Ireland has one of the most severe inheritance tax regimes in the western world, according to key US economic think tank.
The rate that the tax is imposed at is the seventh highest in the countries that are members of the Organisation for Economic Co-operation and Development (OECD)
And the tax kicks in here at a much lower value than in other western countries.
The emergence of a report by a US think tank puts huge pressure on Finance Minister Michael Noonan to fulfil a promise to examine the issues surrounding the inheritance tax trap, which is forcing many people to sell their parents’ homes to settle their tax bills with the Revenue Commissioners.
In the US there is no tax due on the first $5.4m (€4.86m) of an inheritance, with the annual gift exclusion around €12,500.
The report by the US Tax Foundation think tank, uses OECD figures and shows that the inheritance tax regime is much more liberal in most other western countries compared with Ireland.
In Britain, the exemption from the tax is set at £325,000 (€444,816). In Germany, the exemption on inheritances is €380,000, the OECD says.
Financial expert Karl Deeter, who uncovered the Tax Foundation report, said: “What the report shows is that, compared to the UK, a person here would pay far more if they inherited €500,000.”
In Ireland the tax, called capital acquisitions tax (CAT), is imposed at a rate of 33pc on amounts over €225,000 for a son or daughter. The rate has soared from 20pc back in 2008, and the tax-free threshold has been cut in half.
Thousands of families here are being unexpectedly hit with huge inheritance tax bills this year, as rising property prices push them over exemption limits.
Smaller families, where there are fewer people sharing in the inheritance of a property, end up being hit hard by enormous inheritance bills in this country.
The reduction in the tax-free thresholds has resulted in even modest properties – particularly in Dublin, where house prices are higher – being hit with big tax bills when transferred from parents to offspring.
According to the report, inheritance taxes are a bad idea, as they restrict jobs growth and harm an economy.
“Many countries have recognised that estate and inheritance taxes are a poor source of revenue and eliminated these taxes altogether,” the report, entitled ‘Estate and Inheritance Taxes around the World’ and published in March this year, states.
Thirteen countries have repealed inheritance taxes, including Portugal, Sweden, Russia, Hong Kong, Austria and Norway.
Mr Deeter added: “Inheritance tax has been an opportunistic ‘grab’ by government because it targets those for whom we have the least empathy – namely, people who might inherit a sum above €225,000.”
He said the assets being transferred have normally already been taxed in the past.
It was overlooked that the economic benefit transferred to ensuing generations is often better invested by the people involved than by being given to the State, Mr Deeter said.
Meanwhile, a spokeswoman for the Revenue Commissioners confirmed that it charges 8pc a year if families cannot pay the tax in one lump sum and want to pay by instalments.
Fianna Fáil’s Michael McGrath called for a lower interest rate to apply to those paying by instalment.
Article Source: http://tinyurl.com/kbwqb42
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