Monday 16 December 2019

There is always a handy tax loophole at hand for the rich

The dwelling-house exemption is a loophole in inheritance tax
The dwelling-house exemption is a loophole in inheritance tax
Charlie Weston

Charlie Weston

Only fools pay tax. That is the rather cynical conclusion to be drawn from the fact that there has been a sharp rise in the numbers who have managed to avoid having to pay inheritance tax.

Some 741 families showed themselves to be no fools last year. They availed of a handy loophole called the dwelling-house exemption.

This means meant that instead of paying inheritance tax - or to give it its proper name, capital acquisitions tax - they paid zilch.

This cost the Exchequer a not insignificant €52m. The numbers availing of this little ruse were up almost 40pc in 2015 on the number of people using the loophole since 2013.

Most of these people are understood to be wealthy families buying properties for their sons and daughters. Ah sure, tax is only for those silly sods in the squeezed middle.

Revenue Commissioners officials are known to have serious reservations about the exemption which they claim is "much abused".

Fianna Fail finance spokesman Michael McGrath referred to "aggressive use" of the loophole.

The dwelling-house exemption allows parents to gift a property to a son or daughter without having to pay gift or inheritance tax. Officially called capital acquisitions tax, inheritance tax is levied at a rate of 33pc.

Under the exemption, the person gifting the property must own it for at least three years before it is handed over to the son or daughter. The child must live in it for the same three years that the parent owns it. The child must not own another property.

At the end of the three-year period the property can be transferred tax free.

However, according to tax experts the houses are often rented out. It is understood there have been instances of parents buying €1m-plus properties for their children, and avoiding the tax.

Using the exemption, a €1m house gifted to a child can avoid a tax bill of €237,000. The tax rules mean that the first €280,000 of assets left to a child is not counted for inheritance tax.

So what is Finance Minister Michael Noonan doing about all of this, you might ask?

Not much is the answer.

A spokesman for Mr Noonan said that his department, along with the Revenue Commissioners, was examining the issue. The issue would be considered in the context of the Finance Bill later this year.

But that is the same answer they gave before the last budget!

Maybe Fianna Fail will force Mr Noonan's hand on this? If that does not happen then the put-upon legions who make up the coping class can be forgiven for a bout of extreme cynicism.

Sunday Indo Business

Also in Business