Budget 2017: Inheritance tax threshold jumps by 11% to €310,000

People inheriting money from a parent will be able to receive an additional €30,000 without paying tax, following changes announced in the budget.

The Category A threshold, which governs inheritances and gifts from a parent to a child, will increase to €310,000 from €280,000 as of October 12th, an 11 per cent increase.

That remains well short of the €500,000 threshold to which the Government has committed to “working towards” in its programme for partnership.

Minister for Finance Michael Noonan noted that the improving economy was driving property prices higher “resulting in higher tax demands when family homes are being passed from one generation to the next”.

He said in his budget speech that he would revisit the thresholds in future budgets “with a view to increasing them further”.

There is no change to capital acquisitions tax (Cat) rate of 33 per cent, which is up from 20 per cent in 2009.

The Category A threshold has now jumped by €85,000, or 37 per cent, since 2015 but remains significantly below the 2009 peak when a child could inherit up to €542,000 from their parents without paying tax.

The Minister also announced a lower 8 per cent increase in the thresholds for inheritances between anyone other than parents and children.

This means that those in Category B – i.e linear relations such as siblings, nieces/nephews and grandchildren – can now inherit up to €32,500 tax free, up from €30,150 previously, while those in Category C, which covers everyone else, will now have a threshold of €16, 250, up from €15,075.

The total cost of the measure has been given as €22 million for the year. In 2009, before the introduction of austerity measures, a parent could leave €542,000 to each child without tax applying, but this fell to €434,000 in 2010, and was cut in each year up to 2012 when it fell to €225,000.

Jonathan Sheahan of Compass Private Wealth said the increase in the threshold is “ slightly lower than anticipated” but still welcome.

The phased approach is “disappointing”, said Audrey Lydon, head of private client services at EY Ireland, and will have “little or no impact” in reducing the inheritance tax bill due to the recovery in the housing market.

“This is a constant worry for many parents about the amount of tax that their children will have to bear after their death. Unfortunately today’s measure does not go far enough to alleviate these concerns,” she said.

The move means that parents with a combined estate of €1 million including a family home, life insurance policies, investments and savings, and with two children, would now have a potential exposure to inheritance tax of just above €125,000, down from about €150,000.

“If this tax-free threshold had been increased to €500,000, that potential liability would have been wiped out,” Ms Lydon said.

She also expressed regret that Mr Noonan announced no change to the “aggregation” date of December 6th, 1991. Beneficiaries are obliged to tot up any gifts or inheritances within each category from this date to assess whether they have a tax liability.

“It would have been nice to see that date brought forward. Anything would be an improvement,” she said, adding that an exemption from CAT in respect of payments made for the support or maintenance of elderly parents would also have been welcome.

“At present, any payment above €3,000 falls within the charge to CAT and, with the low Group B threshold and rising living costs, an actual exposure to CAT may arise where children are paying for the care of their elderly parents. Help with living costs and even taking parents on a family holiday could be a taxable gift and absorb the tax-free threshold,” she said.