Inheritance tax thresholds

Will the issue of inheritance tax rear its head in Ireland again now that property prices are rising once more, asked a recent article in the Irish Times by business journalist Fiona Reddan.

As she points out, supporters of inheritance tax see it as an essential form of wealth distribution, while others call it a form of double taxation with people already taxed on the income they need to buy the home or asset, and then their estate taxed on that same asset when it is transferred to the heirs.

In Ireland, inheritance tax is relatively small – less than 1 percent of total taxes in 2020. However, the impact of the Covid-19 pandemic on public finances means political leaders may need to re-examine inheritance tax rates.

€335,000 threshold

Under the current rules, more than €1 million can be left tax-free by parents who have three children, so that each child can receive €335,000. In 2015, just €675,000 could be passed on tax-free to three children; however, the total figure is down by 38 per cent on 2009.

In 2019, inheritance or gift tax of €522 million was paid on €1.6 billion worth of assets. Figures also show that more people are paying capital acquisitions tax (CAT) in 2019; about 16,000 people and a 46 percent increase on the numbers who paid it in 2011 (roughly 11,000).

As you might expect, inheritance tax is primarily a Dublin issue thanks to the capital city’s average property prices. Since 2011, the number of Dublin residents who have to pay property tax has soared by almost 70 percent – from 4,155 to 7,002 in 2019.

Dublin then Cork

Dublin accounted for 49 per cent of all inheritance taxpayers and 53 per cent of receipts in 2019. Cork was the next biggest contributor, with 1,262 taxpayers accounting for 7.8 per cent of all receipts.

Last June, Tánaiste Leo Varadkar said that no one should pay tax on inheriting a family home of average value and vowed to press that case. His party has previously said that they would look to increase the threshold back in line with the previous figure of €500,000.

But the big earners for the exchequer in Ireland are not transfers from parents to children, but Group B, which covers gifts to grandchildren, siblings or nieces and nephews.

This threshold peaked at €54,524 in 2009, but has since slid by 38 per cent to €32,500. As much less of the inheritance is exempt, tax yield from this cohort has soared. It accounted for half of all inheritance tax revenues in 2019 (at €230 million), almost doubling since 2011, and brought in 42 per cent more than the €162.7 million raised from inheritances from parents to their children.

Most people are more likely to pay inheritance tax on gifts received from those outside their immediate family.

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