Inheritance tax: Tax-free threshold set to rise by €15,000

Budget 2020: Children can inherit €335,000 from parents tax free, up by almost 5%

Minister for Finance Paschal Donohoe talks to Deputy Political editor of the Irish Times, Fiach Kelly, about the risk of a no-deal Brexit and how the Budget helps those who get up early in the morning.

 

From tomorrow, children will be able to inherit, or receive a gift of, an additional €15,000 from their parents free of tax following an increase in the tax-exempt parent-to-child threshold to €335,000. However, despite the increase, it remains substantially less than the €500,000 target first mooted by the government some years ago.

It’s expected that the increase for the so-called “group A” cohort, which refers primarily to gifts and inheritances from parents to their children, will cost the exchequer about €11.2 million on a full-year basis.

While the latest increase in the threshold is up by 4.7 per cent on the previous level, Liam Lynch, a tax partner with KPMG, said the threshold is still quite low by international standards.

“It’s a movement in the right direction, but I would have thought there’s a long way to go,” he said.

Indeed the tax-free threshold for inheritances from parents to children peaked at €542,544 in 2009, but was slashed thereafter, although it is rising once more. Last year’s budget, for example, increased the lifetime amount a child can get via inheritance, or gifts during their parents’ lifetimes, by just €10,000 to €320,000. The latest increase brings it up to €335,000.

Yield

The relatively low level of the threshold means that the exchequer’s yield from capital acquisitions tax (CAT) has been soaring, and reached a record high in 2018, up to some €466.3 million on the back of soaring property prices and largely unchanged tax-free thresholds. This was up by 48 per cent on the Celtic Tiger era in 2007, and by 10 per cent on 2017.

However, the Government has been canny in extending the threshold for group A claimants only, as the figures show this is not the big CAT earner.

Indeed the figures show that just €160.6 million, or about a third of the total yield in 2018, came from taxes paid by children.

Group B inheritances on the other hand, which refer to other types of relatives such as inheritances from grandparents, brothers or sisters, or aunts and uncles, accounted for 50 per cent of all inheritance tax receipts in 2018, at some €236.7 million, again a record high.