This article originally appeared in the Business Post online: https://www.businesspost.ie/analysis-opinion/dave-obrien-reforming-inheritance-tax-is-no-longer-optional-but-essential/
The debate around inheritance tax in Ireland will intensify this year as the government sets out to publish long-awaited reforms. Revenue’s pursuit of almost €9 million in additional liabilities from non-compliance last year has intensified scrutiny at a time when rising property values, housing shortages and succession planning pressures are exposing weaknesses in the system. However, the real challenge for the government in Capital Acquisitions Tax goes far beyond enforcement; it needs reform.
Both Taoiseach Micheal Martin and Tánaiste Simon Harris have gone public in support of the need to change inheritance tax laws. So with reform seemingly on its way, what lessons should the government consider ahead of Budget 2027?
Capital Acquisitions Tax can no longer be viewed as a Revenue issue; it is a wider economic and social policy question. If reform comes, the question is not whether tax thresholds should rise, but more importantly, whether the government looks in the right places.
The thresholds
At present, a child can inherit up to €400,000 from a parent tax-free, with anything above that taxed at 33 per cent. In many parts of the country, particularly Dublin, the value of a family home can vastly exceed that threshold.
This creates imbalance. A single-child family inheriting a modest Dublin home may face a tax bill not because they inherited liquid wealth, but because property values have moved faster than the tax system. Likewise, people without children face much lower thresholds when passing assets to siblings, nieces, nephews or others close to them.
Accordingly, it is under pressure from groups including the End Discrimination in Inheritance Tax campaign, whose members claimed to have had a “productive” meeting with the Tánaiste on the issue last month.
But focusing reform solely on thresholds risks not solving the bigger issue, namely fixing a system that is not designed to support how wealth is transferred or how it could be used more productively.
Tackling housing
In 2019 speaking in the Seanad, former Minister James Reilly, called for tax breaks to encourage older homeowners to downsize. The small matter of a global pandemic months later kept this on the shelf and Mr Reilly’s suggestion garnered some opposition. He failed to win a seat in the 2020 general election.
But did he have a point? While younger families struggle to find suitable homes, many older homeowners lack a clear incentive to downsize.
Targeted reform could help both sides. For example, where parents downsize to a smaller property, consider allowing proceeds, or the family home in specific circumstances, to pass to children without triggering a severe tax outcome.
Such a measure would require safeguards, including owner occupation for a set period. But the policy objective would be clear: free up larger homes, support intergenerational transfers and reduce friction in the housing market.
The dwelling house exemption also deserves consideration. The current rules are too restrictive, particularly where a child has not lived with a parent for the required period before death. A more practical approach could allow a beneficiary to move into the family home within a defined period after the parent’s death and retain relief, subject to conditions.
A criticism of this government is that it lacks big and bold ambition to solve our challenges, but a strong and innovative intervention on downsizing might help to move the dial on housing.
Inspiration from elsewhere
Where Ireland could draw meaningful inspiration is the UK’s approach to lifetime gifting and inheritance tax. In their system, lifetime gifts can fall outside inheritance tax where the person making the gift survives for seven years. If they die within that period, inheritance tax may apply, with tapering relief in certain cases after three years. While the UK system isn’t perfect, our system taxes beneficiaries rather than Estates, and any reform would need to be designed carefully. But the principle merits examination.
A seven-year rule could encourage wealth transfer during a person’s lifetime rather than after death. That matters because significant Irish household savings are held by older generations, much of it on deposit. If a portion of that capital moved earlier to younger generations, it could help with house deposits, investment and business succession.
This is not about creating a tax break for the wealthy. It is about asking whether the current system encourages the right behaviour. At present, families can be incentivised to hold assets until death. In a housing crisis, that is not necessarily good policy.
Protecting what works
Reform must be productive and not dismantle systems that already work.
Business relief and agricultural relief are sometimes criticised as unfair. But they exist for a reason. Many family businesses and farms are asset-rich but cash-poor. Without relief, successors may be forced to sell simply to pay tax. That would damage employment and the continuity of Irish enterprise.
Family businesses and farms are the backbone of local economies, often with asset values that bear little relationship to available cashflow. Reform should not weaken these reliefs; it should preserve them.
Turning noise to action
Inheritance tax reform has the potential to go far beyond simple tax policy. Reform could ease housing pressure, encourage investment, and protect family businesses and farms, central to the Irish economy. Policymakers should seriously consider broader reforms that reflect the challenges facing modern Ireland. This government has been criticised for a lack of big ideas. Inheritance tax is an area where it can afford to think outside the box.
