Inheritance Tax for the Childfree

Will it be addressed in Budget 2018?

Inheritance tax, or rather the low tax-free thresholds for inheritance tax, have long been a bone of contention in Ireland, particularly since the dramatic cuts in recent years. At the time of writing this post (pre-Budget 2018) the tax-free thresholds are as follows:

Group A – From Parent to Child = €310,000 each

Group B – To Parents, Siblings, Nieces & Nephews, Grandchildren = €32,500 each

Group C – To anyone else, non-relatives = €16,250 each

Anything over the threshold is taxed at 33%.

* Prior gifts/inheritances from someone in the same “Group” may be taken into account by Revenue.

Budget 2017 saw a €30,000 increase in the Group A threshold from €280,000 to €310,000 which was welcomed by many, having consistently dropped from its 2009 peak of €542,544. However the increase for Group B inheritances or gifts to parents, siblings, nieces and nephews was just €2,350; not really scratching the surface of a problem facing many Irish people inheriting assets.

The Government seems slow to help those who don’t have children, blaming a “lack of resources”. If you are childless, whether by choice or not, and wish to leave your Estate to your brother or sister, or your niece or nephew, the tax-free threshold is currently just €32,500. Anything above this is taxed at 33%. [The Group B threshold was €54,254 in early 2009.] A stranger-in-blood can receive up to €16,250 tax-free, increased by just €1,175 in last year’s Budget.

For example, an average estate worth €500,000 comprising a house, a bank account, some savings and a life assurance policy could mean a huge tax liability for beneficiaries if the donor doesn’t have children to leave it to (see below*). If such an estate consists mainly of property it is likely the property would have to be sold just to pay the tax bill. It should also be noted that the Government is also tightening up the rules applicable to those who can claim Dwelling-house Relief.

This meagre tax-free threshold is highly frustrating for child-less people who make up a large portion of the population. A 2014 OECD report showed Ireland had the 3^rd highest rate of childlessness in the developed world at 18.4%.

The notion of targeting a specific group of people, those without children, so their beneficiaries can take on the main inheritance tax burden for the State seems ludicrous and antiquated. The Government needs to adjust their thinking and address a modern Ireland when reviewing the threshold increase over the coming years.

My advice to those without children? Make your Will and list as many beneficiaries as you think you’d like to benefit in order to avoid about a third of your hard-earned money going to the taxman after your day.

By the way, charities are tax-exempt!

If you would like to discuss Inheritance Tax in more detail, you can contact me, Susan Murphy of MakeMyWill Solicitors by email: susan@makemywill.ie or by phone: 086-8377559.

* Net estate of €500,000 left to 2 sisters in equal shares. They each get €32,500 tax-free and the rest is taxed at 33%.  Both women will have a tax bill of €71,775.