Inheritance tax overhaul for people who don't have children would cost State hundreds of millions

The Irish government is considering a major overhaul of inheritance tax rules that could cost the state hundreds of millions of euros. The proposed change would apply to individuals without children, allowing them to pass on larger sums of money to nieces, nephews, and other relatives without triggering capital acquisitions tax (CAT). According to documents released by the Department of Finance, this reform could significantly reduce the number of people affected by the tax, thereby lowering overall revenue collection. The reforms are part of broader discussions surrounding the taxation of inherited wealth, which have gained momentum ahead of Budget 2027. The coalition government, comprising Fianna Fáil and Fine Gael, has signaled its intention to review the current system, particularly in response to public concern over the disparity in tax-free thresholds among different types of heirs. Under the present framework, children can inherit up to €400,000 without paying CAT, whereas siblings, nieces, and nephews face a much lower threshold of €40,000. Other beneficiaries, including spouses and non-relatives, are taxed at even lower levels. One of the central proposals being evaluated involves replacing these varying thresholds with a single lifetime tax-free limit of €460,000. This would mean that individuals without children could transfer a substantially larger amount of wealth to their extended family without facing inheritance tax. However, the Department of Finance has warned that this approach would lead to a sharp decline in the number of taxpayers subject to CAT, resulting in a significant financial impact on the state’s coffers. According to Revenue Ireland, implementing a unified threshold of €460,000 would cost approximately €537 million annually. This figure reflects the projected reduction in tax revenue due to fewer transactions falling within the taxable range. Officials have also highlighted the need to assess how such a change might conflict with constitutional provisions and the Succession Act, which governs the legal aspects of inheritance. Another option under consideration is raising the tax-free threshold for Group B beneficiaries, those including siblings, nieces, and nephels, to match the current level available to children, which stands at €400,000. Revenue estimates suggest this adjustment alone would cost around €349 million per year, an increase from previous projections of €305 million. This proposal aims to narrow the gap between the treatment of children and other relatives, addressing long-standing criticisms that the current system unfairly disadvantages those without direct offspring. Public sentiment has played a growing role in shaping the debate. Last month, Taoiseach Micheál Martin acknowledged the concerns of individuals without children, emphasizing that many have worked hard throughout their lives and wish to leave an inheritance to their extended family. His comments reflect a broader political effort to balance fiscal responsibility with social fairness, ensuring that the tax system does not disproportionately burden those who lack biological children. Both Fianna Fáil and Fine Gael included pledges in their respective election manifestos to review inheritance tax policies, underscoring the importance of the issue in the upcoming budget negotiations. As the government prepares to finalize its stance, the focus will remain on finding a solution that addresses public grievances while maintaining the sustainability of the national finances. The final decision is expected to emerge during the Budget 2027 process, with further details likely to be revealed in the coming months.