Emer Higgins (Dublin Mid West, Fine Gael)

I thank the Deputy for raising this matter in the House today. As he is aware, capital acquisitions tax is a tax on inheritances or gifts on an amount over a particular tax-free threshold. It is a beneficiary-orientated tax, which means it is payable by the recipient of the gift or inheritance as opposed to the person providing that gift or inheritance. Capital acquisitions tax, CAT, plays an important role in ensuring we maintain a broad tax base and it raised €854 million last year. For CAT purposes, the relationship between the person giving a gift or inheritance, the disponer, and the person who receives it, the beneficiary, determines the maximum amount, known as the group threshold, below which CAT does not arise. The Finance Act 2024 increased each threshold and the estimated cost was €88 million annually.

The group A threshold, which is currently €400,000, applies where the beneficiary is a child of the disponer. For clarity, it is useful to note that the definition of children for CAT purposes includes any stepchildren, adopted children or certain foster children. Any of those can avail of the group A threshold in respect of gifts or inheritances received from that disponer. The group B threshold, which is currently €40,000, applies where the beneficiary is a brother, sister, nephew, niece or lineal ancestor or lineal descendant, such as a grandchild, of the disponer. The group C threshold, which is currently €20,000, applies in all other cases. Where a person receives gifts or inheritances that are in excess of the relevant tax-free threshold, capital acquisitions tax at a rate of 33% applies on the excess benefit.

In the past year, there has been a focus brought to the group B threshold and access by disponers who are single or childless to their beneficiaries benefiting from the group A threshold. Ireland is not unique in providing a distinction in relation to how children are treated for inheritance tax purposes compared with nephews, nieces and siblings. There are a number of exemptions and reliefs from this tax that may apply, depending on the circumstances of the case, some of which do not require that any specific family relationship applies. One such exemption is the dwelling house exemption. Where a person takes an inheritance of a dwelling house, that person may be able to avail of the dwelling house exemption. I know the Deputy cited that in one of the examples from one of his constituents. To quality for the exemption, the inherited property must have been the disponer’s principal private residence at the date of his or her death. The beneficiary must also have lived in the house for three years prior to the date of the inheritance and must continue to live in the house for six years after that date. In addition, the beneficiary must not have a beneficial interest in any other residential property. Detailed guidance on the dwelling house exemption is published on the Revenue website.

In addition, nieces or nephews of that disponer may qualify for favourite niece or favourite nephew relief in respect of gifts or inheritances of business assets. The relief allows a niece or nephew who qualifies for the relief to avail of the group A threshold. Qualifying nieces or nephews are those who have worked substantially on a full-time basis for a period of five years prior to the gift or inheritance being given in carrying on, or assisting in the carrying on, of a trade, business or profession. A number of other exemptions and reliefs are available, including the small gift exemption and agricultural and business relief.

In conclusion, I note that the existing CAT regime, as with all legislation, was created with the benefit of advice from the Attorney General. As a result of this, all legislation in this situation enjoys the presumption of constitutionality unless the courts find otherwise. The Minister assures me that he is not of the view that the current CAT regime is unconstitutional.

See this speech in context