The current inheritance tax threshold of €280,000 does not reflect a booming housing market and has forced some children to sell their family homes, according to experts.
From a high of more than €542,000 in 2009 the threshold beyond which tax must be paid on inheritances dropped to as low as €225,000 during the depths of the recession, before being raised slightly to €280,000 in the last budget.
Although tax is payable on anything above the value of €280,000 passed down from a parent to their child, the vast majority of inheritance tax cases involve the intrafamilial transfer of a home, according to PricewaterhouseCoopers senior manager Beryl Power.
“A lot of people’s main asset would be the family home. And the family home, especially in places like Dublin, can be quite valuable,” she said.
“It used to be the case that the majority of it would be covered by the tax-free threshold, whereas when the threshold decreased so much a lot of people ended up paying some tax on the family home and felt aggrieved by that.”
High-value locations
This has placed a particular burden on live-in inheritors in high-value locations such as Dublin.
Whereas it was initially regarded as a tax on the wealthy, tumbling thresholds, allied to soaring property prices, drew many middle-income families into the net over time, said Audrey Lydon, head of private-client services with EY Ireland.
“If you look at anybody who lives in Dublin the average house price is in excess of €280,000. A lot of people feel that it’s immoral to have to pay tax on the family home, and I think that’s why there is a lot of bad feeling towards the tax.
“Very often if people die and they leave the family home to a child still living in the house, they would not have the liquid cash to pay the inheritance tax, so they would actually have to sell,” she said.
The situation was exacerbated by rising rates of capital acquisitions tax (CAT) over the same period according to Lydon.
“You have to remember CAT was as low as 22 per cent back in 2008 and that’s gradually increased to the current rate of 33 per cent. That has increased and the thresholds have reduced, so the combination of both is leaving a bad taste in people’s mouths.”
Reduced thresholds apply to transfers between siblings and extended kin, such as €30,150 inheritance tax for a brother, niece, aunt or grandchild and down to €15,075 for cohabiting partners and friends, but these brackets are viewed by commentators as less contentious.
The Law Society of Ireland has been a consistent and vociferous opponent of Ireland's inheritance tax regime in recent times, and maintains it is out of line compared with international best practice.
"The Ireland CAT rate of 33 per cent is significantly above the OECD average of 15 per cent," said Law Society general director Ken Murphy.
“However, more significant is the threshold for exemption before the tax applies, which is penal in worldwide terms. In fact, many countries have increased the thresholds to such an extent that they have effectively abolished inheritance tax.”
