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Inheritance tax, declaration of tax-free gifts and the temptation of ‘forgetting’

The Tax Strategy Group suggests Revenue should keep records with reporting of gifts and inheritance mandatory for beneficiaries

Documents outlining budget options have suggested making it mandatory for beneficiaries of a large gift or an inheritance to report it to Revenue. Photograph: iStock
Documents outlining budget options have suggested making it mandatory for beneficiaries of a large gift or an inheritance to report it to Revenue. Photograph: iStock
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Cantillon
Thu Jul 25 2024 - 06:00

Much attention has been paid to the prospect of a reduction in the inheritance tax burden in the October budget, with talk of the tax being “punitive” and a head of steam building up which the Coalition may find hard to resist. An increase in the tax-free thresholds, including the €335,000 one relating to children inheriting from parents, is probably on the cards.

But the Tax Strategy Group papers drawn up by public servants to advise on budget options raised another intriguing prospect. At the moment beneficiaries from a gift or inheritance do not have to make a declaration to the Revenue Commissioners unless it brings them to 80 per cent or more of the relevant threshold. So a child, for example, can receive gifts or inheritances of up to €268,000 from either or both parents without making any declaration.

Tax-free thresholds are lifetime limits from the groups involved – any amount that a child receives from its parents dating back to 1991 is subject to the €335,000 threshold. The threshold for other close blood relatives – grandparents, aunts, uncles and siblings – is just €32,500. Tax at 33 per cent must be paid on anything over those limits.

What the Tax Strategy Group proposed was that all gifts above the €3,000 annual small gift exemption limit and all inheritances would have to be declared to the Revenue. This would mean, for example, that when a parent gifted a child money to help to buy a house – typically for an amount well below the threshold – the child would need to make out a capital acquisitions tax return to the Revenue.

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The papers say that such a declaration would spare taxpayers the bother of keeping notes of all their gifts and inheritances and avoid data protection problems for their tax advisers. But could the real reason be that they believe taxpayers often” forget” to declare a previous gift from a parent or other relative when it comes time to inheriting a much bigger sum on their death?

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