Alan Shatter's campaign to abolish Inheritance Tax

Brendan Burgess said:
So does everyone agree that the taxation of the following inheritances is fair.

My dad died and left me a business worth €2,335,000 . I got 90% Business Relief so was treated as receiving a gift of €233,500. As this was less than the €335,000 Group A limit, I paid no CAT.

He left my brother an investment property worth €1,335,000. the first €335,000 was exempt. So he paid CAT of €330,000 on the taxable figure of €1m.

He left my sister the family home which was worth €2,335,000. The first €335,000 was exempt, so she had an immediate liability for €660,000 CAT.
She was unable to get a mortgage for this amount, so had to sell the family home. This left her with €1,675,000 to buy herself a home.
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There is nothing fair about inheritances because there is nothing fair about bereavement.

If you're lucky enough to sail through life without suffering a close family bereavement until you're say 60, and have loads of siblings, chances are you won't inherit a penny until you're already financially independent and CAT really won't affect you.

If you lose both your parents at a young age, and you have no siblings, you may well inherit lots, and may have a material amount to pay in CAT.

Most rational people would prefer to be in the former camp, if given the choice.
 
It's very clear from my example that the tax system is unfair.

The two people who inherited the same amount should pay the same amount of tax. You might think that we should have no such thing as inheritance tax, in which case neither my sister nor I should pay and CAT. Or if you think that 33% is fair after the Group A exemption, then I should pay it as well.

Making an allowance for someone to take some time to pay it is fine and does not make it unfair. But charging my sister €660k more than than I am charged is manifestly wrong.

Brendan
 
Brendan Burgess said:
Making an allowance for someone to take some time to pay it is fine and does not make it unfair. But charging my sister €660k more than than I am charged is manifestly wrong.
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You're comparing apples and oranges Brendan,

You're only getting the business relief because the assets are tied up in a business for 6 years. If you fail to adhere to the conditions, you lose the relief and end up in a similar position to your sister.

Me, I think I'd take the money and pay the tax rather than be lumbered with someone else's business for 6 years.
 
T McGibney said:
You're comparing apples and oranges Brendan,
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No I am comparing inheriting a family home with inheriting a family business.

I would take the business and make sure I adhere to the conditions for 6 years.

But it would depend on the business and it would depend on the amount of tax I am saving.

It's manifestly unfair that after 6 years, the liability for CAT disappears.

Brendan
 
Brendan Burgess said:
No I am comparing inheriting a family home with inheriting a family business.

I would take the business and make sure I adhere to the conditions for 6 years.
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The bigger and more important task is to ensure that you wouldn't lose your shirt within those 6 years.

Inheriting a family home by comparison is as good as money in the bank.
 
Brendan Burgess said:
It's very clear from my example that the tax system is unfair.

The two people who inherited the same amount should pay the same amount of tax.
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Fairness is not the base reason for the tax system. The tax system exists to extract resources for the use of the state.

Crippling small businesses, farms etc will damage the state's long term ability to raise tax and extract resources from a shrinking dysfunctional economy.
 
bill_cash said:
Fairness is not the base reason for the tax system. The tax system exists to extract resources for the use of the state.

Crippling small businesses, farms etc will damage the state's long term ability to raise tax and extract resources from a shrinking dysfunctional economy.
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These business or farm assets will only raise tax in the long-term if they're profitable.

If they're profitable, they will hardly be crippled by being made to pay off the inheritance tax liability.

If they're not profitable, the inheritance tax liability will likely result in these assets being sold to someone who can make a profit from them. That type of reallocation is the exact opposite of a 'shrinking dysfunctional economy'.
 
Nermal said:
If they're profitable, they will hardly be crippled by being made to pay off the inheritance tax liability .
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Bear in mind that a business or farm would have to generate circa €1.2m in excess profits over a period in order to pay a deferred CAT bill of €600k incurred by its owner. This is on top of the profits needed to feed, clothe and house the business operator and presumably their family, and also to generate sustainable levels of working and reinvestment capital.

If there is a family business or a farm in the country capable of generating such profits over say 10-15 years, I'd love to see it.

It's literally incredible that people don't understand this.
 
T McGibney said:
Bear in mind that a business or farm would have to generate circa €1.2m in excess profits over a period in order to pay a deferred CAT bill of €600k incurred by its owner.
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If the business is valued at €2.335m as in my example, it should be generating profits of around €200k a year before tax. And profits are what is made after paying the directors salaries for feeding their children. If it's not generating that level of profit, it will not be valued at €2.335m

That will be a net of €100k a year so it would take them 5 or 6 years to pay the tax bill.

Are you seriously suggesting that someone who inherits €2.335m should pay no tax while someone inheriting €1m less should pay €330k tax?

Brendan
 
Brendan Burgess said:
If the business is valued at €2.335m as in my example, it should be generating profits of around €200k a year before tax. And profits are what is made after paying the directors salaries for feeding their children. If it's not generating that level of profit, it will not be valued at €2.335m
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I'd wager that there's not a farm in the country with an asset base of €2.35m consistently generating profits of €200k before tax.

Anyone who claims there is doesn't know much about either farming or asset prices.

I'd also safely wager that the numbers of similarly capitalised second-generation family businesses generating such profits is vanishingly small.
Brendan Burgess said:
Are you seriously suggesting that someone who inherits €2.335m should pay no tax while someone inheriting €1m less should pay €330k tax?
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If I had the choice, I'd abolish inheritance and gift taxes altogether. They are manifestly unjust, arbitrary, and capricious, hitting, often very hard, families afflicted by the worst of tragedies.

Worse still they promote all sorts of dysfunctional and market-distorting behaviour, from Billy Bunteresque chequebook-waving tax planning wheezes to frightened elderly people deliberately letting homes and business premises go to rack and ruin for fear of what the taxman might do to them or their children, and everything in between.

And they generate almost nothing material to government coffers.
 
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T McGibney said:
If there is a family business or a farm in the country capable of generating such profits over say 10-15 years, I'd love to see i
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You’re just proving the point that these businesses are less profitable therefore less productive. The favourable CAT treatment keeps them hanging on a decade or so more than they would otherwise.

This is not a long-run good! Look up “creative destruction”.
 
Dr Strangelove said:
You’re just proving the point that these businesses are less profitable therefore less productive. The favourable CAT treatment keeps them hanging on a decade or so more than they would otherwise.

This is not a long-run good! Look up “creative destruction”.
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If your objective is to destroy family farms and businesses, I agree that inheritance taxes are an ideal weapon for that purpose.

I think we disagree on the desirability of such an objective.

There is little ever creative about deliberately impoverishing people.
 
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