The Department of Finance has received a warning from the wealth management whistleblower about an inheritance tax law gap that’s used by wealthy people to gain profit.
An anonymous wealth manager contacted the department last year, telling them he or she has found a loophole people may use to avoid inheritance tax. They give their houses worth €1 million and even more to their kids as presents, thus avoiding taxes.
The finance minister Michael Noonan has been informed about the gap due to the papers published under the Freedom of Information Act. The data has been received, but nothing has been done to make people stop using the loophole or to make it closed.
Mr Noonan denied the offer by the department to prohibit the tax exemption in 2014.
As one of the memos said, there are more cases noticed where rich parents buy and give the houses to their kids as presents to avoid paying tax. “There is nothing in the exemption as currently drafted to prevent a parent with (say) four children from purchasing a dwelling house for each of them.”
The decision on whether to close the loophole is marked with a single handwritten word: “No.”
In January last year, officials from the department met a wealth manager who told them that the loophole was bringing the law “into disrepute”.
He claimed that in the previous 18 months, use of the exemption had “taken off” with high-wealth individuals buying houses with cash. One set of parents had gifted each of their four children a house worth more than €1 million tax-free.
In a follow-up email in February, he said: “Since we met I have come across two situations where clients have bought €1 million-plus properties for each of their children with a view to passing over ownership after three years. I think it is going to be a substantial revenue loss for you.”
Two months later, a decision was made not to include that reform of the inheritance-tax loophole in the Finance Bill 2015.
“One of the reasons for this was a view that the collection of data and evidence necessary in order to take a view on the need for and scale of any changes to the existing provisions might not be available in the truncated timespan available,” a memo said.
Other records released to The Times suggested that both the department and Revenue were aware of numerous cases of the exemption being used.
Under the rules, the person who is “gifted” the house must have been living in the property for three years, and is supposed to remain there for a further six.
In some cases, however, it was discovered that houses had been rented out while the new owners were working abroad. One house worth €850,000 was rented out for €3,000 a month while the owner worked abroad as “a condition of [their] employment”.
In the same family a second house worth €1 million was rented out for €5,500 per month as that owner also worked abroad. A third sibling gifted a house by their parent sold it three years later for close to €700,000.
The department is now undertaking a closer examination of the use of inheritance tax exemptions. It said: “This issue is still under consideration and it is not the case that a final decision has been taken or that there is no potential for movement here.”