OUTGOING Taoiseach Leo Varadkar put the cat among pigeons when he said that inheritance tax should be abolished for anyone inheriting an average-priced home.
What’s the Taoiseach’s point?
He said he will be pushing for inheritance tax to be significantly reduced in budget negotiations, if Fine Gael is part of the new government.
“The average property value, for example, in Dublin which would be higher than the average around the country - you shouldn’t pay any inheritance tax on that," Mr Varadkar said.
“You should only pay inheritance tax on the amount you inherit in excess of that. I think that’d be a good principle, and that’s the principle that we’ll push forward.”
The average house price in Dublin is around €438,000.
What exactly do we pay?
The formal name for inheritance tax is capital acquisitions tax (CAT). The rate is a hefty 33pc once you inherit more than your tax-free threshold.
Spouses are exempt.
A child is entitled to inherit up to €335,000 before paying the tax.
So, if you are due to inherit a property worth €438,000, you are liable to pay 33pc tax on the difference between the €335,000 threshold and what the property is worth. In this case the tax would be €33,990.
For sisters, nephews and grandchildren receiving an inheritance the threshold is €32,500.
How does it compare internationally?
The inheritance tax rate in this country is lower than the one that applies in the US and in Britain.
But the key difference is that you can inherit much more before you get hit with the tax in those countries.
Is the family home in this country subject to the tax?
Yes. The entire estate is valued and the tax is applied to each individual recipient based on the amount that they receive and dependent on what tax-free category applies to them.
This means the value of the family home will form part of a beneficiary’s overall inheritance and will be liable to inheritance tax once the beneficiary has used up their lifetime threshold.
Susan Murphy of MakeMyWill Solicitors said: “If you have a big family and fairly average cash assets, future inheritance tax would not be an issue.
“However, smaller families (with one or two children), particularly with a Dublin property, would be relieved to see this change brought in. The family home is often the biggest asset in an estate, and would most certainly take up most if not all of the tax-free threshold.”
Should homes be exempt?
Some argue that homes are bought with after-tax income. Incomes, USC and PRSI will have been paid on the money used to pay a mortgage and provide a house deposit. Then the State takes up to 40pc of the value of a new home in various taxes such as Vat, stamp duty and levies for water and the local authority, not to mention property tax.
Is everyone agreed that the tax is unfair?
Passing on property and other valuables to the next generation is one of the main ways of perpetuating wealth, according to financial adviser Karl Deeter. And the rich tend to be very good at finding ways to avoid paying the likes of inheritance tax.
Others argue that the threshold for a child to receive an inheritance at €335,000 is most generous.