Every young person should get €100k tax credit instead of a lifetime CAT allowance

[arbitron]

I like the idea, but I see some problems.

What about the large contingent of people who come here from overseas to work for a few years?
They would pay no tax and then leave the country.

I don't know if you could bring in a law saying that the €10k applies to Irish resident and domiciled individuals only.

Maybe like the help-to-buy, people would have to work for say 3 years and could then start claiming.

But you would have to earn about €55k before your tax contributions hit €10k, so it would mean a lot of people not paying any income tax for many years. A big hit to the exchequer. I'm sure it would be potentially inflationary too.

I completely get the arguments of children living at home, carers, children with disabilities, etc. and they should absolutely be protected and provided for. But the majority of inheritances are surely not in these circumstances.

As I said above, the €110k relief given is equivalent to about 20 years of tax take on the average wage. I find that astonishing and I wonder do people realise that this is what we are gifting to people who are lucky enough to get a windfall?

 

[Sophrosyne]

Why would people being handed a large inheritance be allowed the full €110k but someone working for their money only get the average?

None of us can control who is in our Group A. We can all theoretically earn extra money by working more, changing jobs, upskilling, etc. But the €110k potential windfall is purely down to circumstances of birth and the whims of a parent.

You understand @arbitron that I am playing devil's advocate.

My point is about the value of CAT to the exchequer.

No administration is going to pay out more than it collects, or substantially reduce what it collects.

Therefore, despite your view, averaging would matter.

 

[misemoi]

Maybe like the help-to-buy, people would have to work for say 3 years and could then start claiming.

But you would have to earn about €55k before your tax contributions hit €10k, so it would mean a lot of people not paying any income tax for many years. A big hit to the exchequer. I'm sure it would be potentially inflationary too.

I completely get the arguments of children living at home, carers, children with disabilities, etc. and they should absolutely be protected and provided for. But the majority of inheritances are surely not in these circumstances.

As I said above, the €110k relief given is equivalent to about 20 years of tax take on the average wage. I find that astonishing and I wonder do people realise that this is what we are gifting to people who are lucky enough to get a windfall?

I think most people have to sell the inherited asset to pay the tax. So they feel short changed, rather than grateful. And while in general people are aware that income is taxed and would be able to tell you the tax rates, they rarely encounter inheritance tax so it never factored into their plans until faced with it.

 

[arbitron]

You understand @arbitron that I am playing devil's advocate.

My point is about the value of CAT to the exchequer.

No administration is going to pay out more than it collects, or substantially reduce what it collects.

Therefore, despite your view, averaging would matter.

Absolutely, I am thinking mainly about the spirit of it rather than the practical and public policy nuance that would inevitably have to be considered.

 

[arbitron]

I think most people have to sell the inherited asset to pay the tax. So they feel short changed, rather than grateful. And while in general people are aware that income is taxed and would be able to tell you the tax rates, they rarely encounter inheritance tax so it never factored into their plans until faced with it.

There is a big sentimental element too - it's hard enough to lose a parent without also having to say goodbye to the family home.

 

[misemoi]

There is a big sentimental element too - it's hard enough to lose a parent without also having to say goodbye to the family home.

Very true. But how does the sentimentality of it work when you need to pay for this sentimentality at 33% over a certain limit? And at what stage is your own home (and not your home of origin) your family home?

 

[arbitron]

Very true. But how does the sentimentality of it work when you need to pay for this sentimentality at 33% over a certain limit? And at what stage is your own home (and not your home of origin) your family home?

My view is that taxes should not be deliberately punitive but they can be used to promote public policy. So we get tax breaks for contributing to pensions because this encourages people to pay in more and hopefully makes them less dependent on the state in later life.

I have seen many cases where a family home is left to 1 or more children who do not sell it, either for sentimental reasons or because they disagree on price, timing, etc. In my own extended family there was a million+ euro property left to rot for going on 20 years now. It was in perfect condition when the parent died but the children could not agree on the sale. It is now uninhabitable and would need to be demolished. The whole lot is worth a fraction of what it would have gone for. The heirs are now dying and the various slices of the pie are trickling down to the next generation. I think now there are over a dozen people with a share in it. A complete mess and a waste of resources.

My point is really that encouraging people to hoard wealth in a house and then pass that down can be economically and socially negative. A higher CAT might encourage people to spend on themselves first (money back into the economy) and might encourage them to direct their executors to sell a property and divide the cash so that it's easier for heirs to manage. Combine it with a vacant property charge after say 2 years of vacancy and that would keep things moving along.

It is just not reasonable for us to have property sitting empty because of nostalgia or family squabbles. There is only so much land available and sequestering capital like that undermines the market.

 

[newirishman]

Must be great to live in Austria, Sweden, Norway , Malta, no inheritance tax! Just seems crazy to hand over so much money to the state for assets that were within the family. Know there are business / agricultural reliefs / tax planning etc that can be done , all just seems like a big game that you have to play to limit the hit to your pocket

We have no kids. We own our house in Dublin, and earning very well, with another 10'ish years to go until retirement. The logical person to inherit whatever will be available to inherit is my one niece, who lives in Austria.
My retirement plans do not include staying in Ireland, inheritance taxes playing a big part in this decision. I will have paid enough taxes in this country by the time I leave.
I will go out of my way to minimise paying any more tax, especially given the thresholds in our case.
There was/is no inheritance from my parents. Same with my wife's. Anything we have (saved) is due to our own work, for which we pay up to 52% taxes already. There are no real options to minimise any of that (not rich enough for any trust funds magic etc.).
I will not let the Irish revenue take another 33% of whatever I will be able to leave behind for my niece (or her kids).

 

[thedaddyman]

Maybe I look at it from a different perspective as someone who recently came into a inheritance. It was not a massive sum, around €130k and was from my late parents. They'd worked hard all their lives to put me and my sister through college, paid their taxes and with the exception of Fair Deal over the last few years of their lives, were never a burden on the state.

That money has paid off my mortgage and that, together with what is left over, will go a long way to putting my kids through college when the time comes. In due course, and hopefully a long way off I'm hoping what my kids inherit will do the same for them as what my parents did for me.

I've no arguement for a need for inheritance tax but it cannot act as a deterrent for people to work hard during their lives either. After all, if my parents knew that 80% of what they had was going to fund overpaid civil servants, Toy show, the musical or whatever other nonsense the state wastes tax money on, why not sit back and let the state take care of them instead. They worked hard because their culture (very much a rural Ireland/farming culture) was that one of the reasons you did so to take care of the next generation.

I get there will always be exceptions as the OP's posts indicate, but laws made on edge cases usually turn out to be poor laws

 

[arbitron]

Maybe I look at it from a different perspective as someone who recently came into a inheritance. It was not a massive sum, around €130k and was from my late parents. They'd worked hard all their lives to put me and my sister through college, paid their taxes and with the exception of Fair Deal over the last few years of their lives, were never a burden on the state.

That money has paid off my mortgage and that, together with what is left over, will go a long way to putting my kids through college when the time comes. In due course, and hopefully a long way off I'm hoping what my kids inherit will do the same for them as what my parents did for me.

I've no arguement for a need for inheritance tax but it cannot act as a deterrent for people to work hard during their lives either. After all, if my parents knew that 80% of what they had was going to fund overpaid civil servants, Toy show, the musical or whatever other nonsense the state wastes tax money on, why not sit back and let the state take care of them instead. They worked hard because their culture (very much a rural Ireland/farming culture) was that one of the reasons you did so to take care of the next generation.

I get there will always be exceptions as the OP's posts indicate, but laws made on edge cases usually turn out to be poor laws

CSO says the median value of inheritance is €99,200 and the median value of gifts was €15,900. €130k is above average and many would find it life-changing.

If my parents are rich, they give me a house worth €300k, I pay no tax on that, even though I have done nothing to earn it.

If my neighbour works on a building site breaking his back and earns €60k, he pays tax on it.

If my neighbour's parents are poor and cannot give him a gift, then his income taxes are paying for other people's CAT tax relief, e.g the €100k I should have been liable for on the free house my parents gave me.

So it's not edge cases at all. There are many people who get no/low inheritance. And then there are others who get sizeable inheritances and get the full whack of €110k tax relief from our pockets.

I'm not aware of an 80% CAT rate, I have only heard of 33%?

 

[thedaddyman]

CSO says the median value of inheritance is €99,200 and the median value of gifts was €15,900. €130k is above average and many would find it life-changing.

If my parents are rich, they give me a house worth €300k, I pay no tax on that, even though I have done nothing to earn it.

If my neighbour works on a building site breaking his back and earns €60k, he pays tax on it.

If my neighbour's parents are poor and cannot give him a gift, then his income taxes are paying for other people's CAT tax relief, e.g the €100k I should have been liable for on the free house my parents gave me.

So it's not edge cases at all. There are many people who get no/low inheritance. And then there are others who get sizeable inheritances and get the full whack of €110k tax relief from our pockets.

I'm not aware of an 80% CAT rate, I have only heard of 33%?

80% was just an example but we should always remember some of the punitive taxes a previous generation endured back in the 70s and 80s.

In my case, there were only 2 children inheriting as we were a small family (by 70s standards) My parents were not rich, I doubt very much if they ever earned anywhere near 60k a year and they paid tax on everything they earned. My father had a mortgage of £3500 back in 1972 and told me he used to lie awake at night wondering how he's repay it. But he did. So in one respect, inheritance tax is a tax on an asset where the funds used to create the wealth in the first place may already have been taxed.

The edge cases I was referring to was the example you used of property lying idle.

As I said, I've no issue with a proportionate inheritance tax but it cannot act as a disincentive to create wealth.

 

[The Horseman]

People did "earn" their inheritance. My Father was a truck driver driving long hours, my Mother was a homemaker and then a factory worker again working long hours.

We never had a foreign holiday, we were lucky to go camping in the summer.

Because of all the sacrifices my parents made and by extension my siblings and myself in not having holidays, branded clothing, branded food etc people are suggesting penalising prudence!

At what point do we actually reward people for doing the right thing and trying to fend for themselves rather than having a hand out to the State?

 

[gianni]

People did "earn" their inheritance. My Father was a truck driver driving long hours, my Mother was a homemaker and then a factory worker again working long hours.

We never had a foreign holiday, we were lucky to go camping in the summer.

Because of all the sacrifices my parents made and by extension my siblings and myself in not having holidays, branded clothing, branded food etc people are suggesting penalising prudence!

At what point do we actually reward people for doing the right thing and trying to fend for themselves rather than having a hand out to the State?

But the people who "did the right thing" were your parents, not you.

You're arguing against the state giving people money for not fending for themselves ('handouts') but arguing for you to receive a similar handout for doing nothing.

 

[newirishman]

There's a topical article on euronews:

Should European countries abolish inheritance taxes?

The "death tax" is one of the most emotive and controversial levies, but what would its abolition mean for inequality?

www.euronews.com

Some interesting insights into a few countries treatment of inheritance tax.

 

[arbitron]

As I said, I've no issue with a proportionate inheritance tax but it cannot act as a disincentive to create wealth.

33% is proportionate.

Is a 6-figure handout from a parent to a child not a disincentive to work/create wealth?

At what point do we actually reward people for doing the right thing and trying to fend for themselves rather than having a hand out to the State?

We can reward people by taxing their work less. Surely the right thing (both politically and economically) is to go and earn one's own income?

If someone wants a €110k tax relief on an inheritance from their parents when they are 60, fine.

But then let someone else claim their €110k tax relief against income in their 30s so they can buy a home.

Each person gets the benefit of the same tax relief, seems fair.

 

[Brendan Burgess]

33% is proportionate.

Agreed. But for businesses and farms, it can easily be reduced to 3%.

Brendan

 

[Purple]

As a republic, we should be moving away from the idea of wealth being handed down within nuclear/genetic family lines - that's a shadow of the landed gentry. Individuals should have the same opportunities and benefits from the state, regardless of birth, and work should be incentivised over passive accumulation of wealth by luck/inheritance.

Exactly. As a society we should strive for equality of opportunity. That means taxing earned income less and taxing unearned income more.

 

[MrEarl]

Yep, it's a complex area but I think it's a really interesting idea and worth exploring; everyone gets a lifetime tax free allowance that they can use on income or inheritances or capital gains etc as they see fit.

Assuming everyone gets this, and some people use it on their early years, then what's to keep them in Ireland, and paying tax into the economy, once their credit has been used up?

 

[planck]

Rather than giving everyone a new tax credit, why not as first step reform the CAT, eliminating the inbuilt discrimination.

There are two issues with CAT/Inheritance tax, the rate (33%) and the tax-free threshold categories (extract below)

With these tax-free threshold categories, two children inheriting say €335.000, one from a parent (Group A), the other from an uncle (Group B), the first will pay no CAT, the second €110’000.

In our Republic, all the children of the nation should be treated equally.

Applicable Tax -free thresholds since 7 December 2011

	Group A	Group B	Group C
On or after 9 October 2019	€335,000	€32,500	€16,250

 

[The Horseman]

But the people who "did the right thing" were your parents, not you.

You're arguing against the state giving people money for not fending for themselves ('handouts') but arguing for you to receive a similar handout for doing nothing.

I think you may be missing my point we as children missed out on alot growing up in order for us to have a home.