Simplifying Section 72: Paying less tax on inheritance
Most people put a huge amount of thought into what they want to leave behind for their family. What they think about less is the tax bill that comes with it.
In Ireland, Capital Acquisitions Tax (CAT) is charged at 33% on any inheritance above the relevant tax-free threshold. For a child inheriting from a parent, that threshold stands at €400,000 as of April 2026. Above that, a third of everything goes to Revenue.
Fortunately, there are things you can do to protect your beneficiaries from this tax obligation. A Section 72 policy is one of the most effective tools available to deal with this, and it’s not complicated – but understanding it properly is the key to taking full advantage.
What is Section 72?
Section 72 refers to a provision under the Capital Acquisitions Tax Consolidation Act 2003. It allows a life assurance policy to be specifically approved by Revenue so that the payout, when used to pay an inheritance tax bill, is received entirely free of tax.
In other words, the proceeds of the policy do not add to the estate and are not subject to CAT themselves, but are used to take care of inheritance tax owed on your estate.
These are whole-of-life policies, meaning they run for the entire lifetime of the person insured and pay out whenever death occurs, rather than within a set term. They must be designated as Section 72 policies at the outset.
There are two structures available, depending on your situation.
Single life policy
A single life policy covers one person. It pays out on the death of that individual and the proceeds are passed to a named beneficiary, held in trust, to be used to meet the inheritance tax liability that arises.
This is typically used by someone who is unmarried or widowed, or where the estate planning need is specific to one person.
Joint lives policy
A joint lives policy covers two people, usually spouses or civil partners.
Under Section 72, a joint policy can be structured so that the payout occurs on the death of the second person. This means the children do not receive the payout, and therefore face no inheritance tax bill, until both parents have died. The premiums are paid jointly during both lifetimes and by the surviving partner after the first death.
This structure is the most common approach for married couples with an estate they intend to pass on to their children.
How a Section 72 policy works
The mechanics are straightforward. The policyholder takes out a whole-of-life policy that is approved under Section 72 and held in trust for their beneficiaries. The policy is written specifically to pay the beneficiaries’ inheritance tax bill, not to form part of the estate itself. Because it’s held in trust and used for this purpose, the payout is exempt from CAT.
Here’s a practical example:
A parent has an estate worth €600,000 and intends to leave it to their child. The Group A tax-free threshold in 2026 is €400,000. That leaves €200,000 taxable at 33%, producing a CAT bill of €66,000.
Without a plan, the child must find €66,000 to pay Revenue, potentially within months of bereavement, and possibly without the cash to do so.
With a Section 72 policy in place for €66,000, the parent pays premiums throughout their lifetime. When they die, the €66,000 is paid directly to the child, tax-free, and used to settle the CAT bill. The child inherits the estate in full, without having to sell any assets or dip into their own savings.
The policy proceeds do not form part of the estate and do not attract any additional tax, provided they are used to pay the inheritance tax due.*
*Figures are for illustration purposes only
How to know if your policy qualifies for Section 72
Not every life assurance policy qualifies. For a policy to be approved under Section 72, it must meet the following criteria:
It must be a whole-of-life policy. Term policies, which expire at a set date, do not qualify. The cover must last for the entire lifetime of the insured.
It must be Revenue-approved. The policy must be explicitly designated as a Section 72 policy at the point it’s taken out. You cannot retroactively convert a standard life policy into a Section 72 policy.
It must be held in trust. The policy must be written in trust for the benefit of the named beneficiaries. This ensures it sits outside the estate and the proceeds go directly to the people responsible for paying the tax bill.
The proceeds must be used to pay relevant tax. The payout is exempt from CAT only to the extent that it’s used to pay the inheritance tax arising at that time. Any excess above the actual tax bill may be subject to tax in the usual way.
Life cover must be at least eight times the annual premium. This is a Revenue requirement for the policy to qualify.
It’s also worth noting that the cost of a Section 72 policy increases with age and can be affected by health status. Taking one out earlier generally means lower premiums over the lifetime of the policy.
Speak to an independent advisor before committing, as the right structure and provider can make a significant difference to what you pay.
What happens if I don’t have a Section 72 policy?
Without a Section 72 policy, your beneficiaries are responsible for paying any CAT liability out of their own resources, typically within a strict deadline set by Revenue.
This is not a small consideration. With Irish property values where they are, it’s increasingly common for estates to exceed the Group A threshold even where the family doesn’t consider themselves particularly wealthy.
If a child inherits a family home worth €550,000 and has no other savings, they face a CAT bill of €49,500 (33% of €150,000 above the €400,000 threshold). If they cannot pay, the options are limited: borrow the money, or sell the asset they’ve just inherited.
For many families, that means selling a home that has been in the family for decades – not because they want to, but because they have no choice.
A Section 72 policy doesn’t eliminate the tax. It funds it. The point is that the money to pay Revenue is ready and waiting, held in trust, so your family doesn’t have to make difficult decisions at an already difficult time.
It’s a practical, straightforward part of good estate planning, not something reserved for very wealthy families. Anyone with an estate likely to exceed the relevant thresholds should at least consider whether one makes sense for their situation.
If you’d like to explore whether a Section 72 policy is the right fit for your estate, our team at askpaul can help. Book a free protection consultation and we’ll walk you through your options with no jargon and no pressure.
Sources
Capital Acquisitions Tax Consolidation Act 2003, Section 72
Revenue.ie, CAT thresholds and rates
Citizens Information, Capital Acquisitions Tax
Disclaimer
This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional, independent, advice. Any expressions of opinions are subject to change without notice. The information disclosed should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information of the various source material, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Premiums are subject to a completed application form and the provider may require additional health screening information. This further information and assessment may increase the cost of cover.
