Section 72 life insurance policies

A daughter inherits a family home worth €900,000 from her father, plus savings of €100,000. Without any relief, her CAT bill is 33% of €600,000 above the €400,000 Group A threshold, which is €198,000. If the Dwelling House Exemption does not apply, the daughter's choice is to sell the house, borrow against it, or find another way to fund the charge.

Section 72 is the other way. Put in place during the father's lifetime, a Section 72 policy pays out €200,000 on his death, and because the proceeds are used to pay the CAT, they are not themselves taxed. The daughter keeps the house intact and the tax is funded.

What Section 72 is

A Section 72 policy is a life assurance policy that meets the conditions set out in Section 72 of the Capital Acquisitions Tax Consolidation Act 2003. Specifically:

• The policy must be a qualifying life insurance policy, usually a whole-of-life policy.
• The purpose of the policy must be expressly stated as providing for the payment of inheritance tax arising on the death of the life assured.
• The proceeds must be used to pay the CAT arising from benefits taken on that death.

Where those conditions are met, the proceeds of the policy are exempt from CAT in the hands of the beneficiary. If the proceeds are not used for CAT, they fall into the estate and are subject to normal CAT rules.

Who should consider one

Section 72 is relevant to anyone whose estate is likely to trigger significant CAT on their death. Not everyone. The cost of the policy is real and ongoing, and it only pays for itself if a CAT charge would otherwise arise.

Typical use cases:

• A parent leaving a family home worth over the Group A threshold to a child who cannot claim the Dwelling House Exemption. Most common case. The Exemption fails because the child owns their own home, or did not live with the parent for the required three years, or would not meet the six-year post-inheritance test.
• An estate where CAT would force a sale of assets the family want to keep. A small business, a farm where Agricultural Relief is uncertain, a shareholding with sentimental value.
• A parent with several children receiving significantly above the Group A threshold each. Each child faces their own CAT charge; a single Section 72 policy can cover the collective liability.
• An unmarried partner or Group C beneficiary. The Group C threshold of €20,000 makes large gifts to non-family members heavily taxed. A policy can fund the charge.

Section 72 is usually not relevant where: - Estate values are below the Group A threshold (no CAT arises) - All assets pass to a surviving spouse (spouse exemption eliminates the charge) - Reliefs like Dwelling House Exemption, Agricultural Relief, or Business Relief will eliminate the charge anyway

What it costs

Section 72 policies are more expensive than standard term assurance because they typically need to be whole-of-life (the insurer pays out whenever the insured dies, not just within a set term). Indicative annual premiums for a €200,000 sum assured:

• Age 55 at inception: €1,500 to €3,000 per year
• Age 65 at inception: €3,500 to €7,000 per year
• Age 75 at inception: €8,000+ per year, often uneconomic

Existing health conditions increase premiums substantially or can make coverage unobtainable. Policies taken out in your 50s are far cheaper over a lifetime than policies taken out in your 70s.

Costs compound. A €2,500 per year policy taken out at age 55 and held for 30 years costs €75,000 in premiums to fund a €200,000 CAT bill at death. Whether this is good value depends on the guaranteed tax saving, the opportunity cost of the premiums, and how long the insured lives.

How it works in practice

When the insured dies:

1. The policy provider receives notification and pays out the sum assured to the policy's named beneficiary, typically within 4 to 8 weeks.
2. The beneficiary (who is usually also the beneficiary of the inheritance) holds the proceeds separately.
3. When the beneficiary files their IT38 return, they calculate the CAT due, offset the Section 72 proceeds against the charge, and pay the net amount to Revenue.
4. On the IT38, the beneficiary claims the Section 72 exemption for the portion of the proceeds used to pay the CAT. Only the portion used for CAT is exempt; any excess that ends up in the beneficiary's hands without being used for tax is treated as ordinary taxable inheritance.

The beneficiary must retain evidence of the policy proceeds and the tax payment. Revenue may cross-check the Section 72 claim against the policy provider's records.

Section 73 and lifetime gifts

Section 73 is the lifetime-gift equivalent of Section 72. A Section 73 policy covers CAT arising on gifts made during the insured's lifetime, rather than inheritances on death.

Less commonly used than Section 72 because fewer Irish estates involve large lifetime gifts. Relevant for high-net-worth individuals making substantial gifts to the next generation during their lifetime.

Taking one out: the basics

Section 72 policies are sold by most Irish life assurance providers: Irish Life, Zurich, Aviva, New Ireland, and others. When taking one out:

1. Tell the adviser it is specifically a Section 72 policy. A standard whole-of-life policy does not qualify; the Section 72 designation must be express.
2. Get the sum assured right. Too low and it fails to cover the CAT; too high and premiums are wasted. A rough rule: 33% of the expected estate value above the relevant group threshold.
3. Name the beneficiary who will inherit and face the CAT. This is usually the same person who gets the main asset (e.g. the child inheriting the family home).
4. Review the sum assured every five years. Estate values drift; a policy sized for a €600,000 estate is underweight if the estate has grown to €900,000.

When a financial adviser is essential

Section 72 policy structuring is specialised enough that most people benefit from professional advice. Policies are sold by insurers but structured by brokers or financial advisers, and the choice of provider, sum assured, and beneficiary structure all matter.

Use an adviser where: - The estate value is volatile (fluctuating investment portfolio, active business) - Multiple beneficiaries each face their own CAT charge - The insured is in their 70s or has health issues - There is a trust structure involved - The policy will interact with other reliefs (Agricultural Relief, Business Relief)

For a straightforward Section 72 policy on a standard family-home estate, a direct application with any major Irish life insurer is sufficient. The Complete Bundle workbook includes a standard-case Section 72 calculation; more complex structuring needs professional advice.