It’s rare that something that is part of your day job becomes the raging topic of national debate and features regularly on the Joe Duffy show! This is, however, where we are at with respect to reform of inheritance tax. Rather than setting out my own views on the matter, I would like to summarise some of the arguments for either side that I have read and listened to over the past number of weeks. Everyone can bring their own “take” to these.

Arguments Against reducing or relaxing the Rules

Reducing Inheritance Tax Just Favours the Rich. Those against any reform argue that if you have enough wealth to be paying inheritance tax, then you can afford to pay.

Why give a bonus to relatives for free. Related to the above, is the argument that relatives and other beneficiaries are getting an asset without having worked for it. It’s falling into their lap so why shouldn’t those people pay some of their fair share?

It’s soft tax or Low Hanging Fruit Tax. The argument here is that nobody likes putting their hand into their pocket to pay tax, but if comes off as an asset before you really begin to use it or enjoy it, then, the effort or downside of payment doesn’t feel so sharp. So, the psychological impact of the tax is not as severe as income tax.

It’s administratively easy to get at. Related to the above is the fact that as the cash or asset is available for distribution, then, that is a good time to have the tax paid. Further it is easier to collect the tax while there are assets available and so the administrative cost of collecting the tax is lower, particularly where it is outsourced to professionals.

It’s engrained. It is hard to take back something that you have given. So once you relax the rules it is going to be difficult to tweak them back where people pay more tax. Once the relaxation genie is out of the bottle, then it is going to be difficult politically to row back and thus recoup to the State that lost tax Revenue.

Damage to Social Cohesion. Reform now where people pay less tax will be seen as a sop to the haves by the have nots and thus will ferment resentment and division in society.

Income Tax Burden. We are too reliant on income tax and corporation tax for the State’s tax take and we should be broadening out the tax base not reducing it.

Arguments in favour of reducing Inheritance Tax

Double Tax. Some people feel that they are being taxed on the double. They have worked hard and paid their taxes on their income and now that same taxed wealth, created through sweat will be taxed again! Not fair, they will say.

Stifles Entrepreneurship. Taxing wealth after death dampens ones enthusiasim for creating wealth. Wealth creation is a driver for the economy and job creation and job creation is the greatest tool to help people get out of poverty. Inheritance tax slows all of that down.

I have to sell my home. With the increase in values of the family home, a significant portion of value of the family home will exceed the Class A threshold, particular where family sizes are smaller. Thus, the tax is forcing people to sell their own home, which is bad in a society where home ownership is so coveted and we are in the middle of a housing crises and finding alternative accommodation is so difficult.

Low Impact. Inheritance tax brings little or nothing into the Exchequer (just 0.6 per cent of the total take in 2023) but it has an big personal impact, so why not relax it and make the changes. It won’t radically effect service delivery.

Summation

There are lots of other points made out in the press and media and it can be somewhat bewildering. In fact the same point is being used both for and against reform. Namely

We should value work.

“Why penalise a hard working person who through effort and graft has created wealth in their life.?”

Versus

“Why reward the child who hasn’t lifted a finger by landing them an asset for free at the cost of the State?”

You can’t win!

Regardless of where you stand on the debate, there is no doubt that a change to inheritance tax is coming in the Budget which will be wider than the usual changes of tinkering with reliefs.

I hope you have found this interesting and if you have any other probate, will drafting or inheritance tax queries, please reach out to me on the solicitor query service on our site here or email me at colm@theprobatehub.ie

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