73 Relief in respect of certain policies of insurance relating to tax payable on gifts

Summary

This section grants exemption in respect of the proceeds of certain policies of insurance which are used to pay gift tax (or inheritance tax) arising in connection with a gift made by the insured. The minimum funding period is 8 years. An exception is made in relation to this period in the case of death or critical illness.

Details regarding the policies that qualify for exemption are set out in a Statement of Practice (SP-CAT/1/04).

Details

(1) “appointed date” means—

• a date at least 8 years after the date on which the policy was taken out, or
• where the insured becomes critically ill or dies before that date, the date on which either event occurs;

“insured” means—

• an individual, or
• in the case of a husband and wife/civil partners, one or both or the survivor of them;

“relevant insurance policy” means a policy—

• which is in a form approved by the Revenue Commissioners (see paragraph 6 of Statement of Practice SP-CAT/1/04 regarding the criteria for approval for policies issued on or after 29 May 1991);
• in respect of which annual premiums are paid by the insured;
• which will run for at least 8 years; and
• which is expressly taken out under the section for the purpose of paying relevant tax;

“relevant tax” means gift tax or inheritance tax payable in connection with a lifetime disposition made by the insured, within one year of the proceeds becoming payable, but excluding gift tax or inheritance tax on an appointment out of a discretionary trust set up by the insured in his/her lifetime.

(2) Where a donor makes a gift to a donee, the latter is liable to pay gift tax on the gift (this becomes inheritance tax if the donor dies within 2 years of making the gift). Under section 87, if the donor pays the gift tax, the donee takes a further gift which is also liable to gift tax. Where the proceeds of a relevant insurance policy are used to pay gift tax on a gift made by the insured, the proceeds themselves, to the extent that they are used to pay the tax, will be exempt from tax and will not be taken into account when computing tax.

(3) Where the insured makes a gift of part or all of the proceeds of a relevant insurance policy, otherwise than in paying relevant tax, the proceeds will be subject to tax, unless the gift is to a spouse (exempt under section 70) or to a charity (exempt under section 76).

(4) The proceeds of a relevant insurance policy taken out to pay gift tax can be used to pay inheritance tax if the insured, or one of the insured in the case where annual premiums are paid by either spouse during their joint lives, and by the survivor of them during the life of such survivor, dies before 8 years have elapsed since the policy was taken out. The policy must, however, meet the same requirements under section 72 which it would have had to meet if it had been taken out to pay inheritance tax.

(5) The proceeds of an insurance policy taken out for the payment of inheritance tax can also be used to pay gift tax where the proceeds of such a policy are used to pay the tax arising under a disposition made by the insured during his/her lifetime within 1 year after the appointed date. If an insured takes out a policy under section 72, he/she can make a gift of property rather than leave it by will. Provided that 8 years have elapsed between the date the policy was taken out and the date of the gift and provided that the proceeds of the policy are used to pay the relevant tax within 1 year after the date of the gift, he/she can use the proceeds to pay gift tax and qualify for the exemption.

Relevant Date: Finance Act 2015