Analysis: Changes to tax-free thresholds for inheritances are being considered for Budget 2027, but as with all decisions, any choices made would come at a cost
Changes to tax-free thresholds for inheritances are being considered for Budget 2027. Currently, the levels of taxation paid depend both on who you are inheriting from and how much you inherit. ‘Group A’ recipients inheriting from a parent pay no tax on the first €400,000, a level that was increased by almost 20% in 2024. The equivalent thresholds for inheritances from other close relatives (Group B) and non-relations (Group C) also increased two years ago by 23% and now stand at €40,000 and €20,000 respectively. In addition to the standard tax-free thresholds, there are further special exemptions.
Those inheriting a farm or a business receive substantial additional tax relief, meaning that they pay no tax on assets transferred from either a parent, or an aunt or uncle if nominated as a ‘favourite niece or nephew’, up to the value of €4 million. There is also an exemption for any dependent relative living in a home that they inherit, whereby they pay zero tax regardless of the value of the house.
Any inheritances above the relevant tax-free threshold are subject to Capital Acquisitions Tax (CAT), levied at a rate of 33%, a level that the Tánaiste recently described as ‘objectively too high’. Government sources have suggested there will be further increases to the existing tax-free thresholds in the upcoming Budget, but given the multitude of competing demands on the public purse, is this actually a good idea?
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From RTÉ Radio 1's Today with David McCullagh, Unfair and outdated: Should we reform Ireland's inheritance tax system?
In answering this question, it is worth first considering two of the main purposes of taxation; first raising revenue to spend on public goods and services, and second reducing inequality by redistributing resources. While the headline figures ahead of the budget 2027 suggest that the government is running a healthy surplus with ample funds to spend, the underlying vulnerabilities beneath the surface are well understood. Ireland’s tax base is very narrow, with just three sources- income tax, corporation tax, and VAT- accounting for almost 90% of all revenue raised last year.
While inheritance taxes worth almost €1bn were paid to the exchequer, as a proportion of total receipts, these were just under 1%. However, unless funded by corresponding revenue raising measures, increases in tax free thresholds will erode this revenue stream. Given that we are increasingly over reliant on corporation tax receipts from a handful of foreign multinational firms, further narrowing the tax base is not prudent policy.
Furthermore, when considering inheritance tax threshold changes, arguably the more important consideration is what impact this would have on wealth inequality. In 2025, just over 15,000 out of a population of apx 1 million taxpayers paid inheritance tax in Ireland, meaning that this tax was paid by just over 1% of taxpayers. Those who inherited at a level high enough to incur taxation on average exceeded the tax-free threshold by a little over €190,000.
The most recent available data shows that up to 2020, fewer than a third of households in Ireland had received an inheritance, with a further 1 in 5 expecting to receive one in the future.
Although the data does not disaggregate inheritances by relationship, if we take those who paid the tax on inheritances from a parent, on average they received more than €590,000 of a wealth transfer. Although they paid the 33% CAT rate on the amount above their tax-free threshold, on average this was just under 10% of the total value of these assets.
If an inheritance of more than half a million euro seems exceptionally large, that’s because it is. The most recent available data shows that up to 2020, fewer than a third of households in Ireland had received an inheritance, with a further 1 in 5 expecting to receive one in the future. Moreover, wealthier households were more likely to receive inheritances. The median value was just over €80,000 across all inheritances received, with a slightly higher value of just over €100,000 for those who received from parents. While data is not available to calculate exactly how much average inheritances have increased over the five years, a back of the envelope calculation based on house price inflation provides insights.
Central bank analysis shows that the majority of wealth in Ireland is housing wealth, accounting for two thirds of net wealth for Irish households. Therefore, using the residential price index can give us a good estimate of how much most inheritances have increased in value. House prices increased on average almost 50% from 2020 to 2025 and applying this inflation rate to the average inheritance received gives a median of €120,000 for 2025. This implies that those who paid inheritance tax and on average received €590,000, inherited almost 5 times the average inheritance. Further reductions in the tax paid will only benefit those receiving exceptional levels of wealth transfers.
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From RTÉ Radio 1's Drivetime, should there be reform of inheritance tax in the budget?
Many advocating for increases in tax free thresholds or the abolition of inheritance taxes argue that it is an unfair double taxation. The suggestion is that income tax is already paid on earnings used to build savings and therefore additional taxes should not be levied when assets are transferred on death. While wanting to maximise the value of transfers to loved ones is understandable, this argument doesn’t hold up to scrutiny.
First, it is not the case that other euros are only taxed once; for example, taxed income is taxed again when spent on consumption and VAT is applied. Second, capital gains on assets that are bequeathed have often not been previously taxed. Increases in house prices have driven wealth accumulation in Ireland, and value gains on principal private residences are not taxed here. An average family home purchased in the 1970s increased over 40-fold in value by 2025, and so any tax paid on heritance of the property in 2025 was likely the first time the gains were taxed rather than a double taxation.
Inheritance taxes are an emotive issue, and declining birthrates have intensified the debate around the preferential treatment of children. If we care about intergenerational inequality, there is no argument for increasing thresholds as they stand to benefit a very small wealthy minority receiving the largest inheritances. However, there is potential to reform how tax-free thresholds are applied.
Inheritance taxes are an emotive issue, and declining birthrates have intensified the debate around the preferential treatment of children.
Given the recipient pays the tax rather than the person transferring assets, perhaps we should move from thresholds based on relationships to an individual lifetime tax free threshold for all citizens. That would address the concerns of those who do not have children, without compounding privilege by allowing multiple tax-free inheritances. As with all budget decisions, this approach would come at a cost and it’s just one of many trade-offs that needs to be considered for Budget 2027.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
