Inheritance tax overhaul for people who don't have children would cost State hundreds of millions

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DEPARTMENT OF FINANCE officials have warned that proposals to overhaul inheritance tax rules for people without children would come at a “significant” cost to the Exchequer and leave far fewer people liable to pay the tax.

The warning is contained in the Tax Strategy Group papers published on Thursday, which set out a range of policy options under consideration ahead of Budget 2027.

Inheritance tax, formally known as Capital Acquisitions Tax (CAT), emerged as a key issue in recent months ahead of the budget, with both Fianna Fáil and Fine Gael pledging to review the current system.

In particular, both coalition parties have signalled they want to address concerns raised by people without children, who currently face lower tax-free thresholds when leaving an inheritance to nieces, nephews or other relatives than parents do when passing assets to their children.

One proposal examined by officials would replace the existing system of different tax-free thresholds with a single lifetime threshold of €460,000.

Under the current system, children can inherit up to €400,000 tax-free, while siblings, nieces and nephews fall under a €40,000 threshold. All other beneficiaries are subject to a €20,000 threshold before inheritance tax applies.

The Department said introducing a single lifetime threshold of €460,000 “would have significant costs associated with it as far fewer people would be subject to CAT as a result”.

Officials also warned that consideration would need to be given to how such a proposal would interact with the Constitution, and the Succession Act.

Revenue estimated that increasing the Group B threshold (which applies to siblings, nieces, nephews and certain other relatives) and the Group C threshold (which applies to all other beneficiaries) to €460,000 would cost the State around €537 million.

The papers also revisit a proposal examined last year to effectively give nieces and nephews the same €400,000 threshold currently available to children.

Officials noted that Revenue has updated its estimate for that measure, saying increasing just the Group B threshold to €400,000 would now cost around €349 million, up from an earlier estimate of €305 million.

The issue has become increasingly prominent in recent weeks.

Last month, Taoiseach Micheál Martin said he was “very conscious” of the position of people without children who have “worked hard all their lives” and want to leave an inheritance to nieces, nephews or other family members.

Both Fianna Fáil and Fine Gael included commitments in their election manifestos to review inheritance tax thresholds, with the government expected to consider potential changes as part of Budget 2027 negotiations.

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