Time to cut a tax that hurts ordinary families
Published 08/06/2015 | 02:30
We have one of the toughest inheritance tax regimes in the world. What that means is that many ordinary people inheriting modest homes are being caught in its net.
The rate that the tax is charged at has shot up during the austerity budgets over the last seven years.
It is now 33pc, up from 20pc. That in itself is a huge increase.
But what is catching ordinary people out is the huge changes to the tax-free thresholds.
This is particularly the case for sons and daughters who are inheriting a parents' home.
The tax-free thresholds have fallen from €542,544 for a son or daughter in early 2009 to €225,000 today.
This means that tax at the rate of 33pc applies on the excess over the tax-free threshold.
The financial collapse meant that the thresholds were slashed and the tax rate went sky-high.
Families in urban areas, where property values are rising fast, are the big losers here.
And smaller families, where there are few people sharing in the inheritance of a property, are finding they have to pay big inheritance tax bills.
Recovery in the property market has meant that the tax-free thresholds are very restrictive, catching large numbers of people in the tax net for inheriting their parents' or a relative's home.
Some families are finding that they are being forced to sell a family home that they wanted to keep to meet the tax demand.
In other cases, incapacitated people are being hit with big bills after inheriting their parents' home.
Thankfully, Finance Minister Michael Noonan has told the Dáil he is conscious of the problem.
Mr Noonan said he was aware that property prices were rising and this is impact the taxation of the inheritance and gifting of property.
He said in the Dáil recently: "I will be keeping capital acquisitions tax thresholds and other aspects of the tax under review, particularly in the context of preparations for Budget 2016 and the consequent Finance Bill."
It would not be unreasonable of the minister to radically raise the tax-free thresholds and to cut the rate from its present 33pc.
Otherwise, ordinary families will continue to be big losers when it comes to inheritance tax.