Foster children call for equality in CAT treatment

PARENTS who wish to make provision in a will for foster children are often bitterly disappointed to discover that the inheritance tax regime that applies to natural or adopted children does not apply to foster children. Instead, foster children, who may have been raised from infancy to adulthood by the same parents are categorised as strangers for Capital Acquisitions Tax (CAT) purposes and liable to the highest level of inheritance tax.

Foster parents and children have been seeking changes to these CAT rules for some time and are now supported by the government chief whip in Seanad Eireann, senator Liam Cosgrave who has lobbied the Minister for Finance for more lenient tax thresholds.

"Over the years a number of people have approached me about this matter," senator Cosgrave told Family Money. "In some cases they are in their 40's and 50's and were fostered out to relatives or friends, not necessarily through official channels, which would have been common enough 50 years ago. They were never adopted, but nevertheless, they became a part of that other family and called their parents Mam and Dad as if they were their natural ones.

"Unfortunately for these people their part of any inheritance is subject to a far higher level of tax than any natural children will have to pay," he says. "It seems very unfair."

Under current tax regulations, natural or adopted children can receive a gift or inheritance worth up to £18,550 from a parent without liability to CAT. Foster children, on the other hand can only receive £12,170 before the scale of inheritance tax is applied. A £100,000 inheritance to a natural child, for example, would be nil of tax, while the foster child would have to pay £30,132 in tax at current rates.

In his reply to Mr Cosgrave, the Minister for Finance, Mr Quinn, stated: "At this stage it is unclear as to whom any proposed relief from CAT would be aimed at - ie would it only apply to foster children whose foster parents had wished to adopt them but could not? Other questions such as the precise legal definition of long-term foster care may also prove difficult to answer." The minister also noted that such a broadening of the Class 1 threshold could have serious revenue implications".

The minister promised that the CAT treatment of long-term foster care "would be thoroughly examined in the context of the forthcoming Finance Bill". Senator Cosgrave dismisses the suggestion that there could be serious revenue implications. "How many cases in any given year could we possibly be talking about," he asks. "I think that's a bit of a red herring."

Instead, he suggests that certain conditions of time and commitment could be set by the Revenue Commissioners for foster families to fulfil in order to enjoy the more liberal CAT inheritance provisions. "At the moment, I have a constituent, who is an adult, but who was raised as an only child by her foster parents from the time she was an infant. They are quite elderly now and while she stands to inherit the family home when they die, she will probably be forced to sell it to meet the tax bill," says senator Cosgrave.