected families.
The statistics paint a clearer picture of who typically faces inheritance tax. Research from 2020 shows that just over one-third of Irish households (36%) received any inheritance or gift exceeding €3,000. Among those who did inherit from their parents, the median inheritance value was €100,600—comfortably below the then-threshold of €335,000. Even among the wealthiest 20% of families, the median inheritance was €192,400.
This data suggests that while most inheritances fall below the tax-free threshold, those that exceed it often do so substantially. Family homes in particular have appreciated significantly in value, pushing many ordinary families into inheritance tax territory for the first time.
What Exactly Are Section 72 Policies?
Section 72 policies represent a sophisticated tax planning tool specifically created to address inheritance tax liabilities. Named after Section 72 of the Capital Acquisitions Tax Consolidation Act 2003, these insurance products are explicitly recognised by Revenue as legitimate inheritance tax planning instruments.
The fundamental principle is straightforward: the policy provides a lump sum upon death that’s specifically earmarked to cover any inheritance tax bill. This prevents beneficiaries from having to liquidate inherited assets—particularly the family home—to meet their tax obligations.
What makes Section 72 policies particularly valuable is their Revenue-approved status. Because these policies are specifically designed to cover inheritance tax, their proceeds aren’t included when calculating the size of the estate for tax purposes. This creates a clean separation between the inherited assets and the means to pay the associated tax.
The Mechanics of Section 72 Policies
The operation of Section 72 policies involves several key features that distinguish them from standard life insurance products. Most importantly, the policy must be taken out by the person leaving the estate—not by the potential beneficiaries. This requirement ensures the policy maintains its special tax status.
However, there’s flexibility around premium payments. Children or other beneficiaries can contribute to or entirely cover the premium costs, potentially using the annual €3,000 small gift exemption. This arrangement allows the financial burden to be shared while maintaining the policy’s technical compliance.
The policy doesn’t need to be structured for individual beneficiaries. Instead, it covers the entire inheritance tax bill that may arise from the estate. This approach provides flexibility as family circumstances change and ensures comprehensive coverage regardless of how assets are ultimately distributed.
Premium amounts are fixed from the outset and don’t increase with age once the policy is established. This predictability helps with long-term financial planning, though it’s crucial that premiums are maintained without interruption—any lapse will invalidate the policy entirely.
Key Benefits for Estate Planning
Section 72 policies offer several compelling advantages for families concerned about inheritance tax. The primary benefit is asset preservation—beneficiaries can inherit valuable assets, particularly family homes, without being forced to sell them to meet tax obligations.
The timing advantage is equally important. These policies provide immediate liquidity upon death, allowing inheritance tax to be paid promptly without the delays associated with asset sales. This can be particularly valuable when property markets are challenging or when assets are difficult to value quickly.
From a financial planning perspective, the policies offer certainty. Families know the inheritance tax bill will be covered regardless of future changes in asset values or tax thresholds. This peace of mind extends to both the policy holder and their intended beneficiaries.
The policies also provide flexibility in estate distribution. Without the constraint of needing to sell assets for tax purposes, executors have more options for how to distribute the estate according to the deceased’s wishes.
Important Considerations and Limitations
Despite their benefits, Section 72 policies come with several important limitations that potential purchasers must understand. Age restrictions are significant—policies must be taken out before age 75, with some providers imposing even lower limits. This creates urgency for older individuals considering this option.
The cost factor requires careful consideration. One broker estimates that covering a €100,000 inheritance tax bill could cost at least €220 per month for a healthy 60-year-old. Smokers and those with health conditions face substantially higher premiums, potentially making the policies uneconomical.
Geographic restrictions apply—policyholders must be Irish residents to qualify. This limits options for families with international connections or those considering emigration.
Perhaps most crucially, there’s a matching risk. If asset values fall or tax thresholds rise significantly, the policy might provide more than needed to cover the inheritance tax bill. In such cases, the surplus becomes part of the estate assets and is subject to inheritance tax itself.
Selecting the Right Provider and Policy Structure
The Irish market for Section 72 policies is relatively limited, with just three main providers: Zurich Life, Royal London, and Irish Life. This limited choice makes it essential to compare offerings carefully and understand each provider’s specific terms and conditions.
When evaluating policies, consider factors beyond just premium costs. Look at the provider’s financial stability, claims history, and customer service quality. The policy’s flexibility in terms of benefit adjustments and the clarity of its terms are also important factors.
Professional advice is particularly valuable given the complexity of these products and their interaction with broader estate planning strategies. A qualified financial adviser can help model different scenarios and determine whether a Section 72 policy represents the most cost-effective approach to inheritance tax planning.
Alternative Strategies to Consider
While Section 72 policies offer a direct solution to inheritance tax concerns, they’re not always the most appropriate option. Alternative strategies might include lifetime gifting to utilise annual exemptions, establishing trusts, or restructuring asset ownership.
Some families might benefit from a combination approach, using Section 72 policies for part of the potential tax liability while employing other strategies to reduce the overall estate value. The optimal approach depends on individual circumstances, asset types, and family dynamics.
Regular review of any chosen strategy is essential, as changes in tax legislation, asset values, or family circumstances might necessitate adjustments to the estate planning approach.
Securing Your Family’s Financial Future
Section 72 policies represent a valuable tool for families concerned about inheritance tax, but they require careful consideration and professional guidance. The decision to purchase such a policy should be made within the context of a comprehensive estate planning strategy that considers all available options.
The key is acting while options remain available. Age restrictions and health requirements mean that delaying decisions can limit future choices. However, rushing into any insurance product without proper advice and consideration is equally problematic.
For families with valuable assets—particularly those including the family home—Section 72 policies can provide the peace of mind that comes from knowing inheritance tax won’t force difficult asset sales. This protection allows the next generation to inherit not just assets, but also the choices that come with financial security.
If you’re considering how to protect your family’s inheritance from tax obligations, professional legal advice is essential. Contact HOMS Assist at 1800 207 207 or [email protected] to discuss your estate planning options with experienced solicitors who specialise in inheritance tax planning and wealth preservation strategies.
