Inheritance tax

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)
Income tax is also unfair, VAT is quite regressive.

All taxes have problems with them.
 
Income tax is also unfair, VAT is quite regressive.

All taxes have problems with them.

This is a super punitive tax on middle income earners though. It’s a tax on taxed money.

Business owners etc have certain autonomy on avoiding these thresholds. (Unlimited tax free pension contributions, Paying family members through the business they own etc)

Business owners employ tax advisors, accountants etc and can try limit the inheritance/gift tax rules somewhat.

Ordinary PAYE workers haven’t access to the same channels and are getting royally screwed when it comes to their estates.
 
Alan Shatter is someone who takes a very real world and sensible approach, and says it as it is.

When Minister for Justice he tried to tackle the issues in Family Law around Fathers Rights. It never gained momentum but he did openly admit an enormous problem exists.

Dealing with tax/revenue is a very stressful situation for people. Their communication is quite abrupt and confrontational. A friend of my son had to pay 8k in one go recently or face interest/penalties of almost 4k extra.

It all stemmed from them giving him a tax cert after he opened an enquiry following his separation. They realised after 4 years they had given him the wrong allowances so wanted it back. He was a year dealing with it on top of other stress.

Their attitude was yes they were incorrect in their information, but he still got money he shouldn't have!!
 
This is a super punitive tax on middle income earners though. It’s a tax on taxed money.

Business owners etc have certain autonomy on avoiding these thresholds. (Unlimited tax free pension contributions, Paying family members through the business they own etc)

Business owners employ tax advisors, accountants etc and can try limit the inheritance/gift tax rules somewhat.

Ordinary PAYE workers haven’t access to the same channels and are getting royally screwed when it comes to their estates.
It's not a punitive tax on middle earners.

It's a medium tax on a fairly small percentage of the population with a large tax free allowance.

It's not a tax on earnings either.

It's not like it's mostly applying to orphans being kicked out on the streets otherwise. It's mostly applying to middle aged single children inheriting a house they haven't lived in for quarter of a century or more, that in that time has sextupled in value.

I would say income tax is far less "fair"
 
It's not a punitive tax on middle earners.

It's a medium tax on a fairly small percentage of the population with a large tax free allowance.

It's not a tax on earnings either.

It's not like it's mostly applying to orphans being kicked out on the streets otherwise. It's mostly applying to middle aged single children inheriting a house they haven't lived in for quarter of a century or more, that in that time has sextupled in value.

I would say income tax is far less "fair"
In relative terms if property inflation is not taken into account then the tax increases year by year.

For example if you died 10 yrs ago when your house was at the threshold 330K then your kid could have sold up and bought the house next door, if instead you die today and your house price has doubled in value he can't buy the house next door (which has also doubled) as he will be short roughly a 100K which he has forked out in inheritance tax.

Instead of arguing about the merits of it as a tax versus other taxes I would argue about the merits of it being a tax in the first place. The person who died has paid tax of their earnings, obviously the benefactors haven't but there are other ways to transfer this wealth to avoid taxation so why should the unsavvy be punished?
 
Jeez if a child inherits the family home then they could end up in debt straight away. Not fair on them.
An acquaintance of mine was in that situation over a decade plus ago and pretty much had a nervous breakdown because of it. His last parent died and obviously left everything to him. The house was in Dublin and was at the height of the bubble. It very nearly destroyed him.
 
In relative terms if property inflation is not taken into account then the tax increases year by year.

For example if you died 10 yrs ago when your house was at the threshold 330K then your kid could have sold up and bought the house next door, if instead you die today and your house price has doubled in value he can't buy the house next door (which has also doubled) as he will be short roughly a 100K which he has forked out in inheritance tax.

Instead of arguing about the merits of it as a tax versus other taxes I would argue about the merits of it being a tax in the first place. The person who died has paid tax of their earnings, obviously the benefactors haven't but there are other ways to transfer this wealth to avoid taxation so why should the unsavvy be punished?
I think the key assumption in that assertion is that the wealth has been built up through earnings.
I don't think that's a reasonable assumption.

I also think you need to look at the other side of that transaction too. Lad works his arse off to try and buy the house next door, gets gazumped by the fella who can only afford it because they just inherited a massive wodge of capital. Not very fair either is it?


Ireland currently doesn't have a chronic wealth inequality problem, but it's getting there. The UK and US are now seeing the damage it can really do, Ireland really should head that off now.
People leaving property in their wills have paid income tax all their lives too m8.


Shatter quite correctly points out that the current treshold and rate were part of the raft of punitive measures brought in response to the financial crash.

Successive governments have given commitments to fixing this anamoly and have done nothing.


The current numbers are in no way reflective of what has happened in the market since.

Like always if you want the dumbest take imaginable you're the guy to go to 🙄
Stay classy
 
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