Inheritance Tax – the forgotten Beneficiary
With the General Election around the corner, we’ve heard Fine Gael promise to address the issue of inheritance tax for families across the country if re-elected. They promise to raise the threshold at which people pay tax on inheritance from €280,000 to €500,000. This would obviously be a huge benefit to children inheriting from their parents. Because they are the only ones to benefit from this.
What are not mentioned anywhere are the thresholds for people inheriting from anyone other than their parents. If you inherit from your sibling, or your aunt or uncle, or your grandparent, your tax-free threshold is only €30,150. Anything above this is taxed at 33%. Worse again, if you inherit from a non-blood relative, the tax-free threshold is only €15,075.*
So where does that leave people who have no children, particularly property owners? They have worked hard, paid their taxes, but because they don’t have children, they are left with the worry about leaving their beneficiaries with a big tax bill. It takes the good out of leaving an inheritance.
I have had to break the news to a lot of my Clients of the estimated tax bills their beneficiaries could face. I have had many older clients in particular get very upset about this. They come to me with their instructions and have a specific beneficiary in mind that they want to look after. I will explain the potential inheritance tax liability and they are left completely frustrated that their beneficiaries would have to take on such a burden.
I spoke with Minister Noonan about this very issue after Budget 2016 on RTÉ Radio One when the parent-to-child threshold was increased from €225,000 to €280,000, but was told they simply didn’t have the resources. The government seem to want to focus on increasing the parent-to-child threshold and are blatantly ignoring a large section of the population.
So how do beneficiaries pay these tax bills? In a great deal of cases the beneficiaries have to put the property on the market, and use the sale proceeds to pay the inheritance tax. This is not what the donor would have wanted.
Perhaps instead of concentrating on promises to increase the parent-to-child threshold by a further €220,000, the government might wish to consider spreading the benefit among all categories of beneficiary.
*Favourite Niece/Nephew Relief
If an uncle or aunt has given you their business, you may fall into the Group A Category where the tax free threshold is €280,000 provided you have worked for him or her substantially on a full time basis for the 5 years immediately preceding the gift or inheritance. This relief only applies to assets used in connection with the business.
If you are receiving a property that has been your main residence for over 3 years immediately prior to the gift or inheritance, and you are not beneficially entitled to an interest in any other property, you may qualify for the Dwelling-house Exemption. This means the entire value of the property is deducted from the amount taxable.