Alan Shatter: Our inheritance tax system is state-approved grave robbery
The ethics of such a form of taxation and interference with the freedom of parents to secure the future of family members deserves serious questioning
Inheritance tax impacts unfairly and oppressively on families. Because the dead cannot vote and the annually affected bereaved constitute only a minority of voters, its malign impact is ignored by the Government.
It is also ignored because the Dáil opposition parties — Sinn Féin, the Social Democrats, Labour and People Before Profit — all present as left wing and ideologically favour inheritance tax
Each would make it more draconian if afforded the opportunity to do so in government.
The tax does not apply to property inherited by a bereaved spouse or civil partner from a deceased spouse or civil partner.
But it does apply to property inherited by other family members and its impact in diminishing the value of inheritances and undermining the intentions of a testator (the deceased who made a will) has substantially increased.
It can now be properly perceived as a resentment tax that derides family budgeting, properly managed family finances and the desire to provide financial security and comfort for children, grandchildren, nephews, nieces and other family members.
We sometimes forget that inheritance tax is a death tax levied on savings and assets properly and lawfully acquired by a tax-compliant deceased person and involves the State arbitrarily stealing a portion of those assets.
Put simply, it is state-approved grave robbery. The ethics of such a form of taxation and interference with the freedom of parents to do what they can to secure the future of family members deserve serious questioning.
I believe the time has come to stop the steal or, at a minimum, modernise our inheritance tax laws and radically increase the tax thresholds and decrease the inheritance tax rate.
The current inheritance tax rate is a punitive 33pc and applies to all inheritances received above specified tax free thresholds. For inheritances from a parent to a child or a child to a parent (Group A category) the threshold is presently €335,000.
On November 1, 2008, the Group A threshold was €542,544 and an inheritance tax rate of only 20pc had continuously applied since January 1, 1999, to Group A and other groups.
Today a child inheriting a family home from a parent valued at €500,000 has an inheritance tax liability of circa €54,450.
On November 1, 2008, and earlier no such liability would have arisen.
For inheritances by a grandchild, brother, sister, nephew, niece or grandparent (Group B category) the threshold is €32,500. On November 1, 2008, the threshold was €54,254.
For inheritances by other persons (Group C) the threshold is €16,250 as compared to €27,127 in 2008.
Following Ireland’s financial and property collapse and the State becoming insolvent the thresholds were dramatically reduced and the rate of inheritance tax increased from 20pc to 33pc, where it has remained since 2012.
While there has been some upward adjustment to the thresholds, the rate of 33pc has remained unchanged and the thresholds over which liability to pay inheritance tax arises remain substantially below 2008 levels.
In the period January 2009 to April 2024, the consumer price index increased by an estimated 23.3pc.
Had the exemption levels simply kept pace with the index today the Group A threshold would be €668,000, the Group B threshold would be €66,750 and the Group C threshold would be €33,366.
Residential property values have also now returned to pre-financial crises levels which the current thresholds ignore.
Some provisions exist to ameliorate the impact of inheritance tax. They include the Dwelling House Exemption which exempts adult children living with a parent or other co-habitants from inheritance tax on the deceased’s family home in restricted circumstances. They are:
(a) The home must have been the deceased’s only or main residence at the date of death and deemed to be residing in it if not living there due to mental or physical incapacity.
(b) The beneficiary must have resided in the home for three years up to the date of inheritance and must not have an interest in any other residential property.
(c) The home must continue to be the beneficiary’s home for a minimum of six years after the inheritance, subject to limited exceptions.
While this exemption relieves some children of liability to inheritance tax should they inherit a deceased parent’s family home, it is discriminatory and illogical.
It applies to homes of any value be they worth €3m or €400,000.
Should the beneficiary reside elsewhere in rented accommodation or in a home burdened with a large mortgage, the exemption has no application.
It also has no application to a son or daughter who long resided with a deceased parent but moved out of the family home for employment or other reasons shortly prior to the deceased’s death.
Many other examples could be given. In truth this exemption is anomalous, creates substantial unfairness and needs to be radically reformed if the objective is, as it should be, to facilitate parents who have the financial ability to do so, assist surviving children to have or obtain a home without being unnecessarily burdened with debt.
There is also no reason why it should not apply to the inheritance of a holiday home or a home owned by a deceased parent rented to a tenant or tenants.
Much of what is said here also applies to gift tax, the provisions of which are similar to inheritance tax.
The excessive and unfair imposition by the State of both inheritance and gift tax requires radical government action and legislative reform.
Some cynical minor budget tinkering with the thresholds as a pre-election stunt to seduce voter support as currently being unofficially promoted to media by an unnamed Fine Gael source will not adequately address its basic unfairness.
This tax is currently locked into an early 21st century financial crises time warp at a time when, across a broad range of other issues, we have substantially moved on.
The time has come to make inheritance tax a live issue.
Alan Shatter is a former justice, equality and defence minister and is chairperson of the Inheritance Tax Reform Campaign (ITRC)
