Inheritance tax move welcome but it didn’t go far enough
As expected, there was a change to the inheritance tax regime in the Budget. But it was a small change and that means it amounts to a let-down for families hoping to pass on their homes to their offspring without incurring large tax bills.
Finance Minister Michael Noonan announced that the tax-free threshold for asset transfers from a parent to a child is set to increase by 24pc to €280,000.
It was €225,000 up to last week.
In his Budget statement, Mr Noonan said that the increase will apply in respect of gifts or inheritances received since Thursday last week.
The increase in the threshold is expected to cost the Exchequer €28m in 2015 and €33m in a full year. However, it is significant that there was no change in the rate of the tax rate. It stays at 33pc.
The change in the tax, which is called capital acquisitions tax (CAT), does not go far enough.
This country has one of the toughest inheritance tax regimes in the western world.
Thousands of families are being unexpectedly hit with huge inheritance tax bills, as rising property prices push them over exemption limits.
This situation has forced a number of families to sell homes they had inherited to meet the tax bill.
The rate that the tax is imposed at is the seventh highest in the countries that are members of the Organisation for Economic Co-operation and Development (OECD).
And before this latest change the tax rate was kicking in at a much lower value than in other western countries.
In successive austerity budgets the tax-free threshold was reduced, and the rate shot up from 20pc to 33pc. Since 2009, the thresholds for a child has plummeted from more than €540,000.
There had been a hope that Mr Noonan would raise the tax-free threshold to €300,000, and even cut the rate that applies on amounts outside the threshold. Some had even hoped that the threshold would go as far as €500,000.
The Government could certainly have gone further. Those in urban areas and families with just one offspring are set to continue to be hit by the tax.
Despite the changes, a child inheriting a home worth €300,000 from a parent will still have a tax liability of €6,600.
The increase in inheritance tax threshold to €280,000 leaves it well below the price of an average three-bedroom semi-detached house in Dublin.
Thalia O’Toole, director of tax with KPMG Ireland, said that the increase in the Group A threshold was welcome – but added that it did not go far enough for those inheriting property in urban areas, who would still face chunky tax bills.
Families with a family home that they want to retain when a parent dies can only hope that the issue is revisited in the next budget.
The latest changes should represent the start of a process that will see the main threshold increase to €500,000 over a three- to five-year period.
Article Source: http://tinyurl.com/kbwqb42