Tax Code

Dáil Éireann Debate, Monday - 11 September 2023

Monday, 11 September 2023

Questions (422, 423, 424, 439)

John Lahart

Question:

422. Deputy John Lahart asked the Minister for Finance his plans to amend inheritance tax in Budget 2024; and if he will make a statement on the matter. [37201/23]

John Lahart

Question:

423. Deputy John Lahart asked the Minister for Finance if he will consider the concept of a 'notional spouse' for single persons with respect to capital acquisitions tax; and if he will make a statement on the matter. [37202/23]

John Lahart

Question:

424. Deputy John Lahart asked the Minister for Finance the changes he will make to inheritance tax in Budget 2024 with respect to single persons; and if he will make a statement on the matter. [37203/23]

John Lahart

Question:

439. Deputy John Lahart asked the Minister for Finance if he is considering the treatment of family members such as sisters, brothers, nieces and nephews as a notional spouse, in order to decrease the amount of inheritance tax paid by relatives of persons who do not have children or a spouse to pass property onto; and if he will make a statement on the matter. [37672/23]

Written answers

Minister for Finance

I propose to take Questions Nos. 422, 423, 424 and 439 together.

As you may be aware, for the purposes of Capital Acquisitions Tax (CAT), the relationship between the person who provides the gift or inheritance (i.e. the disponer) and the person who receives the gift or inheritance (i.e. the beneficiary) determines the maximum life-time tax-free threshold. This is known as the “Group threshold” below which gift or inheritance tax does not arise and relates to the allowance referred to in your correspondence. Where a person receives gifts or inheritances in excess of their relevant tax free threshold, CAT at the 33% rate applies on the excess over the tax free threshold.

The Group A threshold (currently €335,000) applies where the beneficiary is a child of the person giving it. The Group B threshold (currently €32,500) applies where the beneficiary is a brother, sister, niece, nephew, or lineal ancestor or lineal descendant of the disponer. The Group C threshold (currently €16,250) applies in all other cases.

While a single person may have no natural children, any stepchildren, adopted children or certain foster children can avail of the Group A threshold in respect of gifts and inheritances received from that disponer.

In addition, nieces or nephews of that disponer may qualify for favourite niece or favourite nephew relief in respect of gifts or inheritances of business assets. The relief allows a niece or nephew who qualifies for the relief to avail of the Group A threshold. Qualifying nieces or nephews are those who have worked substantially on a full-time basis for a period of five years prior to the gift or inheritance being given in carrying on, or assisting in the carrying on, the trade, business or profession, of the disponer.

For the nephew or niece to be deemed to be working substantially on a full-time basis in the business he or she must work:

* more than 24 hours per week at the place where the business, trade or profession is carried on; or

* more than 15 hours per week at the place where the business, trade or profession is carried on exclusively by the disponer, any spouse or civil partner of the disponer and the nephew or niece.

Furthermore, it is worth noting that there is an exemption from CAT where dwelling houses are bequeathed by individuals who live there to successors who:

* have lived there for a specified period of time before the inheritance,

* will continue to live there for a specified period of time after the inheritance, and

* who have no beneficial interest in any other residential property at the date of the inheritance.

The policy rationale behind the dwelling house exemption is to protect the family home by ensuring that a beneficiary who has been living with the disponer, and will continue to reside there after the inheritance, does not have to sell that family home to pay a CAT liability and thus will continue to have somewhere to live. It is not necessary for the beneficiary of an inheritance under the dwelling house exemption to be a child or relative of the disponer.

In relation to the Deputy’s reference to a "notional spouse" concept, it is important to note that differences in the tax treatment of the different categories of individuals and couples arise from the objective of dealing with different circumstances. Under the law, couples who have obtained legal recognition of their relationship status through marriage or civil partnership are not in an analogous situation to others who are unmarried or single, which is why they are not accorded similar tax treatment to couples who have a civil status that is recognised in law. Any change in the tax treatment of individuals or couples, including in the manner as suggested in the "notional spouse" concept, can only be addressed in the broader context of future social and legal policy development.

Regarding inheritance tax changes, is important to note that there would be a significant cost in making substantial changes to the CAT thresholds and/or rate of CAT. Recent Revenue estimates put the full cost of increasing the CAT Group A threshold from its current €335,000 to €400,000, for example, at approximately €52 million. The estimated cost of increasing the Group B threshold from its current €32,500 to €35,000 would be €9 million, while the cost of increasing the Group C threshold from €16,250 to €19,000 is estimated be €4 million. Revenue estimates also indicate that reducing the rate of CAT by 1%, 3%, 5% or 10% would result in a corresponding reduction in yield for the exchequer of €20m, €61m, €102m or €205m respectively.

The options available for setting CAT thresholds must be balanced against competing demands, and as part of the annual Budget and Finance Bill process.

Question No. 423 answered with Question No. 422.

Question No. 424 answered with Question No. 422.