YOUR INHERITANCE

The Budget increased the value of gifts or inheritances which children can get tax-free from their parents over their lifetime by €15,000 — to €335,000. “While this increase is welcome, it does not go far enough to ease the tax burden for children inheriting assets from their parents,” said Deloitte’s Alison McHugh.

The average asking price for a home in Dublin is €376,000, according to the latest house price report from the property website myhome.ie. Furthermore, the asking price for above-average properties in Dublin — and indeed some other parts of the country — is often much higher than €376,000. So as €335,000 is the maximum that a child can inherit tax-free from his parents, many children will still face a tax bill when they inherit the family home.

Changes in inheritance tax rules since 2009 have substantially increased the tax bills which children and others face when they inherit something — and Budget 2020 hasn’t done much to reverse that.

In early 2009, a child could inherit up to €542,544 tax-free from his parents over his lifetime — compared with €335,000 today. The rate of inheritance tax charged in early 2009 was 22pc — today, the rate charged is 33pc. “In January 2009, a child who inherited a property from their parents worth €550,000 would pay little over €1,500 in inheritance tax; today that same child would have an inheritance tax liability of over €70,000,” said McHugh.

“It is disappointing that the 33pc inheritance tax rate has not been reduced to bring it closer to the 20pc rate applying up until November 2008.”

Budget 2020 has not done anything to make it easier for brothers, sisters, nephews and nieces to inherit a valuable asset — without being left with a crippling inheritance tax bill which could force them to sell that asset.

Last Tuesday’s Budget did not increase the amount which can be inherited tax-free by such relatives. The most that a brother, sister, nephew or niece can inherit taxfree is €32,500; the most that any other individual (such as a relative-in-law or friend) can inherit tax-free is €16,250.

It’s been almost nine years since the tax-free thresholds (which determine the amount which can be inherited taxfree) were changed for brothers, sisters, nephews or nieces, and relatives-in-law.

The current thresholds often make it impossible for such relatives to inherit an old family home or other property — without having to sell it for the purpose of settling an inheritance tax bill.

So anyone who plans to leave an inheritance to a relative (whether it be a child or another relative), relative-inlaw or friend needs to be very careful about doing so — to avoid triggering a major tax bill for the disponee. A will should be made to help ensure an estate is distributed as tax-efficiently as possible. It may also be worth buying a life insurance policy to cover future inheritance tax bills.