Inheritance tax is set to be cut in the budget, probably by raising the tax-free thresholds. And so one of Ireland’s few taxes on wealth will be abolished. Economic experts warn that the state needs to raise more tax over the next decade, not less. And that higher taxes on wealth must be part of that. But with the Treasury buoyed – for now – by rising corporate taxes, a cut in inheritance tax is a certainty for budget day. The only question is by how much.

The public’s attitude to tax is a strange one. In theory, people are in favour of policies that increase equality and hit the rich. But ask them about inheritance tax and you’ll soon hear about “double taxation” and people being allowed to pass on their “hard-earned money”. And so a tax that only seriously affects a minority of people was seen by Fine Gael as something that would appeal to voters to change. Fianna Fáil was happy to jump on it, with Tánaiste Micheál Martin declaring it “punishable for the average family”. It isn’t, given that the average inheritance is around €100,000 and well below the tax-free threshold for children – but why let the facts get in the way of a good soundbite. That’s not to say there aren’t areas that need reform, the most obvious being cohabiting couples who aren’t married or in a civil partnership, who currently get no special relief. That could be fixed. But the difficult cases are being used to secure general aid and with the state coffers – for the time being – flooded with money, the coalition will not be able to resist the temptation.

Most people are in favour of wealth tax in theory, even if they don’t consider themselves wealthy. But despite this, both internationally and in Ireland, inheritance tax attracts a certain public antipathy. In the UK, YouGov polling since 2019 has consistently found that 50 per cent of the public see inheritance tax as “unfair” or “very unfair”, compared with around 20 per cent who see it as “fair” or “very fair”.

The reasons for this are not entirely clear, but as well as an economically rational resistance by the better off – because they are affected – it also seems to involve an attachment to providing for family – especially children. In Ireland in 2024, the need for inheritances or gifts to help family members buy a home may also be a factor. And people’s worldview is of course a factor – former minister Alan Shatter has described inheritance tax as “state-sanctioned grave robbing”.

According to ESRI behavioural economist Pete Lunn, the public is particularly resistant to tax changes that are seen as a loss, rather than those that give the Treasury a share of the gain. Lack of visibility also helps. For example, Lunn points out that the rise in the standard rate of VAT from 21 percent to 23 percent during the austerity years attracted little political attention – the tax was an invisible sliver of money spent on buying things – while the household charge, which became local property tax, and water charges were big issues. They required money to be handed over up front.

In the case of inheritance tax, the taxpayer in Ireland is the recipient, and of course receives a lot of money. But it seems that this can still be seen as “family money” on which tax has already been paid. The idea of ​​making a direct payment to the Inland Revenue – which can be large in the case of a large inheritance – is unsurprisingly unpopular, even among those who are unlikely ever to have to pay.

Ireland is no exception here either. A major OECD study shows that the importance of inheritance tax as a revenue source has declined over time in the developed world, with some countries abolishing the tax entirely and others reducing its burden.

( Unmarried couples excluded from inheritance tax exemptionsOpens in new window )

Overall, as the Tax Commission noted, Ireland taxes wealth lightly – it charged a tax rate of around 14.5 per cent on capital in Ireland, compared with an EU average of over 26 per cent. Ireland’s tax system has generous exemptions in many areas of wealth tax, including the family home. As tax experts have put it, death is the ultimate form of legal tax avoidance, as any gain in value made on the assets you own is wiped out for capital gains tax purposes. Those who inherit still have to pay, of course, but with a tax-free threshold of €335,000 for children, little or no tax is paid on many inheritances. This leaves a large chunk of the inheritance tax bill for other inheriting family members and friends, where exemptions are much lower. And a large proportion of Ireland’s wealth is never taxed at all.

Meanwhile, there are extraordinarily generous provisions for people who leave farms and businesses to their children, which effectively wipe out the vast majority of the liability. From an equality perspective, it makes sense to tax wealth more – even if the impact on inheritance on inequality is complicated – and the commission has plenty of suggestions for doing so. But that won’t happen without the backdrop of a crisis in the public finances: the last time inheritance tax was raised was after the financial crisis, when the rate was increased to 33 per cent.

This may look good now. But at some point – unless there is an exponential rise in corporate taxation – the public finances will deteriorate due to an ageing population, climate change and the cost of public services. Ireland should be preparing for this now, but in a populist political environment it simply won’t happen. Those who are vulnerable are the young, who may have to pay future bills via the quick and easy way to raise money – higher income taxes. Wealth and property taxes are less damaging economically, but far more toxic politically.

The rise in corporation tax has given Ireland a free pass in recent years and allowed trade-offs to be ignored. It means that those who argue for lower inheritance tax are under no pressure to work out how it is to be paid for, or how it fits into the future of Ireland’s public finances. And because people feel strongly about it, there is money, and a general election coming up, they are pushing at an open door.