Inheritance tax at record high due to soaring property prices

The exchequer reaped an inheritance tax windfall last year, as the amount collected reached a record high of some €466.3 million on the back of soaring property prices and largely unchanged tax free thresholds. More than half of all the tax collected was paid by grandchildren, nieces and nephews who inherited more than €32,500 from a relative last year.

According to Revenue figures, some €466.3 million in inheritance taxes were collected last year, up by 48 per cent on the Celtic Tiger era in 2007, and by 10 per cent on 2017.

The sharp growth in the yield comes following another year of strong growth in property prices, as well as largely unchanged tax free thresholds, which many argue should be substantially increased.

The tax free threshold for inheritances left to children peaked at € 542,544 in 2009, before being slashed thereafter. While the Government is on the record as saying it wants to increase the category A threshold, which refers to parent child asset transfers, to € 500,000 over time, changes have been minimal.

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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 higher the threshold, the fewer the number of people receiving an inheritance who will be subject to tax, and the lower the total amount of tax that will be paid.

But with a relatively low threshold in comparison to previous years, the figures show that the numbers getting caught by inheritance tax, which is levied at a rate of 33 per cent, is also on the rise, up by 5 per cent on 2017 to a new high of 15,060.

This means that the average amount of tax paid was €30,964. However, the figure is likely to be higher for those in Dublin. A breakdown by county is not yet available for 2018 figures, but figures for 2017 show that while people living in Dublin accounted for 44 per cent of all those paying inheritance that year, the county accounted for more than half of all the tax collected, no doubt a factor of higher house prices in the capital.

The average tax payment for Dublin in 2017 was €35,423, compared to a national average of €29,776.The lowest proportion of inheritance tax in 2017 was collected in Donegal, at just 1.14 per cent of the total yield, or less than €5 million among 326 taxpayers (an average of €15,337 each).

But despite calls for an increase in the parent to child threshold, the figures show that just €160.6 million, or about a third of the total yield, came from taxes paid by children.

The big revenue earner in fact continues to be category B, which refers to other types of relatives such as inheritances from grandparents, brothers or sisters, or aunts and uncles. The tax free threshold from this category is just €32,500. With such a low threshold, the figures show that it accounted for 50 per cent of all inheritance tax receipts in 2018, at some €236.7 million, again a record high. Non-relatives accounted for 15 per cent of all inheritance tax yields.

The figures also show that the total yield from capital acquisitions tax (CAT), incorporating inheritance tax, gift tax, discretionary trust tax and probate tax, also reached a record high, of €522 million in 2018.

This is up by 13.5 per cent on 2017 and by 33. 5 per cent on 2007, and is largely driven by growth in inheritance taxes; gift taxes for example, fell by 25 per cent from 2007 to €52.6 million in 2018.