Minister for Finance Jack Chambers has cut inheritance tax, but what is the tax?
The charge on inheritances is a form of capital acquisitions tax. In reality, however, this is an inheritance and gift tax as it applies to wealth transfers in the lifetime of the disponer – the person who ultimately gives the inheritance – and from the disponer’s eventual estate. This means large gifts made before the donor’s death are classed as inheritances. If a son or daughter receives a large gift from a parent while the parent is still alive, that gift must be counted with the parent’s estate when calculating the tax liability after the parent’s death. Any large gifts received since December 1991 are in the tax net.
What changes were made in Budget 2025 and when will they come into effect?
The cuts take force today, at an annual cost to the Government of €88 million. The main change increases the threshold at which the tax imposed on large gifts and inheritances from a parent to a child. In tax parlance, this is known as category A. As was widely leaked in the advance of budget day, the category A threshold rises to €400,000 from €335,000 previously. This basically means people can inherit an additional €65,000 from a parent tax-free – the first rise in the threshold since 2019. Still, the rate at which the tax is levied remains unchanged at 33 per cent. Beneficiaries will pay €21,450 less tax on an estate worth more than €400,000.
What else changes?
The tax threshold also rises for large gifts and inheritances received from a grandparent, great-grandparent, sibling, aunt or uncle. These are known as category B inheritances. The threshold rises to €40,000 from €32,500. Again, the tax rate is unchanged at 33 per cent. Those receiving a category B inheritance worth more than €40,000 will pay €2,475 less tax. Also rising is the threshold for all other large gifts and inheritances, ie those above €3,000 in a single year. These are classified as category C by the Revenue Commissioners. The threshold goes to €20,000 from €16,250. The tax rate here also remains at 33 per cent. So beneficiaries of category C inheritances exceeding €20,000 will pay €1,238 less tax.
Why is this contentious?
This tax was introduced in its current form in 1976. But the immediate backdrop is the economic crash of 2008 and the swingeing tax increases that were imposed in its wake. Inheritance tax was no exception. Although the tax has come down a bit since recovery took hold, it remains above pre-crash levels. The marginal inheritance tax rate had dropped from 55 per cent in 1984 to 20 per cent in 2000. This was raised to 33 per cent in 2013 and has remained at that level ever since. The new category A threshold remains below the €545,544 that applied in 2009. This means the beneficiaries of estates and gifts are still paying a higher tax rate than before crisis struck and still paying it on a greater proportion of the inheritance.
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What do objectors say?
Leading the charge against inheritance tax is former Fine Gael minister Alan Shatter. He casts the tax as “State-sponsored grave robbery”. The new cut did little to appease Shatter, who said the current regime remains on a fiscal emergency footing. “In a State that exempts substantial lottery and gambling wins from taxation, it seems that winning money on a flutter is perceived by Government as more beneficial to society and the State than the simple generosity of those deceased and their concern for the welfare and financial security of others,” he said.
Are there other views?
In the Dáil on budget night, People Before Profit-Solidarity TD Paul Murphy decried the cut as a “very substantial baby boost to the wealthiest 3 per cent” in society. “Two-thirds of households will never get a substantial inheritance at all,” he said. Similarly, Independent TD Thomas Pringle said: “I see this tax break benefiting wealthy business people across the whole country.”
