Sales Opportunity: Protecting Your Client’s Legacy

Mon Aug 12 2019

€466.3 million – that’s the amount of inheritance tax that was collected in Ireland last year according to Revenue figures.* The amount, which is a record high, can be linked to the increasing property prices and the largely unchanged tax-free thresholds. That said, the 2019 Budget did see an increase of the inheritance tax threshold from parents to children – up by €10,000, raising it to €320,000, however this amount is still well below the pre-recession cuts threshold of €542,544. As a Financial Broker you’ll advise your clients about how a Section 72 life insurance policy can be used by them to help offset an inheritance tax liability in the future. Leading protection specialist Royal London is also seeing a significant rise in brokers advising their clients to take out Whole of Life cover, set up under Section 72, to help plan for the income tax that will come due on an Approved Retirement Fund (ARF) inherited by a child over the age of 21.

ARF Inheritance Tax Treatment

You’ll be familiar with a Section 72 life insurance policy which is approved by the Revenue Commissioners under Section 72 of the Capital Acquisitions Tax Consolidation Act 2003 and can be taken out specifically for the purpose of paying inheritance tax. The money paid out by the policy is then used to pay that inheritance tax.

Speaking about the topic Daragh Feely, Head of Sales at Royal London said: “Capital Acquisitions Tax (CAT) doesn’t apply to all inheritances. When it comes to taxation on the value of retirement funds in an ARF, it depends on who your clients leave the funds to. With your advice, your clients can plan to protect their hard‑earned legacy by taking out a policy to keep the value of their ARF intact when they pass it to their children.”

This table outlines the current tax treatment of inherited ARFs.

ARF Inherited by Capital Acquisitions Tax due Income Tax due
Surviving Spouse No No but subsequent withdrawals subject to PAYE
Children (under 21) Yes, at 33%1 No
Children (over 21) No Yes, at 30%
Others (including surviving spouse/civil partner if benefit paid out as a lump sum but spouse/civil partner exemption available) Yes, at 33%1 Yes, at deceased’s marginal tax rate at time of death
1Normal inheritance tax rules apply

Daragh continued: “Think about the total retirement fund as a pot. If your client leaves their pot to their child who is aged 21 or over, income tax of 30% will be payable on it, regardless of the amount of the fund. Our Whole of Life cover can be set up specifically to take care of the tax bill of 30% left behind by planning for it now. So, by using a small proportion of the value of the pot on an annual basis to pay for the life insurance policy, your client can cover the income tax bill that will come due in the future, protecting 100% of their retirement fund and thereby their legacy. For couples who set up a policy on a Joint Life Second Death basis, when they both pass away the proceeds of their ARF can be passed on to their children.”


Take this example; your clients are a married couple who have an ARF of €1,000,000. Both are non‑smokers and aged 60. They plan to leave the ARF in its entirety to their daughter who is over the age of 21. On the second death, income tax of 30% (€300,000) would be due on the value of the ARF leaving her with a net inheritance of €700,000. Instead, you advise the couple take out a Joint Life Last Survivor Whole of Life policy under Section 72 to offset the future tax bill for their daughter. The annual premium is €6,627 – which works out as just 0.66% of the value of the total ARF on an annual basis. They could increase the drawings from their ARF to fund this premium. The policy proceeds will be paid out to their daughter to reimburse the €300,000 paid to satisfy the tax bill. Now, their daughter will receive 100% of the value of the ARF. (This example assumes that that the value of the ARF and the tax rate do not vary. Premiums are payable until the death of the second person to die.)

The couple leave 100% of their ARF to their daughter.

On their daughter’s inheritance income tax at 30% will come due.

In this scenario, by setting up a Whole of Life policy with a premium of just 0.66% of the value of the ARF in premiums per year their daughter’s Income Tax liability of €300,000 can be paid with the policy proceeds.


Commenting on the example, Daragh finished by saying: “When your clients leave 100% of their €1,000,000 ARF to their daughter income tax at 30%, or €

300,000, will be owed on the value of the ARF. In this scenario, by setting up a Whole of Life policy with an annual premium of just 0.66% of the value of the ARF in premiums per year their daughter’s Income Tax liability of €300,000 can be recouped with the policy proceeds. That works out at a much more manageable sum of €6,627 per annum.

“Of course, this is just one aspect of inheritance tax planning. As outlined above, ARF tax is treated separately to the rest of inheritance which will be taxed at the normal CAT rates. Certainly, it’s possible to advise your clients that by calculating their children’s future ARF tax liability along with their estimated inheritance CAT bill the same Whole of Life policy can be set up under Section 72 policy to cover both future tax bills.”

Royal London flyers on succession planning for ARFs can be found on its Broker Centre;



*, Breakdown of Capital Acquisition Tax returns (2018),

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