Ireland's Inheritance Tax: A Closer Look at the Numbers

In Ireland, inheritance tax remains a contentious issue, with some viewing it as a necessary contribution to the public coffers while others consider it unfair and a burden on grieving families. Despite the debate, it's likely to remain a fixture in the Irish tax system. However, recent changes may be on the horizon as the government explores increasing the tax-free threshold for inheritances from parents to children, potentially reaching €400,000. This move, aimed at appeasing voters, could have a greater impact on public perception than on the government's financial intake.

Inheritance Tax: A Small Player in the Big Game

New figures from Revenue reveal that inheritance tax doesn't make a significant dent in government coffers. In 2023, it accounted for just 0.6 per cent of total tax revenue, placing it far behind income tax (37 per cent), excise (6.5 per cent), and capital gains tax (2 per cent). It even falls short of motor tax, which contributes 1 per cent of the tax take.

A Growing Tax Take Despite Relatively Low Revenue

While inheritance tax may not be a major revenue source, its impact has increased in recent years due to rising property values. In 2013, in the aftermath of the financial crisis, inheritance tax revenue was €260 million. However, by 2023, this figure had more than doubled to €560 million.

This rise can be attributed to a combination of factors. The average house price has skyrocketed from €225,000 in 2013 to €330,000 in 2023, and the number of people paying inheritance tax has also risen. In 2013, 10,152 individuals paid inheritance tax, while in 2023, this number climbed to 15,000. This represents an increase of over 36 per cent.

Regional Variations in Inheritance Tax

Data from Revenue shows a clear correlation between inheritance tax revenue and house prices. The Greater Dublin Area, with its higher house prices, accounts for a disproportionate share of inheritance tax revenue. In 2023, 67 per cent of inheritance tax payments originated from Dublin and surrounding counties, compared to just 50 per cent in 2013. This trend is mirrored across the country, with counties like Leitrim and Donegal, where average house prices are considerably lower than the national average, contributing a much smaller proportion of inheritance tax revenue.

The Myth of the Family Home Burden

A common concern surrounding inheritance tax is that it forces families to sell their homes to settle the tax bill. However, figures from Revenue suggest this isn't as prevalent as it might seem. In 2023, only 40 per cent of inheritance tax revenue came from direct inheritances from parents to children. The remaining 60 per cent came from inheritances from other sources, such as siblings or more distant relatives. This data suggests that the burden of inheritance tax on family homes is less significant than often perceived.

The Future of Inheritance Tax in Ireland

While the government explores a potential increase in the tax-free threshold for inheritance from parents to children, the future of inheritance tax in Ireland remains uncertain. The debate continues, with some advocating for its abolition while others argue for its retention. Despite the controversy, it appears that inheritance tax will continue to be a part of the Irish tax landscape for the foreseeable future, albeit with potential adjustments to mitigate its perceived burdens.

Inheritance Tax: A Tale of Two Cities

The regional disparities in inheritance tax payments highlight the uneven distribution of wealth and property values across Ireland. Dublin, with its booming property market, stands out as a hotspot for inheritance tax revenue. Conversely, counties with lower house prices, like Leitrim and Donegal, contribute far less. This underscores the need for a comprehensive review of the inheritance tax system to ensure fairness and equity across all regions of the country.

The Takeaway

Despite the perception that inheritance tax is a significant financial burden for the government and families alike, the data suggests otherwise. While its impact has grown in recent years due to rising property values, its overall contribution to state revenue remains relatively modest. The proposed increase in the tax-free threshold for inheritances from parents to children could further reduce its impact, both financially and psychologically, on Irish families.