Young people in Ireland face the risk of a “significant” reduction in the amount of money parents can leave their children tax-free

The amount of money parents can leave their children tax-free should be reduced “significantly,” a government-appointed tax commission has recommended.

The proposal will prove extremely controversial as inheritance tax issues are emotional and any attempt to make changes tends to generate a huge backlash.

Last November, Treasury Secretary Paschal Donohoe was forced into an embarrassing about-face on a budget measure to try to tax soft home deposit loans that parents give to their children.

Now the Commission on Taxation and Welfare is to recommend radically lowering the exemption limit for inheritance tax in the next few years.

A sharp reduction in the tax-free threshold would be particularly problematic in south Dublin, where houses often sell for over €1million.

Response to the report of Independent.ie Today, Taoiseach Micheál Martin said there was “no appetite” within the government to change inheritance tax rates.

Under Capital Acquisitions Tax (CAT) rules, a child can inherit €335,000 from their parents before paying 33 percent tax.
In 2009, a child could inherit or be gifted €542,544 from their parents before having to pay taxes, the current tax rate being 22 percent.

The Commission does not quantify what the tax-free threshold should be, other than saying that the threshold should be lowered
“significant”.

The Commission’s report is due to be published by Mr Donohoe on Wednesday and this proposal will prove to be one of the most controversial.

The Commission is not asking for any of its recommendations to be included in this month’s budget, but wants its recommendations to be implemented over a period of 10 to 15 years.

The exemption limit is €32,500 for other close relatives and €16,250 for more distant relatives or friends.

The recommendation is that the “Group A” threshold for a child of €335,000 should be moved closer to these two other thresholds over time.

In the past, the government has defended the level of child tax exemption.

It has argued that since the family home is the main component of an estate, a lower threshold would force children who inherit one from a parent to sell the home to meet tax liability.

The relentless house price inflation has meant that more and more families, particularly in Dublin, are facing hefty CAT bills because the homes they inherit – even modest ones – are worth far more than the €335,000 tax-free threshold.

And in another controversial move, the commission is recommending that the level of exemptions for agriculture and businesses from the CAT tax should be changed.

Under this tax exemption, the market value of a qualifying property or farm is reduced by 90 percent when calculating tax on a gift or inheritance.

The Commission wants this to be reduced to 80 per cent, arguing that such a change would still exclude the majority of farms from the tax.

The Commission also advocates a “modest fee” if a parent gives a child more than 3,000 euros a year.

The so-called small gift exemption under the CAT scheme allows a parent to give a child up to €3,000 per year without having to pay the 33 percent tax. A child with two parents can get €3,000 a year tax-free from each. Amounts over €3,000 are deducted from a child’s lifetime tax-free limit of €335,000.

It is argued that this will help combat tax avoidance and ensure the tax office has a better record of wealth transfers.

On the social welfare side, the Commission advises keeping the child benefit but not taxing it. She calls for a staggered increase in child benefit rates for low-income households.

And it calls for Working Family Allowance to be available to all households, not just those with children.

This is to deal with distortions in the labor market and ensure that there are no barriers to accepting paid work baked into the welfare system.

The general thrust of the report’s 100 recommendations relates to property and wealth taxes as well as taxation of polluting goods, rather than income taxes.

Taoiseach Micheál Martin said Monday there was “no appetite” within the government to change inheritance tax rates.

Response to the report of Independent.ieMr Martin said he saw a “fairness” problem with such a proposal.

“I don’t think there is a desire in government to lower that threshold, many, many families and single-family homes I think would be disadvantaged,” he said.

“After all, we’re talking about people who bought their single-family homes with after-tax income.”

He said there was an issue “in terms of fairness” and that he saw “no appetite for that specific measure”.

Mr Martin said he had not yet seen the full report, some details of which had been reported in the media.

Finance Minister Paschal Donohoe is scheduled to publish the report this Wednesday.

“It will be up to the government to examine the report and make decisions on it,” Mr Martin said.

Meanwhile, he said talks to improve childcare pay had been concluded “with significant improvements”.

“The next phase, which we have always signaled now, will be to increase and improve childcare affordability for parents who send their children into childcare and there will be a budgetary element.

Mr Martin said there was “more work to be done” on the cost of sending children to school.

He was speaking at the Fianna Fáil think-in in Mullingar, where party TDs and senators have gathered for two days to discuss how the party is addressing issues such as health and housing.

https://www.independent.ie/business/personal-finance/young-people-face-risk-of-substantial-reduction-in-the-amount-of-money-parents-can-leave-to-their-children-tax-free-41980900.html Young people in Ireland face the risk of a “significant” reduction in the amount of money parents can leave their children tax-free

Fry Electronics Team

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