Tuesday, 27 April 1999
Dáil Éireann Debate
151. Mrs. Owen asked the Minister for Finance the amount a child can inherit from a parent before capital acquisition tax is payable; if his attention has been drawn to the fact that the amount has not kept pace with the increases in value of houses which a child might inherit and there are instances where children have to sell the family home in order to pay the tax; and if he will make a statement on whether he proposes to raise the limit. [10974/99]
Minister for Finance (Mr. McCreevy): A child can inherit up to £192,900 from his-her parents free of capital acquisitions tax – CAT. This exempt amount is described as the Class I threshold. Smaller thresholds apply to gifts or inheritances received from other close relatives – class II – £25,720 – and from others not covered by the above two thresholds – class III – £12,860. Only the value of benefits received in excess of the relevant threshold gives rise to a charge to CAT. Transfers between spouses do not give rise to CAT. Since 1990 these thresholds have been indexed annually by reference to the consumer price index.
Where the beneficiary has received previous gifts or inheritances since 2 December 1988, the value of these benefits is added to the value of the current benefit when determining the CAT liability. This process is known as aggregation. The rate of CAT on inheritances is nil up to the appropriate threshold rate, 20 per cent on the next £10,000, 30 per cent on the next £30,000 and 40 per cent on the balance. CAT on gifts is charged at three-quarters of the rate on inheritance.
In order to accommodate concerns about large inheritances of property taken by children on the death of their parents, the class I threshold would have to be significantly increased. Apart from the significant Exchequer costs involved by greatly increasing the amount of wealth which could be passed free of tax, there is also the question of tax equity to be considered. Significantly increasing the class I threshold would benefit only those who receive substantial inheritances from their parents in one form or another. The yield from inheritance tax was £75 million for 1998. This revenue greatly assists the Government's programme and helps achieve the on-going goal of reducing the tax take on employment incomes.
Nonetheless, I undertook on the passage of the recent Finance Bill, to examine the CAT code for the next budget. Any changes in the CAT area are costly and, for this reason, must be looked at in a budgetary context when choices have to be  made on which elements of the tax system to address.
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