Mick Clifford: Fine Gael doing its best to stand up for unfortunate rich people over inheritance tax

Regardless of sentimental value, family homes are not heirlooms but assets that can be leveraged to create more wealth, and should be taxed accordingly

The principal means of inheritance is the family home.  Uniquely in the developed world, there is a considerable political consensus in this country that the property owned within a family is not an asset but some form of heirloom. A little perspective is required here. File photo

Fine Gael was out batting for the unfortunate rich people again this week. 

The Taoiseach Simon Harris was asked about lowering the threshold above which inheritance tax must be paid. Currently, one can inherit €335,000 from a parent before any tax is payable. Some in Fine Gael believe this is “unfair”.

Junior minister Neale Richmond wrote a piece a few weeks ago, stating that “no parent should fear leaving their home to their loved one because of a tax.” Who exactly was Minister Richmond referencing? 

Are there people out there with large homes who actually “fear” willing their offspring the property?

Asked about this on Tuesday, the Taoiseach said there was unfairness in the system which had “a real impact on a son or a daughter or a nephew or niece trying to move into the family home and at a time when we’re trying to come up with a whole variety of housing solutions”. 

The Taoiseach has been displaying his communications skills with aplomb since taking office earlier this year but here he is, to the greatest extent, spinning madly to infer that hard cases do not make bad law. To be fair to him and his party, they are not alone. 

Right across the political spectrum, with the exception of the three small left-wing parties — Labour, the Social Democrats, and the Greens — this is an issue where politicians are determined to protect the wealthiest in society at all costs.

Analysis by ESRI economist Barra Roantree recently shows exactly who is impacted — or, as some would have it, who suffers — in the current inheritance tax regime.

One third of households report receiving a large inheritance.  This, to the greatest extent, is the top one third on the socio-economic ladder. 

Of that cohort, the median amount received per individual is €100,000, a long way short of the €335,000 threshold at which tax is accruable. A tiny number of households — around 3% — receive an inheritance that exceeds €335,000. 

For an inheritance in excess of that threshold a tax of 33% is due. Good luck to anybody among the very small number of privileged people who inherit such a huge windfall, usually in middle age. 

But the idea that no tax should accrue on this unearned wealth is surely exotic at a time when there is growing inequality in society, particularly between the generations.

The principal means of inheritance is the family home.  Uniquely in the developed world, there is a considerable political consensus in this country that the property owned within a family is not an asset but some form of heirloom, maybe like an All-Ireland medal passed down through generations.

A little perspective is required here. 

Asset

Firstly, the home is an asset. It is an asset when homeowners object to a new development in their area on the basis it will devalue their homes. It is an asset when its market value increases at a crazy rate, particularly during a housing crisis as young people are priced out of buying a home. 

It is an asset when it can be used to leverage loans for lifestyle or investment purposes. It is also an asset that is owned by 66% of households, which roughly equates with the top two-thirds cohort on the socio-economic ladder.

Unlike in other developed countries, or even organized societies going back to the Greeks, it is an asset in this country that attracts a relatively small amount of property tax. 

Hence we have political entities that claim allegiance to Karl Marx or James Connolly who believe that property should not be taxed if the term “family” is affixed to it. 

We have the likes of People Before Profit who waffle about “trophy homes”, yet are adamant that very little tax should accrue on ownership of such alleged trophies.

We have of late the far-right weighing in on this. 

At the recent local elections, Gavin Pepper, a far-right candidate for the Ballymun-Finglas area, railed against what he said were plans to lower the threshold for inheritance tax. His constituency is among the most disadvantaged in the state where, for the greater part, the prospect of inheriting hundreds of thousands of euros is from another planet.

Emotion around this subject frequently trumps reason. During a discussion on the issue on RTE’s Lifeline on Wednesday, a woman told Joe Duffy that her mother had worked hard to pay for a home in which to rear her eight children. 

Well, that home would have to be worth in excess of €2.6m if left to the siblings before it attracted any tax. She also said she should be allowed to leave €50k-€60k to her own children if she so desired without worrying about tax. 

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She can leave nearly six times that amount before Revenue comes calling. 

For a family of three offspring, their deceased parents' home would have to be worth more than €1m before attracting a cent in tax.

Certainly, there are anomalies, like the tax bill facing a single adult child, most likely in middle age, who does not own their own home but inherits their parents’ abode. 

How many such cases are there and should a fair and reasonable system be built around this tiny number of citizens who, whatever way one looks at it, are financially privileged compared to the vast majority in society?

Commission on Taxation

The bad news is that if political common sense pertains the threshold for inheritance tax will decrease rather than increase. 

The Commission on Taxation has pointed out that an increase in tax take is required in coming years to alleviate the negative impact of changing demographics and climate change. These taxes, the commission recommends, should come from property and inheritance. 

Over time it suggests that thresholds for adult children should be closer to the amounts for other relatives such as nieces and nephews which is €32,500. 

The commission, by the way, was not peopled by raging socialists but a group drawn from across society asked to look at fair and common sense means of addressing future challenges in the interests of society as a whole.

The commission’s recommendation will not be acted on, certainly at least not until things get really bad and there is no other choice. But it should give pause for thought. 

Nobody likes paying taxes. As a result, some who are affected by a particular tax regime will invent all sorts of scenarios to present themselves not as contributing to a progressive society but as victims of unfairness. 

The political culture in this country means that those who shout the loudest, and are often rooted in society’s power centres, tend to get their way. 

And ultimately, when any proper sense of fairness is jettisoned for expediency it is those at the bottom of the ladder, those least able to bear the burden, who really get it in the neck.