Finance Minister Jack Chambers implemented a reduction in inheritance tax, but what does this entail? Essentially, inheritance tax is a form of capital acquisitions tax that applies to the transfer of wealth during the life of the giver, known as the disponer, as well as from the disponer’s final estate. Therefore, sizable gifts bestowed before the giver’s passing are classified as inheritances. If, for instance, a child receives a substantial gift from a still-living parent, it counts towards the parent’s estate when the tax obligation is calculated following their death. Every significant gift received since December 1991 is subject to tax.
What variations were incorporated into the 2025 Budget and when will they become operational?
Effective immediately, the new tax reductions will cost the Government €88 million annually. The key adjustment sees the threshold increase for the tax applied to significant gifts and inheritances passed from parent to child, designated as category A. As was extensively leaked ahead of the budget announcement, the category A threshold elevates to €400,000, up from €335,000, enabling an additional inheritance of €65,000 to be received tax-free from a parent – the first such increase since 2019. The tax rate, however, remains set at 33 per cent, ensuring beneficiaries pay a reduced tax amount of €21,450 on estates valued over €400,000.
What other modifications are underfoot?
There’s also a rise in the taxation threshold for extensive gifts and inheritances from relations like grandparents, siblings, or aunts and uncles, classified as category B inheritances. This increases to €40,000 from €32,500, with the 33 per cent tax rate being maintained, resulting in savings of €2,475 in taxes on inheritances greater than €40,000. Simultaneously, the threshold for other large gifts and inheritances, those exceeding €3,000 within a year and categorised as category C by the Revenue Commissioners, sees a jump to €20,000 from €16,250. The tax rate of 33 per cent still applies, meaning beneficiaries of category C inheritances of over €20,000 can expect to pay €1,238 less in taxes.
Why is this met with dispute?
The current inheritance tax was established in 1976. However, the more recent backdrop arises from the 2008 financial crisis and subsequent hefty tax hikes, with inheritance tax being among the taxes affected. Despite some decrease since the economy began recovering, the tax remains elevated compared to pre-recession figures. The marginal inheritance tax rate fell from 55 percent in 1984 to 20 percent in 2000, but was then increased to 33 percent in 2013, where it has remained stationary since. The newly implemented class A threshold is still lower than the €545,544, which applied in 2009, indicating the recipients of estate and gift inheritances are still subjected to a higher tax rate compared to pre-recession rates and are taxed on a larger proportion of their inheritance.
Various questions related to PAYE tax breaks, mortgage relief, and employee gift limit were addressed in the 2025 Budget Q&A. The main 2025 Budget points included energy credits, additional welfare payments, increased minimum wage, and tax alterations. In response to harsh critiques, Harris and Martin defended the incentivising nature of the budget.
Former Fine Gael minister Alan Shatter, leading the opposition to inheritance tax, harshly termed it as “state-sponsored grave robbery”. The recent tax cut did little to assuage Shatter, who criticised the current scheme as perpetuating a state of fiscal emergency. He pointed out the inconsistency of the state in exempting substantial lottery and gambling wins from tax and raised questions on prioritising luck over the benign wishes of the deceased to provide welfare and financial security, to their beneficiaries.
Views differed in the Dáil on the budget night. People Before Profit-Solidarity TD Paul Murphy criticised the cut as an excessive boost to the wealthiest 3 percent of society, highlighting that two-thirds of households never experience a major inheritance. Independent TD Thomas Pringle concurred, arguing that this tax cut primarily benefits wealthy business people nationwide.