Dáil Éireann Debate, Monday - 11 September 2023
497. Deputy Danny Healy-Rae asked the Minister for Finance if he will increase the inheritance tax exemption, given that the value of property has increased significantly in recent times; and if he will make a statement on the matter. [39157/23]
View answerI assume Deputy Healy-Rae is referring to an increase in the Capital Acquisitions Tax "Group thresholds" in his question.
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 question. 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.
There are three separate Group thresholds based on the relationship of the beneficiary to the disponer. 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 the thresholds were reduced during the economic downturn, the Government has made significant changes to the CAT thresholds in recent years. The thresholds have been increased to the extent allowable by the resources available.
In Budget 2019, the Group A threshold which applies primarily to gifts and inheritances from parents to their children was increased from €310,000 to €320,000 and again to €335,000 in Budget 2020. This increase was in response to concerns about the potential tax burden in particular on the inheritance of the family home.
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.
Regarding inheritance tax changes, it 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.
The options available for setting CAT thresholds must be balanced against competing demands, and as part of the annual Budget and Finance Bill process.
