Inheritance tax, officially known as Capital Acquisitions Tax (CAT) in Ireland, is a levy on gifts and inheritances. The standard rate for this tax is currently 33%. While the tax is designed to generate revenue for the state, it has been a subject of debate, with many arguing that it is an unjustified burden on beneficiaries.
How Inheritance Tax Works
Inheritance tax applies to the transfer of assets upon the death of an individual. The amount of tax payable depends on the value of the inherited property and the relationship between the benefactor and the beneficiary. There are three categories of relationships, each with different tax-free thresholds2:
- Group A: Children (including adopted and stepchildren) can inherit up to €335,000 tax-free.
- Group B: Siblings, nieces, nephews, and other close relatives can inherit up to €32,500 tax-free.
- Group C: All other relationships can inherit up to €16,250 tax-free.
Any amount above these thresholds is taxed at the standard rate of 33%.
The Argument Against Inheritance Tax
Critics of inheritance tax argue that it is fundamentally unjust for several reasons:
- Double Taxation: The assets being inherited were often acquired using income that was already subject to income tax. This means that the same wealth is being taxed twice—once when it is earned and again when it is transferred to heirs.
- Penalising Savings and Investment: Inheritance tax can be seen as a penalty on those who have saved and invested their money wisely. It discourages long-term financial planning and can lead to the forced sale of family homes or businesses to pay the tax bill.
- Economic Impact: High inheritance taxes can have a negative impact on the economy by reducing the capital available for investment. This can stifle entrepreneurship and economic growth, as potential business owners may be less inclined to invest in new ventures if they know a significant portion of their estate will be taxed upon their death.
- Fairness and Equity: The tax is often viewed as unfair because it disproportionately affects middle-class families who may not have the resources to employ sophisticated tax planning strategies. Wealthier individuals can often find ways to minimise their tax liability through trusts and other legal mechanisms.
Conclusion
While inheritance tax is intended to redistribute wealth and generate revenue for public services, its implementation raises significant concerns about fairness and economic impact. The argument that it constitutes double taxation is particularly compelling, as it highlights the inherent injustice of taxing the same assets multiple times. As such, many believe that inheritance tax in its current form is an unjustified burden on beneficiaries and should be reformed to better align with principles of fairness and economic efficiency.