Is inheritance Tax Fair?

B

Booh

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Just to put it out there...

What is the justification for taxing an inheritance? I am obviously missing something.

I understand CAT for gifts. If gifts were untaxed then there would be rampant abuse of the income tax system etc with nobody actually being PAID a salary (or only nominal salaries) and instead being given 'gifts' about the same time each month by 'employers' etc etc etc and all sorts of other things.

But come on an inheritance????. That is an asset or collection of assets that somebody else achieved and accumulated through their own hard work with already taxed income etc. Or perhaps it's a generational thing where a house built by a grandparent or great grandparent gets passed on from generation to generation. In this day and age it is likely that such a house would end up being sold to pay off tax.

I just don't get the logic for a tax liability in such scenarios.

For example, if a parent managed to accumulate €1,000,000 through prudent investment with his/her hard earned, already taxed income. If they died and left that money to a child, why oh why should that child have to fork over 20% of nearly half of it to Revenue, over €100,000. Why?

Why should children have to sell their parents house to settle a tax liability if they inherit an expensive house. This is especially unfair considering that for most people the biggest asset that they will inherit is a family home. Have the CAT thresholds increased in line with property inflation??? I don't believe so. 15 or 20 years ago there was probably no chance that a 'normal' family home would exceed the CAT threshold, but now you can almost guarantee it, certainly in Dublin.

So again the same question, why is inheritance tax justified?
 
Not a tax expert, but my understanding is that there are allowances so that when the farm, house (PPR) is left to a spouse or kids, there is little or no tax to be paid.

I had a read of this (US focused) article on wikipedia:

The main argument for seems to be that it's effectively a tax on unrealised capital gains (for large fortunes?).
The argument against is that it's a double taxation, that only occurs because of your death
 
Thanks for the input. You are right about the thresholds. Spouses are exempt but children are not exempt. After about €490k threshold there is a 20% Tax on the balance. My point is that if parent dies and leaves a modest 3 bed semi detatched house in say a nice suburb of Dublin for example that house is probably worth €750,000 - €1,300,000 depending on the exact suburb. Even at €750,000 that child has a tax liability €750,000- €490,000 = €260,000 @ 20% = €52,000 tax. That of course assumes that the child still has the full threshold available.

I just fail to see why that should be taxed at all.
 
There are two possible arguments in favour of inheritance tax.

The first is that the State needs money, and has to gather it from various sources, taking into account social equity and economic effects (especially disincentive effects). In this view it makes sense to tax the assets of people who have died, given the alternative is to take more off people who are still alive, and might need or want the money more.

The second and related argument is social equity. Why should my neighbour inherit (i.e. get without effort) a large amount of money tax free when I have to pay income tax on money that I had to work hard for?

By the way, I am not myself convinced by the argument about selling the family house. If yesterday I didn't own the house, I don't see that it is an enormous inequity that today I should have to sell it and keep most of the proceeds. I don't see why members of families with assets should get tax breaks that are not available to those without assets.

My own suggestion is that all inheritance other than between spouses should be taxed as income.

d
 
Maybe a good way to avoid the taxation is to name your child as the main benificiary as you may do for a life insurance policy and your wife as a person in control of the childs assets. The child should not pay the tax at all??
 
Booh said:
Thanks for the input. You are right about the thresholds. Spouses are exempt but children are not exempt. After about €490k threshold there is a 20% Tax on the balance. My point is that if parent dies and leaves a modest 3 bed semi detatched house in say a nice suburb of Dublin for example that house is probably worth €750,000 - €1,300,000 depending on the exact suburb. Even at €750,000 that child has a tax liability €750,000- €490,000 = €260,000 @ 20% = €52,000 tax. That of course assumes that the child still has the full threshold available.

I just fail to see why that should be taxed at all.
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Booh, just to clarify, is your point that the thresholds currently in place are wrong or that there should be no inheritance tax at all?

To expand you example above, say there is a family home €1.3M, and a holiday home/investment property €400K. What would your view of an equitable tax be?
 
It is a question of social equality.

You have a few people inheriting a lot of money and paying a very small tax on it. Homes are largely exempt for most people. A house worth €1m left to two children would result in tiny amounts of CAT.

I would be in favour of dramatically rasing the rate of CAT and using the proceeds to give every 18 year old or 21 year old a lump sum to help them with their education, career or whatever.

In many cases, it seems to me to be bad for kids to inherit a large amount of money. I don't know if it has been researched on a systematic basis, but I would know of many people who got too good a start in life and couldn't be bothered working hard. I also know of people who got a very good start and did work very hard.

Brendan
 
I think that someone who works hard all their life, saves hard, buys a nice house and puts aside money for a long retirement is entitled to leave their children with the proceeds of their prudent life. Capitalism rewards hard work - at least it does in its purest form.

I can see a case for inheritance tax on people with vast wealth, but a family home should not have to be sold to pay tax. Sometimes children do not want to sell the home they were reared in. They shouldn't be forced to in a free society.
 
I have to wonder are the people who are arguing above for higher CAT in the position that they will never receive such an inheritance?!

In answer to the question is it fair..........no I don't think that it is fair........but then neither is life! Tax isnt about what is fair.....

In terms of the house example above - I think that there may be some relief if the person who inherits the house has been living in it? I may be wrong there.........but I do know that there are certain reliefs in gift/inheritance tax.

I don't think that I should have to pay CAT on inheritance from any family member.......but its not up to me
 
Hi all, thanks for the comments, this is turning into a good debate.

To clarify, my views are as follows.

1. As the current system is not going to disappear, Inheritance tax exemptions/thresholds need to be brought in line with current property prices certainly in respect of inheriting the family home. I don't see why any child should get a tax bill for inheriting their family home. Or better still, remove the family home from inhertiance tax for spouses and children.

2. I just don't agree with the entire concept of inheritance tax. I work bloody hard. I break my back to afford a big mortgage to live in a nice home (with money that i have already paid tax on) in a nice area to raise our family. I try and squirrel away money (that i have already paid income tax on) for the future and for my spouse and children. Not for my family's future AND for the Exchequer. The Exchequer alread got it's cut of my money as I earned it and spent it on goods and services.

3. Income tax, PRSI, VAT, VRT, road tax, bin tax, water rates etc etc they are there to pay for the running of the country. Not my hard earned assets.

If I and my spouse were killed in the morning, our kids would have inheritance tax bills. I don't think that ANY of my assets should be taxed on my death. Why should they be, they belong to me, I don't own any of them jointly with State so why can I not give them in their entirety to my family? Why is the state entitled to a share of my personal wealth.
 
It's all about rebalancing and redistributing wealth. You would have to be left a lot of money to have to pay the tax and it's only 20%.

The Bush adminstration is trying to do away with both taxes on inheritances and taxes on dividends. This could lead to a scenario where a small number of the super-wealthy pass money on to the next generation who can live, tax-free, off the inheritance. This kind of thing would create a new aristocracy.

Because your parents were wealthy and worked hard, you have already reaped the benefits of this during your childhood and adolescence. Taxing a percentage of the inheritance helps spread the wealth and good fortune amongst others.
 
Well then i guess that I am simply selfish as I am not in to the idea of redistributing wealth. I am a capitalist. You work hard and if you do well good luck to you. Certainly take care of the less 'able' in your society but i'm not happy to support the less 'bothered'.

If the Americans create a new aristocracy good luck to them. Frankly I believe that it already exists.

It's not necessarily the super wealthy that inhertiance tax afects the most it is the lower/middle class, i.e. those who do not have enough CASH to pay their inheritance tax bill, but those who need to dispose of the very asset that they were bequeathed in order to meet the tax bill.

If I had a nice shiny new BMW worth €60,000 and if I wanted to leave that to my best friend on my death. If I died he would have to sell the car to meet the tax bill or else take out a loan. €60,000 - €23,906(threshold) = €36,094 @ 20% = €7,218 Tax. (assuming that he still has his full €23,906 threshold, if not he would face up to €12,000 tax.

I hear many of you thinking, not a bad deal, to get a €60,000 car for €7,218. If you feel that way you miss my point. My point is that the car was already bloody well paid for.
 
Booh

I think inheritance tax is one of those issues where views are stongly held. I don't expect to convince you, and you probably won't convince me.

I see your point about the shiny BMW, and the logic about being able to give it to who you want. But I don't see the logic of why if you are alive and you give it to your pal, gift tax makes sense, but if you are dead it doesn't.

You say that you have worked hard for the money, and should be able to do what you want with it (when you are dead). But what about the work the recipient does? If my pal works hard to clean my house for me and I pay him out of my (already taxed, already worked for) money, he pays tax. However, if he does nothing for the money, just waits until I die, he pays no tax.

I don't see that inheritance tax threatens the capitalist society. I think that lack of an inheritance tax creates a class that have no incentive to create wealth. And wasn't it that arch-capitalist Carnegie who said that anyone who dies with assets is a failure?

d
 
Hi d53, some nice comments.

In respect of Gift tax, I actually don't feel any better about it but i can see why it is necessary to stop abuse of the income tax system. I do feel that i should be able to give my friend a Car if I want (not likely to happen by the way) and i don't see why he should have to pay tax on it. It is neither a source of income nor capital growth. It's a present.

However i do accept that if there was no gift tax....... Instead of paying for items you could gift people money, therefore it is not an income and not taxable. I will gift you €60,000 and you can give me a gift of that shiny new BWM... Or i will take a modest salary of €1,000 pa and pay my PRSI but you can GIFT me the other €50,000 a year etc etc. It would take many many years to find all the loopholes to stop people abusing that.
But as a concept i don't agree with GIFT tax either.


In terms of taxing the same Euro to oblivion, yes i have though about this. Your friend who cleans your house. If he does that for a living and if he requires payment to survive, then if you pay him an income (with your already taxed money) i accept that this money become a new source of income to somebody else and should be taxed accordingly. If he wants to defer payment until you die and get a suitable inheritance, and he accepts the risk that you may change your mind, or he could die before you..well Ok then.. I don't think it will catch on.

As for Carnegie...when he gave away 90% of his wealth before he died back in 1919, what were the gift/inhertiance tax rules back then? How much of his wealth went in taxes and how much went to the people he gave it to
 
"Why should children have to sell their parents house to settle a tax liability if they inherit an expensive house. This is especially unfair considering that for most people the biggest asset that they will inherit is a family home."

I don't think that a parents home is too much different in character from a large portfolio of shares: it is a saleable asset and the child can sell it if he\she needs to. There is a reasonable argument to be made against forcing a child to sell the family home if the child still lives in it. Fortunately, if the child owns no other home, our CAT code gives a specific tax exemption in such circumstances.

Capital has a tendency to accumulate. Those who have more can accumulate more. This is far too tempting a target for tax collectors. Also, there are reasonable ideological arguments to be made in favour of taxing capital. Whether due to pragmatism or ideology, taxing the transfer of capital is absolutely normal in most western democracies. Our regime is relatively low-tax. It used to be 40%!
 
Booh said:
Well then i guess that I am simply selfish as I am not in to the idea of redistributing wealth. I am a capitalist. You work hard and if you do well good luck to you. Certainly take care of the less 'able' in your society but i'm not happy to support the less 'bothered'.
Click to expand...
This point of view could be used to support inheritance taxes instead of deny them. Your kids didn't work hard to earn your house. Why should they get the benefit of it tax-free? If they work hard, they'll earn their own house.

Great to see a sensible, enlightening debate on this matter, btw.
 
RainyDay said:
This point of view could be used to support inheritance taxes instead of deny them. Your kids didn't work hard to earn your house. Why should they get the benefit of it tax-free? If they work hard, they'll earn their own house.

Great to see a sensible, enlightening debate on this matter, btw.
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I guess there are 2 schools of thought on the issue you raised above.

1 I work hard and break my back so that my children won't have to
 
RainyDay said:
This point of view could be used to support inheritance taxes instead of deny them. Your kids didn't work hard to earn your house. Why should they get the benefit of it tax-free? If they work hard, they'll earn their own house.

Great to see a sensible, enlightening debate on this matter, btw.
Click to expand...


I guess there are 2 schools of thought on the issue you raised above.

1 - I worked hard and broke my back so that my children won't have to
and
2 - I worked hard and broke my back so why should my children get off without having to work hard.

I must admit, I have a foot in both camps. I want to give my children any advantage that I can....but I don't want them to turn into layabouts who don't know the meaning of a decent days work.

Having said that, in my own particular case, I don't believe that my assets will support a champagne lifestyle for very long when I go. Maybe enough to help get my children on the property ladder (not enough to buy them a house each with maids etc). That is one of the reasons that I do not wish to see any of it 'wasted' on tax.
 
government will raise the tax in other ways if it didnt through inheritance so you would pay for it someway,look at it as a delayed income tax,if you had been taxed more on income in the years you were alive you would have less disposable income to invest in assets ,also government/the state provided a secure legal and economic framework which allowed you to create your wealth/assets and inheritence can repay state for this.
 
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