BY JOHN ELLIS, FINANCIAL ADVISOR
Tánaiste Micheál Martin has announced that reform of inheritance tax will be “on the agenda” for Budget 2025. While he ruled out the prospect of abolishing the tax on family homes, the potential changes could have significant financial ramifications for families across Ireland.
In a recent statement he highlighted the constraints on Finance Minister Jack Chambers, who will be working within a tight Budget. “The bottom line is we have €1.4 billion put aside for tax measures.” Mr Martin said the overwhelming bulk of that would go towards reduction in personal taxation and may include USC. Other areas would be looked at, including inheritance tax but it would not be abolished for family homes.
Inheritance tax, also known as Capital Acquisitions Tax (CAT), stands at 33% on gifts or inheritances. Children inheriting assets face tax on values over €335,000, while other family members encounter a much lower threshold of €32,500. It’s to be expected that there is growing pressure to reform the tax, particularly with escalating property values.
Taoiseach Simon Harris has suggested that revising the tax is worth consideration. His remarks were echoed by Mr Martin, who described the tax as “punitive” and said he had compassion for families burdened by it.
Fifteen years ago, children could inherit up to €542,544 from their parents without incurring tax, with a tax rate of just 22% on amounts above this threshold. However, in 2012 the exemption was reduced to €335,000 and the tax rate rose to 33% where they remain. The implications of potential changes to inheritance tax are striking as every 1% reduction in the inheritance tax rate is estimated to cost the State €20 million annually.
The current threshold of €335,000 does not cover many family homes in today’s market, putting ordinary people under financial pressure. “It can create real difficulties for people in terms of if they’re inheriting their parents’ house, and remember, the parents would have paid their tax throughout their lives,” said Martin.
A higher exemption threshold and a lower tax rate could alleviate the financial strain on families inheriting property as many had to or were in the process of borrowing or selling property to pay the tax.
Some Government TDs are advocating for a reduction of up to 8%, while also pushing for an increase in the exemption threshold to better reflect current property values. Fine Gael sources have suggested a new minimum threshold of €400,000, with some proposing €450,000 as more appropriate.
As Budget 2025 approaches, the Government faces the challenge of balancing tax reforms with fiscal constraints. As mentioned, increasing the exemption threshold to €400,000 would cost the State an estimated €52 million. With a limited pot for tax measures, the final decision will reflect a compromise between easing the burden on families and maintaining fiscal responsibility.
As families and tax experts await the final announcements, the potential reforms are a critical point of discussion for the financial well-being of many Irish citizens.
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