Retirement planning extends beyond your own income. Without planning, a large share of your wealth may be lost to inheritance tax.
1. Capital Acquisitions Tax (CAT) Thresholds (2025)
- Group A – Children: €400,000 each.
- Group B – Siblings, nieces, nephews: €32,500.
- Group C – Others: €16,250.
- Tax above thresholds = 33% CAT.
Example – CAT in Action
Brian leaves €600,000 to his daughter.
- First €400,000: tax-free.
- Balance €200,000 × 33% = €66,667 tax.
- Net inheritance = €533,333.
If Brian had used annual gift exemptions (see Ch.13), tax could have been reduced by tens of thousands.
2. Pensions and Inheritance
- ARFs:
- To spouse: tax-free transfer into their ARF (withdrawals taxed as income).
- To children under 21: tax-free, subject to thresholds.
- To children 21+: flat 30% tax regardless of thresholds.
- Annuities:
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- Payments generally stop at death unless joint-life or guarantee selected.
- Cash savings/property:
- Standard CAT rules apply.
Example – Michael’s ARF Inheritance
Michael dies with an ARF worth €500,000:
- To wife: transfers to her ARF, no CAT.
- To son (25): €500,000 × 30% = €150,000 tax.
- Son nets €350,000.
Planning point: Better to draw down ARF gradually and gift under exemptions during lifetime.
Key Takeaway
Inheritance rules for pensions differ sharply from cash. ARFs are especially exposed, so you should plan early to avoid leaving a large tax bill.
