OECD advises Ireland to increase inheritance taxes

[Brendan Burgess]

Reform inheritance tax to ease inequality, says OECD

Report praises elements of Irish tax regime but suggests others need improvement

www.irishtimes.com

Recommendations​

Ireland meets several of the criteria that the report suggests for reform of inheritance tax to make it more equitable. These include the taxing of beneficiaries rather than estates. Ireland also operates a cumulative system, where inheritances and large gifts (those above €3,000) are added to each other to see if a beneficiary exceeds a tax-free threshold.

However, that cumulative system is tiered. That means that while lifetime tax-free inheritances are generally modest, there is a disproportionately large threshold for children inheriting from parents.

Successive governments have defended this position on the basis that, for most families, the family home accounts for the majority of one’s estate. A lower threshold was seen as forcing children inheriting a family home from a parent to sell it to meet the tax liability.


Scaling back tax exemptions and reliefs is seen by the OECD as key to strengthening the revenue-raising potential, efficiency and equity of inheritance and gift taxes, as is addressing loopholes or specific tax structures that encourage or facilitate tax avoidance and are generally open to more wealthy families.

It also proposes that tax rates should be “progressive”, meaning they would increase as the amount a beneficiary receives rises.

 

[noproblem]

Accountants going to be busy.

 

[Protocol]

Inheritance Taxation in OECD Countries | en | OECD

The report explores the role that inheritance taxation could play in raising revenues, addressing inequalities and improving efficiency in OECD countries. It provides background on the distribution and evolution of household wealth and inheritances,...

www.oecd.org

Inheritance Taxation in OECD Countries​

The report explores the role that inheritance taxation could play in raising revenues, addressing inequalities and improving efficiency in OECD countries. It provides background on the distribution and evolution of household wealth and inheritances, assesses the case for and against inheritance taxation drawing on existing theoretical and empirical literature, and examines the design of inheritance, estate and gift taxes in OECD countries. The report concludes with a number of reform options that governments could consider to improve the design and functioning of wealth transfer taxes.

 

[Protocol]

Infograph:

https://www.oecd.org/tax/tax-policy/inheritance-taxation-in-oecd-countries-infographic.pdf

 

[Protocol]

Brochure

Full report

 

[Mocame]

I always find it amusing that newspaper articles which criticize inheritance tax suggest it is a tax on the 'family home'. By the time the vast majority of people inherit they haven't lived in their parents' home for decades (and people who still do live with their parents benefit from exemptions from inheritance tax). So why is this deliberately emotive term 'family home' used to describe the transfer of wealth, with in return for a minimal tax payment, on the basis of an accident of birth? This is a rhetorical question by the way - I know the answer!

Personally I think inheritance tax should be abolished and income tax should just be levied on inherited property. I don't see why I should pay a much higher rate of tax on the income I work hard for when someone who does no work and inherits a property pays a much lower rate of tax.

 

[blanketyblank]

Well hasnt the person who owned the house paid plenty of tax throughout their lifetime and now we want to screw them again when dead? It's probably the only thing some people leave. I think it's fine as is.

 

[NoRegretsCoyote]

Well hasnt the person who owned the house paid plenty of tax throughout their lifetime

Yes but almost none on the property. CGT exemption for the PPR, maybe mortgage interest relief at some stage which is a subsidy, there were FTB housing grants in the 1970s too.

LPT only since 2013.

 

[NoRegretsCoyote]

In general the OECD advises something that is already a feature of the Irish system:

Instead of taxing each wealth transfer separately, a tax on lifetime wealth transfers would improve equity and reduce tax avoidance, but could increase complexity.

I would also re-introduce inflation indexation. More complexity, but more fairness too.

 

[Brendan Burgess]

I always find it amusing that newspaper articles which criticize inheritance tax suggest it is a tax on the 'family home'. By the time the vast majority of people inherit they haven't lived in their parents' home for decades (and people who still do live with their parents benefit from exemptions from inheritance tax). So why is this deliberately emotive term 'family home' used to describe the transfer of wealth, with in return for a minimal tax payment, on the basis of an accident of birth?

Couldn't agree more. You will often see references to children "being forced to sell the family home".

If someone has been living in it and caring for their parents, isn't that allowed for in the CAT rules?

Other than that, the threshold should be reduced significantly from €330k.

I would like to see a rebalancing between capital and income taxes.

Brendan

 

[odyssey06]

Yes but almost none on the property. CGT exemption for the PPR, maybe mortgage interest relief at some stage which is a subsidy, there were FTB housing grants in the 1970s too.

LPT only since 2013.

Stamp Duty.
There were rates back until the 1970s also.

The interest relief and FTB grants would need to be balanced against not having to depend on the state for social housing supports.

 

[Purple]

Stamp Duty.
There were rates back until the 1970s also.

The interest relief and FTB grants would need to be balanced against not having to depend on the state for social housing supports.

The real issue is that we have almost no property tax. I'm currently paying one one thousandth of the value of the house I own in annual property taxes.

I fully agree with Brendan that we need a rebalancing of taxes between income and capital. I'd be in favour of a tripling of property taxes but levy it on the value of the home less the value of the outstanding mortgage.

 

[24601]

Couldn't agree more. You will often see references to children "being forced to sell the family home".

If someone has been living in it and caring for their parents, isn't that allowed for in the CAT rules?

Other than that, the threshold should be reduced significantly from €330k.

I would like to see a rebalancing between capital and income taxes.

Brendan

Couldn't agree more. As a nation have a weird obsession with leaving fully financially independent adult children in their 40s/50s/60s a few bob, often to the detriment of living our own lives more comfortably in later years.

CAT and property tax should be much higher with the higher rate of IT kicking in at a much higher level of income.

 

[Purple]

Well hasnt the person who owned the house paid plenty of tax throughout their lifetime and now we want to screw them again when dead? It's probably the only thing some people leave. I think it's fine as is.

The person leaving the legacy won't pay any tax on it; they are dead. The people paying the tax didn't contribute anything to the wealth creation and, let's be honest here, given that most of the wealth we are talking about is in the form of property, the person leaving it probably did bugger all to creating the wealth other than just buying their house in the 60's or 70's.

 

[odyssey06]

The real issue is that we have almost no property tax. I'm currently paying one one thousandth of the value of the house I own in annual property taxes.

I fully agree with Brendan that we need a rebalancing of taxes between income and capital. I'd be in favour of a tripling of property taxes but levy it on the value of the home less the value of the outstanding mortgage.

Interesting idea, as long as it doesn't create more incentive to not pay off mortgage...

 

[odyssey06]

The person leaving the legacy won't pay any tax on it; they are dead. The people paying the tax didn't contribute anything to the wealth creation and, let's be honest here, given that most of the wealth we are talking about is in the form of property, the person leaving it probably did bugger all to creating the wealth other than just buying their house in the 60's or 70's.

Not sure how much wealth they created, but at least they didn't consume far more costly state housing supports for all those decades.

 

[Purple]

Not sure how much wealth they created, but at least they didn't consume far more costly state housing supports for all those decades.

Though the inflated value of their property is leading to the need for more costly state housing.

 

[Sarenco]

I'd be in favour of a tripling of property taxes but levy it on the value of the home less the value of the outstanding mortgage.

Wouldn't that incentivise the re-mortgaging of property to avoid the tax?

 

[Purple]

Wouldn't that incentivise the re-mortgaging of property to avoid the tax?

Only allow mortgages taken in the first 5 years of ownership (or something like that).

 

[NoRegretsCoyote]

Only allow mortgages taken in the first 5 years of ownership (or something like that).

Then watch banks offer a product that goes interest only when you hit retirement or an LTV of 20% or whatever.

The tax system should be indifferent to how you finance your purchase IMO and should not encourage leverage.