Death and property are probably the two great Irish obsessions.
It’s a long way from inheritance tax most of us were reared, but contemporary “death duties” combine both our national fascinations in one somewhat macabre package.
With all the problems our country faces, some Government TDs are convinced their success or failure in the next general election depends on how Minister for Finance Michael Noonan treats this issue in his next budget.
Ireland’s inheritance tax regime is certainly much harder on inheritors than that in many neighbouring countries. It is routinely described as one of the toughest regimes in the world. So in advance of his October statement, Noonan is being lobbied intensely to raise the threshold on inheritances adult children can receive from parents without having to pay tax.
The tax-free thresholds for a child inheriting a parent’s property were slashed during the recent lean economic years in order to create greater liabilities for the bereaved, as the Government sought to widen the base of the taxation system and bring in more revenue.
Immovable property was seen as something of a soft target. The thresholds dropped sharply to €225,000 from a peak of more than €542,500 in early 2009, although tax exemptions remain in place in certain circumstances.
Meanwhile, the applicable rate of tax on inheritance has increased from 22 per cent to 33 per cent in the same period.
These figures may have been bearable when property prices were plummeting after the financial crash. But rising prices, in parts of the capital at least, have caused concern among the cohort affected by this “First World” problem.
It is not restricted to those born with silver spoons in their mouths. In many cases, we are talking about country people who came to Dublin 40 or 50 years ago and “made good” after decades of hard work to provide for their families.They may have bought modest suburban houses that are now regarded as “des res”. The mortgages they signed up to back in the day now sound laughably paltry when compared with the prices the properties would fetch on today’s market.
Through no particular skill in property acquisition on their part, these pensioners may be bemused to find themselves sitting on a relatively small estate that is worth many hundreds of thousands of euro.
Extreme pressure
Parents who are now pensioners would like to continue providing for their families even after their deaths, if possible without inflicting too much financial liability on adult children, who may already be under extreme pressure.
The adult children of the pensioners currently contemplating the implications of inheritance tax are often part of the negative equity generation. Some may have been forced to emigrate; others may be facing big childcare or education costs.
It’s a delicate issue for families because, as the Revenue Commissioners clinically put it, this tax can only “arise where a beneficiary receives an inheritance as a result of someone dying”.
The prospect of inheriting the family home at some stage in the future, albeit in sad circumstances, may have steadied the nerves of struggling adult children. In the more extreme cases, it was viewed as a buffer against financial ruin. But there are reports of bereaved people having to take out a mortgage or sell the family home to clear an inheritance tax bill.
This is something of a Dublin-centric problem, although not exclusively. While more than half of the €327.95 million in inheritance tax paid last year came from Dublin, Cork brought in €27.6 million. This was followed by Mayo with €13.1 million, Kildare with €12.1 million and Kerry with €11.8 million.
Noonan has said he is aware of the situation, which he has described as a “problem”, adding it was something he was reviewing in advance of the budget. “I’m not sure where it’ll land,” he told Pat Kenny on Newstalk recently.
Prominent backbench politicians with national profiles – the likes of Olivia Mitchell, Mary Mitchell O'Connor and Alan Shatter from Fine Gael – believe they will suffer electorally if action is not taken. Lucinda Creighton, leader of Renua Ireland, is among others who have also been vocal on the issue.
In repeatedly raising the issue with Noonan they are trying to engage with or perhaps even appease a small, motivated constituency. The theatrical wink I got from one insider with knowledge of the process when I asked if Noonan would act left me in no doubt that this issue would be addressed in the budget.
Unfair?
Is the current system unfair? Yes. Is this the most pressing equality issue our country faces? Most certainly not. A move on inheritance tax will not solve the problems of Mr and Mrs Average.
But the vocal minority affected by the issue is engaged in the political process. They generally feel they have a stake in society and that their opinions matter, rather than suspecting they have been relegated to a voiceless fringe. One thing you can be sure of: these people vote.
Una Mullally is on leave