A targeted inheritance tax reform for a changing Ireland
As discussion around Budget 2027 gathers pace, inheritance tax is once again attracting attention. While broad reform of Ireland’s Capital Acquisitions Tax (CAT) system is often suggested, a complete redesign may be neither realistic nor necessary.
A more practical question is whether there is scope for a targeted measure that reflects modern family life while preserving the integrity of the tax base.
One idea that is beginning to attract greater attention internationally and in policy discussions is the possibility of allowing individuals without children to nominate a beneficiary who could qualify for more favourable inheritance tax treatment.
This would recognise a reality that many advisers see every day. Not everyone leaves their estate to children. Some people have never had children, while others may choose to leave assets to a niece, nephew, godchild, close family friend, long-term carer or another person who has played an important role in their life.
For many Irish households, wealth is no longer defined by investment portfolios or business interests. Increasingly, it is concentrated in the family home.
Rising property values over recent decades, particularly in Dublin and other urban centres, mean more families are now exposed to inheritance tax. Homes that were once considered valuable but ordinary family residences can now push estates well beyond current CAT thresholds. Today, CAT thresholds stand at €400,000 for a child, €40,000 for many other relatives, including nieces and nephews, and €20,000 for more distant beneficiaries. These are lifetime group thresholds, meaning previous taxable gifts or inheritances can reduce the threshold available on a later inheritance.
Against that backdrop, an increasingly relevant question for Budget 2027 is whether Ireland should consider introducing a Nominated Beneficiary Allowance.
The inheritance tax gap
Two estates of identical value can produce significantly different inheritance tax outcomes depending solely on who inherits.
Consider two Irish estates worth €2.5 million each. Assuming no prior taxable gifts or inheritances and applying the current CAT rate of 33%, the difference is striking.
In the first example, the estate is divided equally between three children. Each child benefits from the €400,000 Group A threshold before CAT applies.
In the second example, the same estate is divided equally among three nieces or nephews. Each beneficiary generally has access to the much lower €40,000 Group B threshold.
The example below compares how a €2.5 million estate can face significantly different CAT liabilities depending on who inherits it.
This is not an argument that both outcomes should be identical. Children benefit from separate Group A thresholds, while nieces and nephews have access to lower Group B limits.
However, it does highlight how two people can spend a lifetime building the same level of wealth and face very different inheritance tax outcomes based solely on who ultimately inherits that wealth.
As more family homes purchased decades ago exceed €1 million in value, questions about whether current CAT thresholds remain fit for purpose are becoming increasingly difficult to ignore.
A question of modern family life
The discussion extends beyond tax policy alone.
Longer life expectancy, lower marriage rates and a growing number of adults without children have changed inheritance patterns across many developed economies.
Family structures and support networks have also evolved. For many people, the individual most likely to inherit is not a child but a sibling, niece, nephew, godchild or another trusted person who has helped manage their affairs, provided care or played a significant role later in life.
Yet Ireland’s inheritance tax framework remains heavily focused on transfers between parents and children.
The question is not whether the parent-child relationship should continue to receive preferential treatment. Rather, it is whether a system designed around more traditional family structures fully reflects how families and support networks operate today.
Elements of this debate are already emerging elsewhere in the CAT code. The Department of Finance’s Budget 2027 Tax Strategy Group papers acknowledge that some CAT provisions may not fully reflect modern family structures and highlight the importance of ensuring tax legislation evolves alongside changing family realities. While those observations relate to specific reliefs rather than inheritance thresholds, they point towards a broader policy discussion about whether succession planning rules should better recognise the relationships that increasingly shape modern family life.
As property values continue to rise, the gap between how different beneficiaries are treated has become more visible. This is no longer an issue confined to high-net-worth families. Increasingly, it affects households whose primary asset is the family home.
What might a Nominated Beneficiary Allowance look like?
A Nominated Beneficiary Allowance would not require a fundamental overhaul of Ireland’s inheritance tax system.
Instead, it could operate as a targeted relief that acknowledges modern family and support relationships while maintaining the existing preference for transfers between parents and children.
For example, an individual could formally nominate one person during their lifetime. That nominee could qualify for:
- a dedicated CAT threshold positioned between the current Group A and Group B thresholds; or
- access to part of the existing Group A threshold.
The aim would not be to place every beneficiary on the same footing as a child. Rather, it would provide limited recognition for a significant relationship where the traditional parent-child model does not reflect the reality of the individual’s circumstances.
Restricting the relief to a single nominee would help protect the integrity of the existing system while recognising that many people have one individual who plays a central role in their personal, financial or care arrangements.
Any proposal of this kind would, however, need clear safeguards.
Potential guardrails could include:
- limiting the relief to one nominated beneficiary only;
- requiring formal registration of the nomination with Revenue;
- introducing a minimum period between nomination and death to reduce last-minute tax planning opportunities;
- continuing to aggregate previous gifts and inheritances when calculating available thresholds;
- applying enhanced reporting and disclosure obligations; and
- ensuring the nomination affects tax treatment only, without creating any automatic inheritance rights or overriding a valid will.
These measures would help ensure the relief remains focused on genuine succession planning rather than becoming a broader tax-planning tool.
The pension question
The discussion is not limited to property. Pension assets now represent a significant source of wealth for many retirees, raising similar questions about how succession and inheritance tax rules should accommodate important non-parent-child relationships.
The treatment of Approved Retirement Funds (ARFs) already varies significantly depending on the beneficiary’s relationship to the deceased. Where an ARF passes to a child aged 21 or over, a 30% income tax charge generally applies, with no CAT payable on that ARF benefit. Different rules can apply where the beneficiary falls outside that category.
As pension wealth becomes an increasingly important component of many estates, policymakers may also need to consider whether any future nominated beneficiary regime should extend beyond traditional inheritances and interact with pension assets as well.
A practical Budget 2027 reform?
A full review of Ireland’s inheritance tax system would likely be complex, costly and politically challenging. It would also reopen wider debates around existing reliefs, exemptions and thresholds.
A Nominated Beneficiary Allowance could offer a more focused and achievable alternative.
The challenge for policymakers is that broader CAT reform can carry significant Exchequer costs. The Department of Finance’s Budget 2027 Tax Strategy Group papers note that extending more favourable CAT treatment beyond the current parent-child framework could have substantial revenue implications, particularly if entire categories of beneficiaries were moved into higher-threshold groups. In that context, a nominated beneficiary allowance could provide a more targeted solution by concentrating relief on one formally designated relationship rather than expanding enhanced thresholds across a much larger group of beneficiaries.
The measure could be limited to a single beneficiary, formally registered, supported by robust anti-avoidance provisions and designed to preserve the long-standing preference for transfers between parents and children.
The policy question is not whether every beneficiary should be treated as a child.
It is whether individuals should have a limited ability to identify the one person who occupies that role in their succession planning.
As Irish property values, pension wealth and family structures continue to evolve, it is a question that may become increasingly difficult for policymakers to set aside.
About the author
Julia Considine is a tax partner leading the Private Client practice and has over 17 years experience advising high net worth individuals, their families and businesses in relation to tax and succession planning to minimise overall taxation exposure on the transfer of wealth to the next generation and to design and implement comprehensive succession plans tailored to meet the client’s specific requirements.
