Call to raise punitive inheritance tax thresholds

The Law Society of Ireland is calling on the Government to raise the punitive Capital Acquisitions Tax thresholds in Budget 2016.

The current level of Capital Acquisitions Tax (CAT) thresholds places an unfair tax burden on children inheriting property from their parents, forcing many to sell their family home in order to pay the tax bill.

Director General of the Law Society Ken Murphy said, “These inheritance tax thresholds were never intended to catch ordinary people in the tax net. Inheritance tax was meant to tax people who receive exceptionally large inheritances, not modest three bedroom semi-ds.”

“The Law Society is calling on the Government to increase all CAT thresholds. Specifically, the inheritance tax threshold for children should be raised to €350,000 at a minimum, though, ideally, it should be raised to €500,000.”

The current Capital Acquisitions Tax (CAT) thresholds are as follows:

  • Group A (child) - €225,000;
  • Group B (sibling, niece/nephew, grandchild) - €30,150 and
  • Group C (anyone other than relations mentioned above) - €15,075

“Both the thresholds at which the tax must be paid and the rate of tax were massively increased by the Government during the financial crisis. In 2009, a child could inherit €542,544 from a parent, and the balance was taxed at 22pc. Now a child can inherit only €225,000 from a parent before the balance is taxed at 33pc.

“Combine these massive decreases of the CAT threshold with rising property prices, together with the higher rate of tax, and you have a tax system that is punitive to the extreme,” said Ken Murphy.

Ireland compared globally

“When compared to other countries around the world, Ireland has one of the most penal inheritance tax systems in the world. We suffer from a lethal combination of both a punitive rate of CAT tax and a severely low threshold,” says Ken Murphy.

“The Ireland CAT tax rate of 33% is significantly above the OECD average of 15%. 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.”

“In the United States, for example, the headline top rate is slightly higher than ours at 40%. However this only applied to estates over $5.34m and so only applies to very wealthy families with large estates.”

“The Law Society has become increasingly concerned about the effects of the CAT tax system in Ireland as more people are unexpectedly finding themselves caught in the tax net.”