Imelda Goldsboro (Fianna Fail)
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I welcome the Minister of State, Deputy Dillon.

Sharon Keogan (Independent)
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I thank the Minister of State for coming in here this morning. I rise to address a matter of significant concern for many of our constituents: current capital acquisition tax thresholds and their potentially discriminatory impact on childless adults and non-nuclear families.

The capital acquisition tax, CAT, threshold determines the amount of inheritance or gift that can be received tax-free based on the relationship of the disponer, that is, the giver of the inheritance or gift, to the recipient. As of the last budget, the categories were reformed as follows: €400,000 can be inherited tax-free by children, who are category A; €40,000 can be given to siblings, nieces, nephews and linear descendants, who are category B; and it is €25,000 for all other cases, category C. Ignoring the last category for a moment, let us focus on the sheer disparity between the first two categories. The tax-free allowance for category B is one tenth of that for category A. To put it in more concrete terms, if I gift or will a house worth €300,000 to my son, he will pay no tax on that, whereas if I willed it to a grandchild, they would have to pay €82,500. These thresholds create a hierarchy that favours parents over childless adults and grandparents, who cannot pass on the same value of assets tax-free to their loved ones. This issue has been brought to my attention by constituents who feel the system is discriminatory and unfair.

I will share the story of a constituent who inherited his parents' house and paid €165,000 in inheritance tax. This constituent, who is single and childless, now wishes to pass on the house to his nephews or nieces but faces the possibility that they will be unable to afford to inherit it due to the tax burden they would face. If he had children, there would be no inheritance tax due, which highlights a truly unacceptable disparity and unfairness in our system. In another case, a young man and his partner have recently moved into their first home, which he inherited from his grandmother. What could have been a very happy occasion in his life was overshadowed by the fact he faces paying off a loan for the next ten to 20 years to cover the tax bill. This is because he happened to be two generations removed from the disponer instead of one.

The principle of equality before the law is enshrined in our Constitution. It is our duty to ensure all citizens are treated equally, regardless of their parental status. The current CAT threshold appears to violate this principle, discriminating against people and creating huge financial hardship for loved ones simply because they are not immediate children. It leads to the State extracting huge amounts of wealth from assets that have often been saved and invested in over the lifetime of childless adults. This is at a time when many families have changed from the straightforward nuclear model and relationships are not as clear cut and uniform as they used to be.I ask the Minister for Finance whether any action or investigation is being undertaken to review whether the current CAT inheritance tax categories constitute a form of unconstitutional discrimination. Furthermore, I ask if the Government is taking steps to reform the tax system to ensure real fairness and equality for all citizens. Last year's reforms simply do not cut it. This is a time for us to address the issue and ensure our tax system reflects the values of equality and fairness. I look forward to the Minister for State's response. I hope we can work together to bring about meaningful reform for the benefit of all our constituents.

Alan Dillon (Mayo, Fine Gael)
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I thank the Senator for her question. I note the concerns and cases raised. I am taking this Commencement matter on behalf of the Minister for Finance, Deputy Donohoe. As the Senator stated, CAT is a beneficiary-orientated tax payable by the recipient of a gift or inheritance, as opposed to the person providing that gift or inheritance. 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 group A threshold, currently €400,000, applies where the beneficiary is a child of the disponer. For clarity, it is useful to note the definition for children for CAT purposes includes any stepchildren, adopted children or certain foster children. All can avail of the group A threshold in respect of gifts and inheritances received from that disponer. The group B threshold, 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, currently €20,000, applies in all other cases. Where a person receives gifts or inheritances in excess of the relevant tax-free threshold, CAT at a rate of 33% applies on the excess benefit.

There are several 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 CAT 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. To qualify for the exemption, the inherited property must have been the disponer’s principal private residence at the date of 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, the trade, business or profession of the disponer.

The Senator should note that the existing CAT regime, as with all legislation, was created with the benefit of advice from the Attorney General. In this regard, all legislation enjoys the presumption of constitutionality unless the courts determine otherwise. Superior courts review the constitutionality of legislation when specific cases are presented. Therefore, we do not believe the current CAT is unconstitutional.

Sharon Keogan (Independent)
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I thank the Minister of State for his reply and for repeating everything we know about the CAT concerning households. It is not addressing the discrimination case in respect of childless couples. I am not advocating for anything to be taken away from adults with children but for giving a voice in these Houses for equality for couples and single people without children. Everyone should have the same level of control over how their fully taxed assets are passed on. All citizens should be treated equally. This is definitely not the case now.

Let us be honest. Why should the children of my children and the children of Micheál Martin and Simon Harris be treated differently from, let us say, the nephews and nieces of Senator Victor Boyhan, Senator Gerard Craughwell, Deputy Ken O'Flynn or Deputy Roderic O'Gorman? Why should they be treated differently? It is wrong. It is discrimination. I ask the Minister of State to reflect on this point and see what he can do in relation to this issue. I definitely do not believe it is unconstitutional and I am sure a case will be taken against the Government.

As regards getting someone to move in with you three years beforehand, you may end up getting sick and somebody might have to move in. Somebody in their 30s, 40s or 50s can get cancer and a relative might have to move in. They will not have that three-year grace period. As far as I am concerned, the legislation needs to be changed.

Alan Dillon (Mayo, Fine Gael)
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I again thank the Senator for her contribution on this issue. I note the concerns she raised in her contributions. The Minister for Finance and his Department, however, are satisfied as to the constitutionality of the existing CAT legislation.

It should also be noted that contrary to the Senator's arguments, there are exemptions in place currently for CAT. This is the case where dwelling houses can be provided to individuals, in the context of people who have passed on, who have lived in the dwellings in question for a specific time before the inheritance and will continue to live in the houses for a specific period afterwards. There are, therefore, exemptions in place now.

There are no proposals at this time to make any changes to the existing arrangements to address the particular matters referred to. The Senator should also be aware that there would be a significant cost. Indeed, in budget 2025 we increased the thresholds across groups A and B to the tune of €88 million. We will continue to review it. Options are also available for setting CAT thresholds. This must be balanced against competing demands. As with all tax matters, the Department of Finance will consider the CAT exemption levels and related group thresholds throughout the process and will advise the Minister accordingly.