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Dublin: 8 °C Friday 18 October, 2019
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Behind-the-scenes pressure on minister to raise inheritance tax threshold in the Budget

A tax-free threshold on transfers between parents and their children currently stands at €320,000.

The programme for government commits to reverting the threshold back to €500,000.
The programme for government commits to reverting the threshold back to €500,000.
Image: Shutterstock/beeboys

FINANCE MINISTER PASCHAL Donohoe is under pressure to raise the inheritance tax threshold, which is the amount that parents can leave to their children when they die without the children paying tax on it. 

It is understood members of the Independent Alliance are insisting that the level at which the tax kicks in be increased.

Last year, a €10,000 increase in the inheritance tax threshold from parents to children was announced on Budget Day. However, a source said that this year’s Budget is “very tight” and there is no room for such so-called “nicey nicey” things to be included.

The inheritance tax threshold is a divisive political issue. Proponents for a lower threshold argue that inheritances are unearned and perpetuate inequality because rich parents can hand down large sums of money to their children. People who want a higher threshold say that the tax is already punitive, and adds a burden at a time of grief and distress. 

Speaking in the Dáil last year, Donohoe said that he decided to increase the lifetime Group A tax-free threshold, which broadly applies to transfers between parents and their children, from €310,000 to €320,000. 

Capital Acquisitions Tax is a tax on gifts and inheritances. People can receive gifts and inheritances up to a set value over their lifetime before having to pay CAT. 

The amount that a person might have to pay out depends on the relationship between the person inheriting and the deceased; a spouse or civil partner is required to pay no tax, for example. 

For all other beneficiaries, a tax-free threshold amount is afforded, after which Capital Acquisitions Tax has to be paid.

Sons and daughters receive the largest tax-free amount. The second group is made up of parents, brothers, sisters, nieces, nephews and grandchildren and the third group includes any other type of relation.

Inheritance tax threshold

TheJournal.ie understands that during ongoing Budget negotiations with the minister, pressure is being placed on him to increase the threshold higher than was done last year.

Politicians pressuring the minister argue that the Programme for Government says that inheritance tax rates will revert to the levels it was at before the economic crash, when it was over €500,000.

The Programme states:

We will work with the Oireachtas to raise the Band A Capital Acquisitions Tax Threshold (including all gifts and inheritances from parents to their children) to €500,000.

Up to April 2009, the threshold stood at €542,544 for parent-to-children inheritance.

Last year’s increase and the level at which the tax kicks in – €320,000 – has been described as “pathetic” by some in government. 

It is believed it is being argued that increasing the threshold could help with the housing crisis, and ensure that children receive more inheritance, tax-free, that could help first-time buyers get on the housing ladder. 

The UK and Ireland receive the highest proportion of inheritance or estate taxes of any major world economies, according to a study by UHY, the international accountancy network.   

The Irish state would typically expect to receive 26% – and the UK 25.8% – from the estate of an individual passing on an estate.

UHY state that the level at which inheritance tax thresholds are set is a crucial issue for middle-class families. 

“If thresholds are not adjusted in line with inflation, it can mean that taxes, that were originally designed to apply only to the very wealthy, start to affect a larger proportion of the population,” it states.

Brexit Budget

One source close to the Budget negotiations said an increase is a non-runner because of how Brexit is impacting what makes it into this year’s Budget. 

However, some TDs in Fine Gael are also in favour of modifying tax thresholds. 

“I believe the threshold should be lifted,” said Fine Gael Senator Catherine Noone.

“I would like to see it restored close to the level that it used to be, or at least I would like to see a move every year in that direction,” she said. 

It is an issue that affects everyone, she said, particularly in Dublin, where house price valuations are higher. 

“For children living in Dublin who inherit their parents home, it is very difficult to come up with the money to pay the tax due,” said Noone, adding that this isn’t an issue that just impacts the “well off”. 

“It doesn’t just impact on rich people, it is really an issue that affects the middle of the road people. So it needs to be modified,” she said.

While Noone was speaking about those living in the capital, a farmer from Wicklow told TheJournal.ie that one of the “biggest” issues for farmers is inheritance tax. 

“Every generation nearly has to buy a third of it,” he said, stating that the return of working as a farmer just “isn’t there anymore”. Instead of trying to encourage family generations to keep farming, inheritance tax is an obstacle, he added. 

“It is just another whipping stick – there’s too many of them now, between inheritance tax, rules and regulations.”

They added that it is not just an issue facing farmers. Whether you leave in an urban or rural area, it has an impact, said the farmer.

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