Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

This is an important discussion. There is a degree of uncertainty as to how this provision will be interpreted. What is the position where, in a situation of relationship or marital breakdown a spouse, civil partner or cohabiting partner succeeds in getting a lump sum payment order from the courts to facilitate paying for educational and support expenses for a child over 18 years of age, and that lump sum order is of a substantial amount - it may be intended to pay university fees over a four to six year period, and include postgraduate or doctorate fees? In the context of this provision could that have unintended tax consequences? Could it be taken into account for the purpose of capital acquisitions tax at a time when the court making the order did not intend that would be the case?

I have a great deal of sympathy with some of the problems raised in this area and Deputy Michael McGrath might find it odd to discover that we have one concern in common although the increase in the thresholds occurred during the lifetime of the previous Government. As someone who was a member of the current Government for three years I know the increase in capital acquisitions tax in these areas, in the thresholds and the rates was part and parcel of very difficult action that had to be taken at a time when the State was teetering on the edge of bankruptcy.

Funding had to be identified and obtained from different sources to meet the day-to-day expenditure of the State and to assist in the balancing of the books. The change in the thresholds appeared to be reasonable a couple of years ago, when residential property prices had crashed and were still in enormous difficulty. I will give a practical example. Residential property prices and values in the city and county of Dublin had decreased by 50%. I believe these thresholds are no longer appropriate in the context of where the residential housing market is today and where it is anticipated it is likely to go over the next couple of years. It is of crucial importance for this area to be revisited in the next budget. It is also crucial that Fine Gael is not constrained by the Labour Party into prescribing penal rates of capital acquisitions tax in return for a deal on some other aspect of the budget.

It is important and in the public interest to highlight where we now stand. I am particularly concerned with the position of the children - sons and daughters - of deceased parents. As Deputy Creighton rightly pointed out, the 33% rate of inheritance tax kicks in from a threshold of €225,000, regardless of whether it is inheritance simpliciteror a mixture of inheritance and gifts. The 2014 threshold of €225,000 is actually more penal than the threshold that applied in 1995, when the threshold before inheritance tax arose was €226,267. Given that the value of money has substantially changed in the intervening 20 years, it is clear that we are now providing for inheritance tax to be applied at a substantially lower level. That comparator is very stark. In 1995, one could inherit €226,000 worth of property or assets in any part of the country without having any tax liability. In 2014, one can inherit €225,000 worth of property without liability. I have not done a computation to assess what the monetary value of €226,000, as it was in 1995, would be in today's terms. I suspect that if I took a reasonable stab at it, I would find it is not less than €325,000. We now have what I would describe as a penal threshold for the payment of inheritance tax.

In the period between 1 December 1999 and 19 November 2008, inclusive, the rate of inheritance tax was 20%. We had a lower threshold and a less penal rate at that time. The rate was increased to 25% during the lifetime of the previous Government and it is now 33% as a result of a decision taken during the lifetime of this Government. I believe sons and daughters should be allowed to inherit a reasonable amount of property from their parents, who have lawfully and properly acquired assets, paid taxes and met their financial and personal obligations, without having to incur penal tax rates. In a sense, inheritance tax is a little like the robber baron coming back for a second time. Even though taxes relating to the acquisition of property and taxes on the acquisition of income were previously paid by the deceased, the State dips into the pockets of the deceased again to secure for the benefit of the State and to meet State expenditure a portion of properties and assets lawfully acquired by the deceased.

Most countries in the EU and across the world have some level of inheritance tax. In principle, I think it is defendable, but not when it reaches expropriation levels. My concern is that the legitimate issues which are being raised here would be of less importance if the threshold was higher and the rates were not as penal. The real problem here is that in years to come, when parents pass on, the primary inheriting generation is likely to be the generation that has lived through the economic and financial collapse. Many people in that generation are currently over-burdened with borrowings and in negative equity. We should not apply a penal inheritance tax threshold and rate to the same people all over again. The problem that is being raised with regard to the technical drafting of this section of the Finance Act and the uncertainty about how it might be applied is hugely exacerbated by the threshold being too low and the level of payment being so high.

I will explain why the threshold is now inappropriate. One of today's newspapers - I am speaking from recollection, as I do not have it in front of me - reported that property prices in the Dublin and County Dublin area have increased by between 16% and 18% over a 12-month period. We are now in a space where we expect property prices to continue to increase for a time. The blindingly obvious reason for that relates to the type of property collapse that was experienced by this State. Traditionally, property falls to at least 20% below what should be its real value. In this case, it had climbed to substantially above its real value during the property bubble. When the State's finances stabilised, as has now happened, there was always going to be a bounce, as opposed to a second bubble. The effect of the recent bounce means that the current threshold is dramatically out of sync. I do not think Members of this House, particularly those who represent urban areas, will disagree with that. I know property prices in rural areas are recovering at a slower rate, not as dramatically as in the cities and certainly not as dramatically as in Dublin.

I do not believe a son or a daughter who inherits a property in the city or county of Dublin now - a house, an apartment or a bungalow or whatever other residential form it comes in - will be regarded as inheriting something of great luxurious value if its current value is €225,000. There are apartments in this State that one might have been able to buy for less than €200,000 four years ago, but that one could not buy for less than €300,000 now. There has been a substantial and dramatic change. If we do not want to unduly burden individuals who lawfully inherit property on which tax has already been paid, we need to substantially increase the thresholds. I think that is the first issue. I hope the thresholds will be increased to a minimum of €300,000 in the next budget. Ultimately, we will need to consider reducing the 33% rate that has to be paid when one exceeds the inheritance threshold of €225,000. I suggest that the retention of the current rate will force young married couples who inherit property to sell their property to generate the payment that needs to be made or to raise borrowings unnecessarily and thereby burden themselves with the repayments that arise in circumstances in which, in the past, no such repayment would have arisen.

Finally, I think it would be instructive when comparing the positions in 1995 and 2014 to look at where we were in 2009. In 2009, a son or daughter could inherit property to the value of €542,544 without any inheritance tax liability arising at all. That was the threshold. I can understand why some Members of this House might argue that such a threshold for inheritance tax liability was somewhat high.

Unfortunately, I can recollect how, at the time of the property bubble, that threshold in Dublin would have got one a fairly modest semi-detached home for a family with a relatively small garden. That is where we were at that time. I am not necessarily advocating that the threshold should come up to €544,000, but it is an extraordinarily dramatic difference between having had no inheritance or, indeed, gift tax liability until one acquired from one's parent an asset the value of which exceeded €544,000 and, when one had to pay tax, it was at a rate of 20%, and being in a position where, if one inherits assets to a value in excess of €225,000, one now pays tax at a rate of 33%. This is a serious issue that requires addressing. I appreciate it was not possible to address it in the current budget. It is very important that this issue be revisited and addressed next autumn. In the intervening period, it is important that the issues the Deputies opposite have raised about the application of these particular sections in this year's Finance Bill be clarified.

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