Is a tax fair if it means one person can leave their money tax-free but another can’t? Inheritance tax rules that starkly favour parents and penalise the child-free do just that. But if you don’t have children, planning what happens to your money when you die can level the playing field. Acting now can ensure more of your money goes to the people or causes dear to you.
When it comes to tax on inheritance, Budget 2025 continued to favour parents and their children. The amount of money parents can give their child tax-free, during the parents’ lifetime or on death, increased by €65,000 to €400,000.
A person who is child-free and single, however, can show no such largesse to any individual recipient. Their thresholds for tax-free giving did flex up in the budget too, but by nowhere near as much. The most a person without a child can now leave to someone tax-free is €40,000, up from €32,500 pre-budget.
The recipient however must be in the Group B threshold covering close blood relatives: that means a sibling, a parent, a grandparent, a niece or a nephew.
That “ride or die” stalwart friend or the cousin who was like a sister? They don’t really get a look in. To anyone outside Group B, the most they can receive tax-free is just €20,000.
The upshot is that those who are single and child-free have far less autonomy over their money by virtue of their parental status. Unless they plan ahead, far more of the wealth accumulated over a lifetime is likely to go back to the State in tax than that of someone with a child.
“Everybody knows that we have to pay tax, our whole infrastructure is based on everybody paying in, but some taxes are more equitable than others and [inheritance tax] does strike me as being quite an inequitable tax,” says solicitor Bernadette Parte.
“You are in the best case scenario if you are married with children; if you die and leave money to a spouse and children, anything that your spouse gets is completely tax-free,” says Parte.
“It’s a very, very different position if you are a single person and it’s hard to justify,” says Parte. “Why should a single person be discriminated against in this way because they haven’t had children or got married?”
A child recipient does not have to pay a cent of tax on inheritances from parents up to €400,000. A bequest of the same amount by a person who is child-free to a dear friend or cousin, for example, will see the friend paying tax of 33 per cent on any amount over €20,000.
In the case of an inheritance of €400,000 to a friend, the friend will pay €125,400 in tax, leaving them with €274,600. If your inheritance to them derives from earned income, this will be the second time your money is rinsed for tax.
By contrast, there is no inheritance or gift tax in eight EU countries – Austria, Cyprus, Estonia, Latvia, Malta, Romania, Slovakia and Sweden. There are also no wealth transfer taxes in Norway.
Plan your giving
Even though the Group B tax-free thresholds for giving to siblings, nieces and nephews, and the Group C thresholds for giving to cousins and friends are much lower than those for parent to child giving, a person who is single and child-free can work around these thresholds to achieve tax-efficient gifting, says Marc Westlake, managing director of Everlake wealth management advisers.
Someone without children will minimise the tax liability by spreading the love up to, but not exceeding, the inheritance tax-thresholds.
“Structuring inheritances and gifts to beneficiaries in these groups can help reduce the overall tax burden,” says Westlake.
Take someone with €200,000 in savings in their estate, for example. They could in their will stipulate it is left in amounts of €40,000 each to a brother and sister – which is the maximum those parties can receive tax-free.
The remaining €120,000 could be split between nieces and nephews, who also fall into the Group B threshold, with bequests not exceeding €40,000 each.
Alternatively siblings, nieces and nephews could all get amounts less than the €40,000 threshold, with a maximum of up to €20,000 each going to friends who fall into the Group C threshold.
Doing it this way means no tax is paid by any of your beneficiaries. Contrast that with leaving €100,000 each to your brother and sister, notionally to help with their children’s education for example. That will see them forfeit €19,800 of your bequest each in tax.
Bernadette Parte is administering a will where there are 30 beneficiaries. “What the lady did, she was clever, she had lots and lots of friends and family and she gave each a sum, putting in a provision to leave up to the tax-free amount for Category B or C. That way, if somebody does have to pay inheritance tax, it will be relatively low,” says Parte.
Little and often
If you’ve done your sums and feel you have enough for yourself, dispersing surplus funds gradually in small amounts to family and friends over your lifetime is another way a person can maximise their gifting capacity to those you love and minimise tax.
Everyone is entitled to gift €3,000 a year tax-free to any number of recipients, says Westlake. This is called the small gift exemption. If a gift is more than €3,000, the first €3,000 falls under the exemption and the balance is deducted from the lifetime tax-free threshold.
For example, you could give €3,000 a year to a good friend over 10 years, tax-free. Leave the same amount to them after your death in a lump sum and tax of 33 per cent applies on any amount over the Group C threshold of €20,000. Instead of getting the €30,000 you wanted them to have, your friend would get €26,700.
The small gift exemption is a flexible, tax-efficient way to pass on wealth to recipients especially those who are not related to you and there is no limit to the number of years you can give them €3,000. This type of gifting is particularly useful to those with significant assets because it doesn’t eat into the tax-free thresholds of what you can also give these recipients after you die.
There is a requirement for a paper trail however. This could be a bank statement showing the cash transfer from your bank account to one in the recipient’s name.
Cohabitants
If you are in a long-term relationship, but not married, it is worth considering the tax advantages of marriage, says Westlake. Anything a spouse inherits is tax-free, but that is not the same for an unmarried partner, regardless of how long-standing and durable the relationship might be – even if there are children involved. Marrying will save an awful lot of tax.
If you are living with a partner and you die without a will, your partner has no automatic right to any share of your property, money or possessions. Even if you have provided for your partner in your will, cohabitants are treated the same as a stranger. They will pay tax at 33 per cent on inheritance over €20,000.
“For tax purposes, you are still a stranger in blood,” says Bernadette Parte.
Ironically, for unmarried couples where there is no will and there are children, the children will share the estate while the partner is locked out under the rules on intestacy, short of a court challenge.
Parte describes a recent case where someone living together with a partner for many years must now pay tax of 33 per cent on the bulk of their inheritance.
“In Ireland, it’s public policy. It’s all promotion of the family, but it doesn’t seem to recognise the new reality about this whole different type of family,” says Parte.
Partners don’t marry for myriad reasons, she says.
“Some people may not be able to get divorced and remarried, or they may decide, I’ve been through that before, I don’t want to do it again – but why should they be so discriminated against when it comes to inheritance tax?”
It is vitally important for cohabitants to make a will to protect each other, says Parte.
“A lot of people have this mistaken idea that the person they’ve been living with for the last 20 years, ‘Oh sure, the family will look after them, they won’t put them out of the house’ – like hell they won’t. It happens all the time,” she says.
“You have to make provision; there is no point sticking your head in the sand.”
Even if you have provided for your cohabitant in your will, giving them a large sum of money, they will be treated as strangers for inheritance tax purposes, paying 33 per cent tax on anything over €20,000.
The estate of an unmarried person with no children who is deceased and who has not made a will automatically goes to their surviving parent or parents. If there are no parents, any siblings share the estate and if any siblings are dead, it goes to nieces and nephews in equal parts. If they are an only child with no close family, their closest relatives share the benefit.
If the parent or sibling, for example, then redistributes the money to the cohabitant, there are significant tax implications.
“If someone hasn’t made a will and everything goes to a sibling, not only will the sibling have possibly a very big tax liability but, if they give money to the cohabitant, the cohabitant will also have a large tax bill as well,” says Parte. “They are strangers in blood from the sibling, so it’s a mess.”
If a will isn’t made, a cohabitant can apply to the court to show they are a “qualified cohabitant” – that means that they were living with their partner for five years if they had no children, and two years if they did, says Parte. The cohabitant must apply within six months after the probate or administration is first granted.
“All of that is completely avoidable if somebody makes a will and makes provision for their cohabitant in their will.”
Legacy
Another way a person can distribute their wealth tax efficiently is to make a philanthropic bequest to support a cause you loved in life. A charitable gift in your will is tax-free to the charity.
“Charities don’t pay tax and that is another way you can reduce the tax burden on beneficiaries by giving to charity,” says Parte.
“Making a will is normally a simple, straightforward experience,” says Parte who is also a board member of MyLegacy.ie, an umbrella group of 90 Irish charities working to make gifts in wills the norm.
“People should feel comfortable and confident that they can put their affairs in order, look after loved ones and, if they wish, support a cause close to their hearts by including a gift for a charity.”
Just be sure to include the full name of the charity, the registered address, the charity registration number and the “CHY” number allocated by Revenue to charities granted charitable tax exemption. Your will can indicate that if the charity ceases to exist, amalgamates or changes its name, your executors must pay your legacy to a similar charity.
