Inheritance tax continues to starkly favour parents and their children over those who are child-free. People who don’t have children face far stricter limits in how they can disburse their wealth on their death. Some are realising too late that too much of what they have accumulated and paid tax on over a lifetime will be severely taxed again on their death. Parents and their children are treated differently.Tom and Sheila Sexton, a married couple from Cork who don’t have children, will on Wednesday meet Taoiseach Micheál Martin to describe how this different treatment impacts on them. The Sextons are members of the national campaign group End Discrimination in Inheritance Tax (Edit). The situation for people like them and those dearest to them is “inequitable and unfair”, the Sextons say. “We have a family of brothers and sisters, nieces and nephews,” says Tom Sexton.“We don’t have children of our own, and like all other childless citizens in this country, we will not get to pass our life’s work, our already fully taxed assets, to our loved ones in the same way afforded to parents.”The loved ones of people who don’t have children are ranked differently when it comes to tax – they can inherit an amount between 10 and 20 times less tax-free than a child can from a parent. This means far less of a child-free person’s wealth can end up going to the people they love.“We would have loved to have children of our own, but that wasn’t possible for us,” says Sexton.“It’s only when you go to make your will that you realise the rules are absolutely skewed against childless citizens.”[ ‘I got a €10,000 bonus. What’s the smartest thing to do with it?’Opens in new window ]ThresholdsCapital acquisitions tax (CAT), sometimes referred to as gift or inheritance tax, is a beneficiary tax. It’s payable whenever a beneficiary receives a gift or inheritance that exceeds their tax-free threshold amount. “What determines the level of CAT is the relationship between the beneficiary and the person making the gift or inheritance,” says Andrea McNamara, director, private client, at EY Law Ireland. When a beneficiary receives a gift or inheritance, they can fall into one of three different tax-free threshold groups, depending on their relationship to the person giving, says McNamara. A child falls into the Group A threshold and can inherit up to €400,000 tax-free from a parent. The most a person without a child can leave to any one individual tax-free is just €40,000. The recipient of the €40,000 must be in the Group B threshold of close blood relatives: that includes a sibling, a grandparent, aunt, uncle, niece or a nephew. Cousins, close friends, neighbours, carers or others all fall into a Group C threshold. The most they can receive tax-free is €20,000.These thresholds mean parents have the latitude to give big to those who may be dearest to them.Ireland’s inheritance system of inheritance tax prioritises blood relatives. Photograph: Niall Carson/PA Wire A parent with an estate comprising money and a home worth €1 million for example can give the whole lot in equal parts to three children who won’t pay a cent in tax.A child-free individual, however, can show no such largesse to any one person. They will have to give far smaller amounts to their dearest, and to a far wider group of beneficiaries, to achieve the same tax-free end. In effect, they have less autonomy over their money by virtue of their parental status. Valid relationshipsIreland’s system of inheritance tax prioritises blood relatives, and this doesn’t reflect the breadth of people’s real relationships, says Edit member Brigid Timmons. “Childless people are as valid in the community as parents, and not every legacy needs to be to a family member,” says Timmons.“Valid” relationships exist between friends, neighbours, colleagues and carers too, but these are treated as strangers in law, she says. They can inherit just €20,000 tax-free with the remainder taxed at 33 per cent. “Beneficiaries who are blood relatives are offered preferential tax terms, a State incentive if you like, compared to unrelated, category C beneficiaries,” says Timmons. “Even where nieces and nephews exist, other people could be a person’s preferred beneficiaries,” says Timmons.This needs to be recognised in taxation, she says. Sexton gives the example of a home valued at €600,000, bought and paid for by someone over their lifetime. If given by a parent on their death to their only child, that child would face an inheritance tax bill of €66,000. It’s a significant bill, but nothing like that faced by the beneficiary who is not the child. “If the same home was bequeathed by a childless citizen to a much-loved brother, sister, nephew or niece, they would face a tax bill of €184,000,” say Sexton. A person who doesn’t have children, siblings, nieces or nephews, or wishes to bequeath their home to a much-loved friend, carer or neighbour will see the bequest taxed at 33 per cent, landing their friend with a tax bill of €191,400, says Sexton.Where a house forms part of a person’s estate, gifting it to a niece or nephew can land them with a sizeable tax bill. Photograph: iStock Spread the loveIf you don’t have children, you have to do significantly more planning to disburse an estate in a way that preserves its value for loved ones. Solicitor Marusia Geampana of Coyne Solicitors in Lucan, Dublin, describes a will where a person who didn’t have children left an estate worth €1.5 million to 13 nieces and nephews. Each received the maximum tax-free amount of €40,000. A preferential niece received the remaining €980,000 – with only €40,000 of this tax-free. She faced a tax bill of over €300,000.A father of four by contrast could have transferred his full estate to these four tax-free. Passing on their estate in a way that is tax-efficient is certainly something that weighs on the minds of individuals who don’t have children, says Andrea McNamara.“My advice would be to use all of the available tax-free thresholds to try and make it as tax-efficient as possible and allow as much of the estate to pass as tax-free as possible,” says McNamara. Another category of beneficiary to consider is a parent, she says.“If a parent receives a direct or absolute legacy, they fall into the group A tax-free threshold, which means they can receive up to €400,000 from their child,” says McNamara.The parent could then bequeath this to their deceased child’s sibling, with no tax on amounts up to €400,000. If the deceased child had left the money directly to their sibling, however, tax of 33 per cent would apply to anything over €40,000.A parent can also inherit tax-free from a child if the child took a taxable gift from either parent within the five years prior to the child’s death. Tax should never be the sole driving force when making a will and individuals should reflect on what they want to happen, says McNamara.‘It just absolutely baffles me’: How Ireland’s ‘single tax’ hurts at weddings as well as mortgages Listen | 30:44“It shouldn’t be based solely on the tax implications, but certainly if you want to improve tax efficiency, try and use up as many tax-free thresholds of beneficiaries as possible and look at potentially benefiting parents also.”Tax-free thresholds can change, Geampana says, so she advises those making a will to phrase things carefully.“I had a single lady who had three very close friends. Her will stated she was leaving money to each friend,” says Geampana.The current tax-free threshold for friends is €20,000.Instead of specifying this amount, however, the lady put in the caveat that the amount should be up to the maximum threshold in place at the date of her death. This ensures her wish that her friends benefit from the maximum tax-free amount.Those without children should note that there can be some exemptions where nieces and nephews can “come to the table” as children, says Geampana.For example, if someone is running a farm or a business, and a niece or nephew has been working with them for five years assisting in the trade or business.[ The ‘two good salaries but still broke’ problem: What’s behind it and what can you do?Opens in new window ]“It’s a good idea, however, to have an employer/employee contract in place because it makes it easier to prove the [working] relationship,” says Geampana.People with substantial assets should really seek individualised advice from a tax professional when making a will, she says.House Where a house forms part of a person’s estate, gifting it to a niece or nephew can land them with a sizeable tax bill.Any value over €40,000 will be liable to 33 per cent tax. And this tax bill can have to be paid quite quickly.Tom Sexton cites the example of an uncle wanting to leave his home valued at €800,000 to two young adult nieces, still living with their parents. The home was that of their deceased grandparents and is sited next door to their own. Inheriting it, however, would leave them with a tax bill of €240,000.“These nieces don’t have the cash savings to be able to pay an inheritance tax bill. There is no possible way that home can ever remain within the family. If their uncle had two children, however, that home would have passed tax-free,” says Sexton.Edit wants inheritance tax reformed and is proposing an index-linked lifetime, tax-free threshold for every citizen of €460,000.[ The mortgage, savings and pension mistakes costing you thousandsOpens in new window ]“That’s what’s available to a child anyway – they can get €400,000 from a parent, €40,000 from an uncle or aunt and you can transfer €20,000 to anyone,” says Sexton.“Everyone is treated equally and nothing gets removed from parents and children.”Equality will cost, he says, but this is fundamentally an equality and fairness issue, he believes. Having already met the Department of Finance as well as members of the Fine Gael and Fianna Fáil parliamentary parties, Sexton is hopeful of change.“This will remove the inequality faced by the families and loved ones of all childless citizens.”