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

[arbitron]

I came across this article on social media:

Ask an expert: My mother died and left me the family home – how can I afford the inheritance tax bill without selling it? (Irish Independent)

The comments online were eye-opening. 99% of people seemed to believe that there should be 0% "inheritance tax", "death duties", "gift tax", CAT, etc. It was the digital equivalent of foaming at the mouth over perceived theft by the government.

The person in the article will pay €84,000 so I estimate their inheritance is about €590,000. An effective tax rate of about 14%, hardly extortionate.

As others have pointed out many times on AAM, much of the money trickling down in inheritance in Ireland is from property (family home) value appreciation and maybe life insurance. This is unearned and really down to luck. Why should we be giving tax breaks for that ahead of actual work which requires effort and adds to the economy?

A couple who have never worked a day in their lives and never paid income tax can receive €670,000 from their parents tax free. That is 20 years of average take-home pay.

So, should those who lose a parent but receive no inheritance/gifts be entitled to €111,000 income tax refund (the equivalent of the CAT tax break) to balance it out?

 

[Purple]

I came across this article on social media:

Ask an expert: My mother died and left me the family home – how can I afford the inheritance tax bill without selling it? (Irish Independent)

The comments online were eye-opening. 99% of people seemed to believe that there should be 0% "inheritance tax", "death duties", "gift tax", CAT, etc. It was the digital equivalent of foaming at the mouth over perceived theft by the government.

The person in the article will pay €84,000 so I estimate their inheritance is about €590,000. An effective tax rate of about 14%, hardly extortionate.

As others have pointed out many times on AAM, much of the money trickling down in inheritance in Ireland is from property (family home) value appreciation and maybe life insurance. This is unearned and really down to luck. Why should we be giving tax breaks for that ahead of actual work which requires effort and adds to the economy?

A couple who have never worked a day in their lives and never paid income tax can receive €670,000 from their parents tax free. That is 20 years of average take-home pay.

So, should those who lose a parent but receive no inheritance/gifts be entitled to €111,000 income tax refund (the equivalent of the CAT tax break) to balance it out?

If anything inheritance tax is too low in Ireland.

 

[arbitron]

You've made the point many times I think @Purple that we tend to tax work far more than other income/wealth. It just doesn't make sense to give people a tax break on unearned income, particularly when it tends to come later in life. Most of us are hopefully well into our careers, have bought houses, etc. by the time we get an inheritance, so the tax benefit arrives a bit late.

I would much rather see a lifetime tax relief that you could claim over a period of time. So say you have a lifetime allowance of €335,000 (which is worth €110,550) - you can wait for your parents to leave you the house when you are 60 and you can use the pot then.

Or when you get a job you can claim it over 10 years, so at 18 you can claim back €10k. That would give younger people more cash to save for a house or build up their pension.

That is far better for them and for the economy than giving them a boost 40 years later if they happen to get a big gift/inheritance. It is also much fairer on people whose families are not well off or those who are estranged from their families, which is more than you would think.

 

[Sophrosyne]

You seem to have based your proposals on an instance of a family home bequeathed to one child.

Would you not have to have some data on the value of inheritances received by individuals (rather than couples or families) over a number of years before making such proposals?

For instance, how many are under or over the individual CAT threshold.

What about non-linear bequests and thresholds?

 

[Purple]

You seem to have based your proposals on an instance of a family home bequeathed to one child.

Would you not have to have some data on the value of inheritances received by individuals (rather than couples or families) over a number of years before making such proposals?

For instance, how many are under or over the individual CAT threshold.

What about non-linear bequests and thresholds?

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.

 

[arbitron]

You seem to have based your proposals on an instance of a family home bequeathed to one child.

Would you not have to have some data on the value of inheritances received by individuals (rather than couples or families) over a number of years before making such proposals?

For instance, how many are under or over the individual CAT threshold.

What about non-linear bequests and thresholds?

Each person has a personal CAT exemption so the number of siblings is less relevant.

The average number of children per household now is between 1.4 and 2 at the moment, and trending down, while house prices increase. So we are becoming even more unequal where the child from a home-owning couple gets an unearned leg up over the child of renters.

The current system is completely inequitable as some people will get a 6-figure tax break for no other reason than having a genetic/adoptive link to someone while their neighbour gets nothing.

If we all had personalised lifetime flexible income tax relief then we would all have equal benefit but we could choose when to use it.

 

[Brendan Burgess]

I would much rather see a lifetime tax relief that you could claim over a period of time. So say you have a lifetime allowance of €335,000 (which is worth €110,550) - you can wait for your parents to leave you the house when you are 60 and you can use the pot then.

An interesting idea. Can I see if I understand it correctly.

So at age 19, a person is taxed as normal but also gets a tax credit of €110k.

They can use that against their Income Tax or any CAT.

Presumably they would all use it to pay no Income Tax on their wages.

Then if they inherit a house worth €300k, they pay €100k tax on it.

Is that your proposal?

Brendan

 

[Brendan Burgess]

Or when you get a job you can claim it over 10 years, so at 18 you can claim back €10k. That would give younger people more cash to save for a house or build up their pension.

OK, so it would be limited to €10k per year.

 

[arbitron]

An interesting idea. Can I see if I understand it correctly.

So at age 19, a person is taxed as normal but also gets a tax credit of €110k.

They can use that against their Income Tax or any CAT.

Presumably they would all use it to pay no Income Tax on their wages.

Then if they inherit a house worth €300k, they pay €100k tax on it.

Is that your proposal?

Brendan

Yes, remove the threshold. €111k pot available from 18/21/after first paycheck/after first year of work. But spread out over a few years, otherwise people could work tax free and then skedaddle to Australia?

It's not that everyone should pay huge taxes or no-one-should pay anything, just that if we are going to give people a tax break in life it surely makes more sense to do it when they a) are earning less and b) have higher expenses, which tends to be long before an inheritance in my experience.

 

[Brendan Burgess]

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.

 

[Brendan Burgess]

if we are going to give people a tax break in life it surely makes more sense to do it when they a) are earning less and b) have higher expenses,

Agree with that in principle.

While youth might be wasted on the young, wealth is wasted on the elderly.

Brendan

 

[arbitron]

I suspect it would be very costly for the exchequer though as then every worker would be entitled to it but not everyone gets an inheritance.

And do you start it from 2025 for all 18 year olds? Could anyone over 19 sue the state?

[Mary-Lou, if you are reading this, please include 1980s babies...]

 

[Silversurfer]

Yes, remove the threshold. €111k pot available from 18/21/after first paycheck/after first year of work. But spread out over a few years, otherwise people could work tax free and then skedaddle to Australia?

It's not that everyone should pay huge taxes or no-one-should pay anything, just that if we are going to give people a tax break in life it surely makes more sense to do it when they a) are earning less and b) have higher expenses, which tends to be long before an inheritance in my experience.

Should this idea be expanded to include farming families? Whereby the grants given over the lifetime of the first owner should be a one off.

 

[Clamball]

I agree that the wealth we as parents generate should be taxed if there is some left over when we die.

I do have a lot of sympathy for those adult children who continued to live at home, and provided care and assistance to their parent(s), as these people tend to be underemployed in the first instance and this works for them as they have no rent/mortgage/bills. Probably not great for them as fully functioning adults in society but also great for the government as they play a large part in care of the elderly.

The urge for parents to “provide for the next generation, be a safety net” etc is very strong but their wealth is normally tied up in their house so not easy to pass anything over earlier.

Being from a farming background I also have sympathy for the farm/farm house and in years past the farmhouse was almost considered worthless based in the centre of a working farmyard. Now it is worth significantly more. But farmers have a much greater urge to pass on their farm and farmhouse to the next generation so I do believe a farm/house relief is still a good idea.

 

[Dr Strangelove]

For me lifetime gift plus future inheritance is approaching seven figures.

My parents worked hard for over forty years each but took zero entrepreneurial risk. It’s just a house and a lot of investment products.

I will pay approximately 20% in CAT which is absurdly low given that I did nothing to earn it.

 

[Brian McD]

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

 

[Sophrosyne]

Each person has a personal CAT exemption so the number of siblings is less relevant.

The average number of children per household now is between 1.4 and 2 at the moment, and trending down, while house prices increase.

I should like to see some real data, as I suspect would the government.

Your view seems to be that individuals who are fortunate enough to receive a parental bequest may avail of the group A threshold, currently 335,000, and that confers an unfair advantage over those who receive nothing.

That's fair enough.

However, the problem is applying the monetary value of the threshold, circa €110 to every individual in the country.

Your idea surely has to be somehow linked to the average threshold usage in group A, which may or may not be far below 335,000.

 

[arbitron]

I should like to see some real data, as I suspect would the government.

Your view seems to be that individuals who are fortunate enough to receive a parental bequest may avail of the group A threshold, currently 335,000, and that confers an unfair advantage over those who receive nothing.

That's fair enough.

However, the problem is applying the monetary value of the threshold, circa €110 to every individual in the country.

Your idea surely has to be somehow linked to the average threshold usage in group A, which may or may not be far below 335,000.

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.

 

[arbitron]

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

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.

 

[Steven Barrett]

I agree that the wealth we as parents generate should be taxed if there is some left over when we die.

I do have a lot of sympathy for those adult children who continued to live at home, and provided care and assistance to their parent(s), as these people tend to be underemployed in the first instance and this works for them as they have no rent/mortgage/bills. Probably not great for them as fully functioning adults in society but also great for the government as they play a large part in care of the elderly.

The urge for parents to “provide for the next generation, be a safety net” etc is very strong but their wealth is normally tied up in their house so not easy to pass anything over earlier.

Being from a farming background I also have sympathy for the farm/farm house and in years past the farmhouse was almost considered worthless based in the centre of a working farmyard. Now it is worth significantly more. But farmers have a much greater urge to pass on their farm and farmhouse to the next generation so I do believe a farm/house relief is still a good idea.

There is the dwelling exemption for adult children who grew up in the family home and never moved out.

As for the original question, it's a load of nonsense. They are obviously not living in that house otherwise they could have qualified for the exemption...or they were but had another property. They just don't want to sell the house for sentimental reasons. Well, tax doesn't know sentiment.

And if they could hold onto the house, what would they do with it? Rent it out and have strangers living in it?