Written Answers. - Abolition of Probate Tax.
Paul Bradford
Question:
73
Mr. Bradford
asked the
Minister for Finance
if his attention has been drawn to the fact that the probate tax will cause genuine financial hardship for many families; and if he has any proposals to abolish this tax in the 1994 budget.
I should begin by pointing out that the introduction of the probate tax must be viewed in the context of the relatively low yield from inheritance tax and the need to broaden the inheritance tax base. It is fair to say that inheritances generally increase the wealth and taxable capacity of those receiving them and the majority of inheritances should be able to bear a relatively small charge in recognition of this fact, especially at a time when overall economic circumstances have necessitated the raising of additional revenues from other tax heads. However, prior to the introduction of probate tax, the yield from inheritance tax, at about £30 million a year, represented roughly 3 per cent of the total value of estates passing on inheritance and less than a half per cent of total tax revenues. This is due to the very generous exemption thresholds for inheritance tax under the capital acquisitions tax code; assets valued at up to £171,750 may pass free of inheritance tax from parent to child, for example, while inheritances between spouses are exempt altogether from inheritance tax. The purpose of the probate tax is to increase the yield from capital taxation to a more realistic level on a basis that does not impose an undue burden on any taxpayer. It does so by applying a relatively modest charge of 2 per cent on a wide base of estates passing on inheritance.
However, the Government fully appreciates that the occasion on which inheritance tax arises has always been untimely and unwelcome. For this reason, the Government has been careful to ensure that the family of the deceased is safeguarded against undue hardship. To this end, the Government has provided a full exemption for the family home, including normal house contents, where the deceased is survived by a spouse. This exemption applies even where the house is not left to the spouse. Where there is no surviving spouse, the share of the home that passes to dependent children or dependent relatives is exempt. For most families, the home will represent the major asset in the estate. Therefore, this relief should go a long way to ease the probate tax liability of bereaved families. I should add that this exemption applies irrespective of the value of the home or of the scale of other assets. The Government has also ensured that pension benefits will be exempt from probate tax, which will benefit the financial security of a surviving spouse.
The Government has also provided that the probate tax takes account of certain tragic cases where both spouses die in quick succession. Thus, where both spouses die within five years of one another, leaving a dependent child, the property will not be subject to a double charge to probate tax. Indeed, where both spouses die within one year of each other, this exemption applies even if there is no dependent child.
In addition to the specific reliefs designed to ease the probate tax liability of bereaved families, it should be borne in mind that the general provisions of the probate tax are such that undue financial hardship should not be encountered by any taxpayer. In this regard, I should emphasise that estates with a net taxable value of £10,000 or less are exempt from probate tax altogether. It is fair to say that small estates are generally received by less well-off families, and so this exemption is targeted at those who are most in need of relief.
The Government has included special provisions to facilitate payment of the probate tax. There is no question of the deceased's family being hit with a probate tax demand in the immediate aftermath of a bereavement. On the contrary, I have been careful to ensure that the person faced with the task of administering the deceased's estate will have fully nine months from the time of death to arrange payment of probate tax. During that nine month period, no interest will accrue on the probate tax liability. Furthermore, where payment is made before the nine months have elapsed, a discount on the tax will be allowed, amounting to 1.5 per cent per month or part of a month. This innovative feature of the probate tax will adequately compensate for the small interest cost of any bridging finance that may be needed to pay the tax, as well as provide an incentive to early settlement.
In framing the provisions of the probate tax, the Government has been particularly careful, notwithstanding the modest charge involved, to ensure that due account is taken of ability to pay. The Government recognises that there may be some cases where it may not be possible to discharge the probate tax liability in full before nine months have passed from the date of death, for reasons of illiquidity or hardship. To deal with this problem, I have granted the Revenue Commissioners considerable discretion to arrange appropriate terms for deferred payment in such cases, having regard to the circumstances of each estate passing on inheritance, and the size of the probate tax liability.
In conclusion, having regard to the modest rate of tax, the generous reliefs and exemptions and the special provisions designed to avoid difficulties with payment, I am satisfied that the probate tax does not cause financial hardship for families. While, as with all new taxes, the operation of the probate tax is being monitored on an ongoing basis, I have no plans to remove the probate tax in the 1994 budget.
