Tuesday 12 December 2017

Noonan criticised for failing to close off inheritance tax loophole 'abused by the wealthy'

Finance Minister Michael Noonan Photo: PA News
Finance Minister Michael Noonan Photo: PA News
Charlie Weston

Charlie Weston

Finance Minister Michael Noonan has been criticised for failing to close off a tax ruse that is being exploited by rich people to gift homes to their children without paying any tax.

This is despite Mr Noonan recently admitting the tax provision was being exploited by wealthy people.

Known as the dwelling-house exemption, the relief allows houses and apartments to be inherited tax-free.

Tax experts say well-heeled people are now gifting houses worth €1m or more to their children and using the inheritance tax exemption to avoid tax.

The tax that would be due on a €1m house inherited by an only child is €227,000.

As well as avoiding tax, many of those exploiting the dwelling-house exemption are renting out the properties, breaking the rules of the relief.

The exemption has increased in popularity in recent years, sparking concerns that it is causing a huge leakage from the tax system.

Ordinary people who pass on a property or a gift to their children or other relatives are hit with tax at 33pc once they are outside tax-free thresholds.

In some cases, families have been forced to sell family homes just to pay the inheritance tax due.

Minister Noonan increased the tax-free thresholds in the Budget, but there was surprise that he did not move to stop the dwelling-house exemption being exploited.

That's despite the fact that there has been a rise in the numbers using the dwelling-house exemption to avoid inheritance tax.

Last year, about 741 people claimed the exemption - up from almost 500 in 2012.

Solicitor Susan Murphy of MakeMyWill.ie said the last few years have seen a large increase in the amount of claims for this exemption.

"Questions have arisen about suspected abuse from wealthier people whose families could face a large inheritance tax liability, with the rate now at 33pc.

"The Revenue Commissioners and the Finance Department discussed this issue recently and it was anticipated it would be addressed in the Budget. Unfortunately, it wasn't," Ms Murphy said.

Revenue has previously acknowledged that the exemption from inheritance tax was "much abused".

And Mr Noonan admitted in a Dáil answer in the summer that the relief was being exploited dishonestly.

"My department - and the Revenue Commissioners - have encountered some evidence that individuals may be using the relief as a way of passing on wealth tax-free in a manner which is not in line with the core aim of the relief."


A spokesman for Mr Noonan said that he is still considering whether or not to tighten up the rules.

However, Fianna Fáil is questioning why the rules have not been changed to stop the relief being abused.

The party's finance spokesman Michael McGrath said he was aware the tax relief was being used to transfer extremely valuable properties, other than the family home, free of inheritance tax.

He added that the exemption should be only available to deal with genuine situations.

"If the Revenue believes that the scheme is being abused, they should suggest changes to the law to address that."

Asked why the issue was not addressed in Budget 2017, a spokesman for Minister Noonan said: "The issue is under consideration."

There was no answer when it was put to the minister's spokesman that the Government was afraid to upset Fine Gael donors by moving to stop the exemption being abused.

Scheme was put in place to protect carers

The dwelling-house exemption was introduced to protect someone living with and caring for an older person in the pensioner’s home.

If this home is left to them, they may have to sell it to pay the 33pc inheritance tax. In the meantime, they may have sacrificed their chance to own their own home.

So the relief allows houses and apartments to be inherited tax-free. Under the exemption, a son or daughter inheriting a property has to live in it for at least three years, and continue to live there for six years after inheriting it. The property being passed on doesn’t have to be a family home – it could be a second property or holiday home. Neither does it have to be passed on to a relative.

If they meet these conditions, they inherit the property tax-free.

Irish Independent

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