Inheritance tax thresholds should be increased over time, says Tánaiste

Inheritance tax thresholds should be increased, Tánaiste Leo Varadkar has said. While the Government would not be abolishing inheritance tax, it could make changes to “make the system more fair”.

The Tánaiste was speaking during Leaders’ Questions in the Dáil on Thursday, after Galway West TD Noel Grealish asked the Government to “tackle the unfairness of the situation” that arises when a person who does not have any children of their own dies and leaves their house to a close family member.

“Currently, the child of a parent who dies does not pay tax on the first €335,000 of the value of what they inherit, but a beneficiary who is not a direct descendent, such as a nephew or niece, only enjoys a fraction of that tax-free allowance, even though they may have been the closest person to the deceased for decades,” Mr Grealish said.

He said according to a recent report from Daft.ie, the average asking price for a house in Galway city was more than €335,000. while in Dublin it was well over €400,000.

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Mr Grealish said for a niece or nephew that inherited a house worth €350,000, the first €32,500 was tax-free, which was less than one-tenth of what the house was worth.

“The niece will have to pay tax at the rate of 33 per cent, or one-third, on the remaining value of the house,” he said.

“That means that the niece must pay capital acquisitions tax amounting to more than €100,000. There are some very limited exemptions from inheritance for a favourite niece or nephew in certain situations, but they are very restricted.

“Our current inheritance rules are effectively punishing people for not having children of their own...These people have worked all their lives and have paid all of their taxes, just like people who have become parents.

“In fact, those who have never married will have paid much more tax, having borne the brunt of our taxation system as single people who are doubly penalised.”

In response, Mr Varadkar said he agreed that thresholds should be increased over time.

“That threshold of €335,000 has been increased in recent years. It is supposed to be pitched around the cost of an average house so the average person could pass on the average house to a child without being liable for inheritance tax. As house prices rise, we need to continue to look at that threshold,” Mr Varadkar said.

“It has been increased in recent budgets. We also need to examine the issue of a nephew or a niece being counted as a favourite nephew or niece, particularly if they have been involved in caring duties.

“I am not going to make a commitment to abolish inheritance tax because I would not agree with that. However, I think we can make changes to make the system more fair.”