You have only to peruse the personal finance pages of this newspaper to realise how deeply the middle-class obsession with inheritance runs. Readers’ queries range from the bizarre to the mundane. Some just want to know about rates and dates, and others raise mind-boggling scenarios involving their grand-aunt-three-times-removed leaving them a share in a post office in the Outer Hebrides.
But mostly the inquiries come from people who want to ensure that the full value of the family home goes to their children and not the Revenue Commissioners. And as things stand that is pretty much the way things are. It is not a uniquely Irish obsession, but our relatively high level of home ownership gives it prominence.
The relatively low level of taxation on inheritance that prevails in Ireland can best be seen as part of some wider social bargain with the middle classes.
Income tax is high in Ireland and predominantly paid by the middle class. The top 7.7 per cent of earners pay 54 per cent of all income tax. They get a number of things in return. The main thing is a competitive economy in which low wages paid to the majority of low- or semi-skilled workers are supplemented by a range of measures funded out of taxation.
But a couple of specific things sweeten the deal. The first is child benefit, which is not means tested and quite generous.
The second is access to subsidised private education. The State pays the wages of teachers working in the private sector, greatly reducing the cost of private education here compared with elsewhere.
And the third is the presumption that your children won’t or shouldn’t be taxed when they inherit the family home.
The Taoiseach Simon Harris has kicked for touch, saying that ‘unfairness’ and ‘anomalies’ relating to inheritance tax are issues that deserve to be considered in advance of the budget
Attempts to reverse the first two of these middle-class privileges have foundered over the years. Reasons have been found to support the status quo: it would be too difficult to means test the child benefit payments or remove the subsidy paid to private schools, which would end up costing the State more money because most schools would simply opt into the public system.
And now it seems they are coming for the tax-free inheritance of the family home?
Not quite. But there has been a bit of chat in the run-up to the October budget about whether there should be a modest increase in the tax-free threshold on inheritance – which stands at €335,000 – to reflect the increase in house prices since it was last adjusted.
It has of course triggered a reaction. Counter arguments include that the tax base is too narrow as it stands and that the already well off would be the beneficiaries.
The Department of Finance is not keen on the idea, but it never is. Tax Strategy Group papers released this week show that increasing the threshold to €400,000 would cost €52 million a year in taxes forgone. This is a relatively small sum in the context of an annual tax take of €88.1 billion last year, of which income tax contributed €32.9 billion.
The Taoiseach Simon Harris has kicked for touch, saying that “unfairness” and “anomalies” relating to inheritance tax are issues that deserve to be considered in advance of the budget.
In reality there isn’t that much pressure on the Government to do anything about the inheritance tax threshold in Budget 2025, but there will be soon, and they must be tempted to start inching it up now.
There are two salient facts. The first is that according to the database made available by the Property Service Regulatory Authority about 98 per cent of the 63,000 houses sold last year went for less than €1.1 million or roughly 3.5 times the tax-free threshold. The median price was €302,000.
The second fact is that the average Irish family of the 1960s and 1970s had between three and four kids and their parents would now be in their 70s and 80s. They are the cohort likely to be inheriting a family home at the moment and their share is unlikely to breach the tax-free threshold as things stand.
However, family size began to shrink quite dramatically in the 1980s. It was 2.5 in 1985 and 1.85 in 1995. If you assume – as many blindly do – that house prices will continue to increase, you can see the problem: more people are going to start paying hefty tax bills when they inherit the family home.
If you buy into the notion that low effective inheritance tax is part of the bargain struck with the middle classes, then it would make sense to start quietly increasing the threshold.
This is probably what will happen, and then the pitchforks and torches can go back into the attics of Monkstown and Foxrock for another year at least.