Ireland to investigate policies on IHT, gift and wealth taxes

Ireland has started investigations into its government policies on gift tax, inheritance tax (IHT) and taxes on household net wealth.

Updated on 15 March, the government referenced the 'Joint Research Programme on Gifts and inheritances in Ireland - December 2017', which explained in its introduction that "internationally the question of who receives an inheritance and how this contributes to wealth inequalities has been examined in a number of contexts.

"In Ireland, however, very little is known about the patterns of wealth transfers, with the only comprehensive analysis undertaken by Nolan (1992) relating to 1987 data.

"This paper aims to fill this gap by examining the information gathered in a wide-ranging household survey to establish how common it is to receive a wealth transfer (whether gift or inheritance) and what this is composed of (in terms of asset type, relationship to the donor and so on).

"We also examine how these patterns vary across households and to what extent having received a gift or inheritance is related to the current wealth position of the household.

This paper uses a recent source of information on gifts and inheritances in Ireland from the comprehensive survey of household finances carried out by the Central Statistics Office in 2013. This Household Finance and Consumption Survey (HFCS) contains information on whether a household has received a gift or inheritance and, if so, details on the year, asset type, original value, relationship to donor and whether the transfer was a gift or inheritance.

"We find that approximately 29% of households have received at least one substantial gift or inheritance, a percentage that is at the lower end of reported estimates for Euro Area countries based on comparable survey data. A further 10% of households expect to receive a gift or inheritance in the future.

"The most common type of gift or inheritance households report having received is money with almost 12% of households report receiving this asset as a gift or inheritance."

The paper's introduction continued: "Close to ten per cent of all households inherited the household’s main residence while businesses or farms also accounted for a substantial proportion of inheritances.

"Older and larger households are more likely to have received some type of wealth transfer and these are most commonly received from parents. Households that are higher up in the wealth distribution are more likely to have received a gift or inheritance but the relationship between inheritance and income is non-linear with the highest rates of receipt at the top and bottom of the income distribution and lowest in the middle.

"Looking more formally at the relationship between various household characteristics and wealth transfers, we show that the probability of receiving an inheritance is strongly correlated with age, employment status and income group. The effect of household characteristics on the value of inheritances is found to be statistically less significant overall.

"One particularly interesting question is how wealth transfers affect the overall wealth position of the household. As this paper is based on cross-sectional survey data, our evidence on this cannot be definitive but we can show some association on whether or not having received an inheritance affects where in the wealth distribution the household finds itself, controlling for other factors.

"We find that that having received an inheritance moves a household up the wealth distribution by 15.4 percentiles relative to households of the same income level that did not receive an inheritance. The inheritance of a business or a property (not the main residence) has the largest effect on the household’s position in the current wealth distribution with a much smaller effect observed for having inherited money or the main residence."