Lucinda Creighton (Dublin South East, Independent)
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I thank the Minister of State for taking this debate. Since 2009, the applicable rate of taxation on inheritance has increased from 20% to 33%, while the threshold above which this rate has applied has dropped from €542,544 to €225,000. Although reductions in the threshold were understandable in the climate of falling asset prices and falling property prices which followed the financial crash, the situation is now radically different. The threshold above which bereaved children are forced to pay tax on their inheritance is at its lowest level in Ireland since 1995. Many family homes, particularly in Dublin, have risen substantially in value over recent years. Irish property prices are rising at 15 times the average European rate. A consequence of these rises is that a family now faces the prospect of liquidating the family home on the death of an elderly parent to meet the inheritance tax liability owed to the Revenue Commissioners. Had Fianna Fáil not abolished the previous practice of index-linking the inheritance tax threshold to inflation, the effect of rising property prices might have been mitigated to some extent.

To put the Irish situation in context, a recent study undertaken by the Tax Foundation in the US found that Ireland had the seventh highest rate of inheritance tax in the OECD. The global average is estimated at just 7.7%, in contrast with our 33%, while many countries, including developed, modern, Western economies such as New Zealand and Australia, have no inheritance tax whatsoever. It is important to dispel the notion pedalled by the Government that inheritance tax affects only the super-wealthy. It is untrue. A threshold as low as €225,000 means the majority of properties in the greater Dublin region face a significant inheritance tax liability upon the gift of that property by a deceased family member. Since 2010, the number of cases in which inheritance tax is applied has increased by over one third.

Inheritance tax penalises those who have prudently saved their already-taxed income over their working lifetimes. It is a double taxation. It is worth bearing in mind the following statement by Deputy Alan Shatter in 2005:

Inheritance tax achieves no beneficial social objective. Essentially, it is a mechanism to facilitate the State to rob the graves of the dead and cruelly deprive bereaved relations of assets to which they are entitled.

While I acknowledge that the fiscal situation in which the State finds itself necessitates some form of taxation on large inheritances, our punitive regime serves to widen further the growing divide between urban and rural taxpayers. Both the inheritance tax and the deeply unfair property tax are driven primarily by the value of residential property, which is growing much more quickly in cities than in rural Ireland. The Government has done nothing to address the unfair tax bill faced by middle-income families in Ireland's cities. To make matters worse, the people who will suffer most from the harshness of our inheritance tax are a generation of people who have already suffered through the most austere and substantial economic cutbacks brought about by the collapse of the Irish economy.

The Opposition parties have abjectly failed to recognise or understand the drastic scale of the inheritance tax issue. Fianna Fáil has taken no meaningful stance on inheritance tax and refused to support my proposed amendment to the Finance Bill last autumn. Sinn Féin’s proposal to increase the rate of inheritance tax from 33% to an extraordinary 40% is further evidence of its ideological agenda to disincentivise enterprise and work and punish those who want to contribute to Ireland's economic prosperity. My party, Renua, is the only party that has consistently fought to alleviate the inheritance tax burden for working families.

Simon Harris (Wicklow, Fine Gael)
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I thank the Deputy for raising the matter. I apologise that the Minister for Finance, Deputy Noonan, cannot be here, as he is still in Brussels. However, I am very pleased to be here. I do not believe capital acquisitions tax, CAT, is a tax only on the super-wealthy. It has an impact on many normal families in terms of the inheritance of family homes. CAT applies to the beneficiary of a gift or inheritance rather than to the person making the gift or inheritance. While the rate of CAT is 33%, each person has a number of lifetime thresholds for gifts and inheritances which they can receive tax-free. These are based on the relationship with the person who has made the gift or bequest. The group A threshold of €225,000 applies primarily in cases in which an asset passes from a parent to a child. The group B threshold of €30,150 applies primarily to transfers between other close relatives. The group C threshold of €15,075 applies between more distant relations and people who are not related.

The 33% rate of CAT applies to assets received by a person above the relevant threshold. Gifts and inheritances between spouses and civil partners are exempt from CAT. Over recent years, the CAT thresholds have been reduced a number of times, while the rate has been increased. These changes were necessary in order to maintain the yield from capital taxes in a period of falling asset prices so that such taxes would continue to make a contribution to our efforts to consolidate the public finances. I welcome the fact that the Deputy has recognised this point. Moreover, the view of the OECD, supported by our own economic research, is that taxes on immovable property and certain other capital are less harmful and distortionary to economic growth than taxes on work or consumption.

As the economic recovery continues to take hold, the Minister for Finance began, in this year's budget, to focus available resources on reducing the burden of taxation on earned income and take-home pay where high taxes impact on competitiveness, economic growth and job creation. The Minister has indicated that this will continue to be his main focus. That said, the Minister recognises that recent growth in property values has implications for the liabilities that can arise from CAT. It is for this reason that he has already indicated to the House that he is reviewing the various aspects of this tax in the context of his preparations for the 2016 budget and the subsequent Finance Bill. While the Minister is not in a position to say at this point what specific changes he may or may not propose, he will be glad to take note of the views of the Deputy on this issue in the context of his review of the tax.

I have some comments to make on issues that have been raised in this area. When considering the inheritance of a family home, for example, it is worth noting the existence of the CAT dwelling house exemption, which allows for a property to be inherited tax free when the inheritor is already living in the home. While certain restrictions apply to ensure proper use, this exemption is designed to prevent cases of hardship or displacement for inheritors who are home sharers. In cases where the dwelling house exemption applies, the tax-free thresholds are unaffected and continue to apply separately and are available to an individual to cover the value of other gifts or inheritances which he or she may benefit from over his or her lifetime. The tax-free thresholds were previously indexed to inflation through the consumer price index. This link was ended following the financial crash, given that inflation was positive while property values were declining considerably. Fixed property makes up a large proportion of gifts and inheritances, especially inheritances.

The Minister will examine the question of whether it might be appropriate to index the thresholds in the future. A number of issues must be considered, including, for example, the availability of an appropriate index and the current functioning of the property market generally. Concerns have been expressed about the hardship that may be caused by the scale of CAT liabilities in certain circumstances. When a person who receives a gift or inheritance is not in a position to pay the CAT charge arising in one go, it may be possible, in certain circumstances, to arrange to pay the tax by instalments.

I will run out of time. In general, we take the Deputy's point. The Minister is considering the tax in the context of the forthcoming budget and will take the Deputy's views on board.

Lucinda Creighton (Dublin South East, Independent)
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I thank the Minister of State. I appreciate that he ran out of time, as did I. The threshold must be substantially raised in order to end discrimination against urban dwellers, particularly Dublin dwellers. The rate of 33% is astronomically high. Although the average across the OECD is 7.7%, our Government, probably for ideological reasons, believes a 33% rate is acceptable. It is not acceptable. To pit income tax rates against inheritance tax rates is comparing apples and oranges.

They serve entirely different functions. To suggest the existence of the tax free allowance for an individual who happens to live in the family home and inherits it is unfair. A large number of elderly people live in my area. People from my area and from around the country have contacted me about this issue and they have almost wondered should they move their sons or daughters into their family home in order to avoid the tax liability. That is a dreadful pressure to put on families. It is not right.

The reality is that a huge number of families are living in negative equity. They may own apartments and may have moved to rental properties because they cannot raise their families in the apartments they bought during the Celtic tiger era. They are trapped in homes they are renting and cannot afford to move out of them. One of the solutions for many families is to inherit the family home but now they are subjected to this enormous tax liability, which makes it impossible for many of those young families, who have already been drastically hit by the downturn, to move into or to take over the family home on the death of a loved one. That is grotesquely unfair for families who are working hard, for deceased parents who wanted to pass on their family home to their children, and for those children, many of whom are trapped in negative equity and are being punished further by the Government with the imposition of this tax rate.

Specifically, the rate needs to be reduced at least back down to the 20%. Clearly, the thresholds urgently need to be raised. There urgently needs to be a relinking with the consumer price index. I am glad the Minister is considering that but he needs to go much further than that. The proposal in regard to instalment payments to Revenue is preposterous. The idea that people will have a noose around their necks because they have inherited their family home is not conscionable. I urge the Minister of State not to go down that road. This is about reducing the liability, not hanging it as a noose around families' necks long into the future. They already have enough debt, stress and challenges in life without hanging that further noose around their necks. I urge the Minister of State to ensure the Minister, Deputy Noonan, does not go down that road.

Simon Harris (Wicklow, Fine Gael)
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I thank Deputy Creighton for raising this matter. I want to assure her there is nothing ideological about this from the Government's perspective, as she has suggested. The Government has to make choices in regard to how it brings in income to run the State and provide vital services. I was not suggesting that income tax and capital acquisitions tax were the same. I was merely suggesting that when the Government has to form budgets, it has to make choices. The Minister has placed the emphasis in regard to tax reductions on work and on reducing tax on work. That makes a good deal of sense for a range of reasons, including competitiveness. However, the Minister has recognised, as I stated in my reply, that the recent growth in property values, particularly in Dublin and the greater Dublin area, as the Deputy said, has implications for liabilities that can arise for families. The Deputy said she thought some people in this Government think this is a tax that only impacts on the wealthy or the super wealthy. I can assure her that is not the case. That is certainly not the reality. This is a tax that impacts on many normal families.

With respect to the issue of the dweller, I was merely trying to reassure people because this issue has been the subject of significant debate and media attention. I meet many people in my constituency office who may be caring for a person with a disability and their child may be living at home and I have reassured them if the person is living in the home they are not liable for the tax.

The Minister is examining this tax. He will review it in advance of budget 2016. He has asked me to assure the Deputy that he will take her views on board in the context of this debate, and he will make his announcement and decision in the context of the budget.