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Tuesday, 16th April 2024
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Wrong tax shot Back  
Probate tax has a low rate, relatively simple rules, and a wide base. Gift and inheritance taxes have relatively high rates, complex rules, and operate like Russian roulette. The Minister abolished probate tax and kept the other two.
To grumble at the abolition of a tax is surely unreasonable, is it not? Many will rejoice at the Minister’s decision to abolish probate tax in respect of deaths occurring on or after 6 December 2000. That will be so not least because the number of persons potentially exposed to it was far greater than the number likely to be penalised by gift tax or inheritance tax.

Not perfect
Undeniably, probate tax had some bad features. Remarkably, it had to be paid by the personal representatives of the deceased before they were permitted to take possession of the deceased’s assets! This usually meant that the first thing personal representatives had to do was go out and borrow money, a daunting first step. But that feature of probate tax, which was in no way essential to the tax, was easily capable of rectification.

Probate tax had two major exclusions. It didn’t apply to inheritances taken by a surviving spouse. Neither did it apply to an estate of less than ?40,000. But apart from these two exclusions the tax applied almost universally, and on equal footing, to all Irish inheritances. The rate, 2 per cent, was reasonable.

The contrast
In contrast, gift tax and inheritance tax are levied at a rate ten times higher; 20 per cent, but they are far from universal in their application. There are numerous complex exemptions and reliefs. The application of these taxes is a story of hit and miss, with 20 per cent of a gift or inheritance disappearing in some cases, and in other cases hardly any tax at all being payable depending on how the exemptions and reliefs happened to work out in particular circumstances (for example, the effective rate of the taxes on gifts and inheritances of agricultural and business property above the tax free threshold is 2 per cent - the same as probate tax!).

They are taxes not only complex at the time they initially apply, but are taxes with long memories. Many of the principal reliefs are subject to claw-backs of those reliefs if certain events occur up to six years after the original gift or inheritance. The variety and complexity of exemptions and reliefs are the result of efforts over a quarter of a century to patch up a fundamentally unworkable tax.

The choice
Faced with a choice between these two taxes, unfortunately the Minister chose probate tax rather than gift tax and inheritance tax for abolition. What a missed opportunity! One can only surmise that, in the current climate, the abolition of gift and inheritance taxes would be politically unacceptable and be thankful for the reductions in the rates and the other relaxations made by the Minister last year.

The wider family
The Minister is to be congratulated on another change in the area of capital acquisitions taxes. He has extended to foster children the same tax benefits for these taxes as a legal child of a couple is entitled to. The distinction between a child and a non-child in terms of gift and inheritance tax is very considerable. The exemption limit in respect of a child is almost 20 times that of a non-child. The Minister has not supplied full details of the proposed relief in the budget but there is every indication that it is going to be liberally framed. It would be most unfortunate if it were bound up with complex legal definitions of what constitutes a foster child. Fosterage was a common practice in pre-Christian Ireland and remained a feature of family life through the Middle Ages. The arrangements through which a child may be cared for in his extended family circle are many and varied and it is to be hoped that the legislation will not be over restrictive.

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