Will your family have to sell the house to pay the tax bill?

In 2025 the Exchequer collected €1.12 billion in capital acquisitions tax. That is more than stamp duty, and half again what it was a decade ago. Almost none of it was paid by people who thought of themselves as wealthy.

CAT is charged at 33% on the value of an inheritance above the beneficiary's lifetime threshold. A child can take €400,000 from a parent before any tax arises. That sounds generous, and for many families it is enough. The difficulty is not the rate or the threshold. It is that the tax falls on the beneficiary, it falls due on a fixed date, and in most Irish estates the largest asset is a house — which cannot be divided, and cannot be partially sold to raise the tax on itself.

That is the whole problem in one sentence. The estate is illiquid. The tax is not.

One estate, run four ways

Meet Máire. She is 68 and widowed. Her estate is the family home in Dublin, valued at €650,000, and €150,000 in savings and investments: €800,000 in all.

Nothing happened, tax-wise, when Máire's husband died. Transfers between spouses and civil partners are wholly exempt from CAT, so the first death in a couple passes clean. The entire liability was simply deferred to the second death — hers. That is the normal Irish pattern, and it is why the problem so often surfaces at exactly the moment when nobody is planning anything.

What happens on Máire's death depends almost entirely on who inherits.

If Máire has two children, they take €400,000 each. Each has a Group A threshold of €400,000. Taxable amount: nil. The estate passes without a euro of CAT.

If Máire has one child — call her Deirdre — Deirdre takes the full €800,000 against the same €400,000 threshold. €400,000 is taxable at 33%. Her bill is €132,000.

Same house. Same savings. Same 33% rate and the same threshold. The only fact that changed is the number of hands the estate lands in — and the bill went from zero to €132,000. Inheritance tax in Ireland depends less on what you own than on how it divides.

Now change the beneficiary rather than the count. If Máire leaves the €800,000 estate to a niece, the threshold is Group B: €40,000. The bill is €250,800. If she leaves it to a long-term partner she never married, the threshold is Group C: €20,000, and the bill is €257,400 — on the same money a pair of children would have taken tax-free.

Stay with Deirdre, because hers is the common case. On paper she is fine: the estate includes €150,000 of savings, and the bill is €132,000. The savings cover it — today, before probate costs, with €18,000 to spare. But estates are not static. If Máire draws on those savings over the next fifteen years, as most people do, while the house appreciates, the bill grows at exactly the same time as the cash to pay it shrinks. The estate drifts, year by year, towards being one asset: the house.

And the deadline is not negotiable. For a valuation date falling between 1 January and 31 August, the tax must be paid and the IT38 return filed by 31 October of that same year. Deirdre has her own mortgage. She cannot easily borrow €132,000 against a house she does not yet legally own.

So she sells it. Not because the family was rich — because the family was, in the most ordinary Irish way, house-rich.

One common assumption is worth correcting before we go further, because it causes real damage. The dwelling house exemption will not rescue Deirdre. It requires the beneficiary to have lived in the property for the three years before the death, to continue living there for six years afterwards, and to own no interest in any other dwelling. Deirdre has a home and mortgage of her own. However long she lived in the house growing up, she does not qualify.

What a Section 72 policy does — and does not do

It does not reduce the tax. Nothing about it changes Deirdre's €132,000 computation.

What it does is provide the €132,000, free of CAT, at exactly the moment the bill arises.

Section 72 of the Capital Acquisitions Tax Consolidation Act 2003 exempts the proceeds of a qualifying life assurance policy from CAT to the extent that those proceeds are used to pay inheritance tax arising on the death of the insured. Without that section, the payout would itself be an inheritance, taxed at 33% — you would be insuring the tax bill and creating a new one.

So Máire, at 68, effects a Section 72 policy on her own life for €132,000. On her death it pays out; Deirdre uses the proceeds to pay Revenue; the exemption applies; the house stays in the family.

The instrument is a whole-of-life policy, not a term policy. That distinction is the entire cost story. Term assurance is cheap in Ireland because most policies expire without a claim. A whole-of-life policy has no expiry date, so provided the premiums keep being paid, the insurer knows with certainty that it will pay. Máire is not buying a probability. She is buying a date she cannot name.

Had Máire's husband still been living, the right structure would almost always have been a joint life, second death policy — because, as we saw, the tax only arises on the second death, and insuring the second of two lives is materially cheaper than insuring one.

Four things that make the policy qualify

Most of the failures we see are structural rather than financial. The policy exists; it just does not do what the family thought it did.

1. It must be effected expressly under Section 72. This is not a label applied afterwards. If Máire already held an ordinary whole-of-life policy, it could not be retrospectively converted into a Section 72 policy because it happens to pay out at the right time. The policy must be issued in a Revenue-approved form, expressly for the purpose of paying relevant tax.

2. Máire must effect it and pay the premiums. The person whose death gives rise to the tax takes out the policy on their own life and pays for it. Where the next generation is funding it in practice — which is common, and entirely legitimate — the money should reach the parent as a gift under the €3,000 annual small gift exemption. Deirdre can gift her mother €3,000 a year, and Deirdre's spouse can gift a further €3,000, without touching anyone's lifetime threshold. Máire then pays the premium from her own account.

3. Only the amount used to pay the tax is exempt. Suppose Máire, wanting a margin, insures for €180,000 against a €132,000 bill. The €48,000 excess is not covered by the exemption: it is treated as part of Deirdre's inheritance, and since Deirdre's threshold is already exhausted, it is taxed at 33% — €15,840 gone. Sizing is not a rough estimate. It is a computation, and it needs revisiting as the house, the savings and the thresholds move.

4. It has to still be in force. This is where good intentions go to die. A policy Máire takes out at 68 may need to survive to 89. If it lapses at 84 because a premium review made it unaffordable, Deirdre gets nothing, and sixteen years of premiums bought a lesson.

That last point deserves more weight than it usually gets. Whole-of-life policies come with guaranteed or reviewable premiums. A reviewable premium starts lower and is reassessed periodically — typically after ten years, then at shorter intervals — on the basis of what it costs to insure Máire at the age she has then reached. The increases are not small, and they arrive in the years when her income is fixed. A guaranteed premium costs more on day one and cannot move. For a policy whose entire purpose is to be there on a day nobody can schedule, the guaranteed premium is usually the honest choice, and we say so.

There is also an age limit. Most Irish offices will not issue Section 72 cover much beyond age 74. At 68, Máire is inside the window with six years to spare. Planning that gets deferred often gets deferred past the point where it is available at all.

Section 73: the same idea for lifetime gifts

Section 72's counterpart handles gift tax rather than inheritance tax. A Section 73 policy is a regular-premium savings plan — the disponer pays premiums for at least eight years, and the proceeds, if used within a year of encashment to pay gift tax on a gift from the disponer, are exempt from CAT on the same principle.

It would suit Máire if, instead of waiting, she wanted to transfer assets during her lifetime — a site, a business interest, help with a grandchild's deposit. Different instrument, different timescale, same objective: the tax is funded from money set aside for the purpose, rather than from the asset itself.

The honest alternatives

A Section 72 policy is not the only way through Deirdre's €132,000, and it is not right for everyone.

CAT arising on real property can be paid in five equal yearly instalments under Section 54, with interest running on the outstanding balance. That is a genuine option and it has saved houses. It is also a debt of roughly €26,400 a year plus interest, at a rate Deirdre does not set.

She could borrow against the property once title transfers. Some beneficiaries can simply pay from their own resources.

And for many families the correct answer is that no planning is needed at all. Máire's estate split between two children attracts no tax whatever — a Section 72 policy sold to that family is a premium spent solving a problem they do not have. Anyone selling you a policy before doing the computation has the process backwards.

The test is straightforward: value the estate, apply the thresholds that will actually apply to the actual beneficiaries, and see what is left. If the number is large and the asset that would have to fund it is the one the family wants to keep, there is a problem worth solving. If not, there isn't.

Where to start

Our specialist guide, *Inheritance Planning with Life Insurance in Ireland*, works through all of this in detail — the full CAT computation including the charge that arises on an ARF, how cover is sized and structured, how the exemption is actually claimed at the point of the claim, and twelve worked examples. It reflects Finance Act 2025 and is free to download.

If you want to know what the cover would cost, we quote the Irish market whole-of-market and every case is reviewed by a QFA. There is no obligation and no charge for the review.