A FULL investigation into how much the Exchequer has lost through an inheritance tax loophole used by the wealthy has been called for by Opposition TDs.
Finance Minister Michael Noonan has moved to tighten up legislation to stop high-wealth individuals handing over valuable properties to their children without paying a single cent in tax.
The loophole, the existence of which was first publicly revealed in a series of stories in the Sunday Times and on this blog earlier this year, has been in wide use for more than a decade and was being recommended by some wealth managers to their clients as a way to avoid inheritance tax.
After details of how the exemption was being abused were made public, it had been anticipated that the Department of Finance would move to close it down in this year’s Budget.
It did not appear though in the original version of the Finance Bill with one report saying it had been put on the “back-burner”.
However, the FOI documents relating to its widespread abuse were raised in the Dáil by three TDs this month: Independents Joan Collins and Tommy Broughan, and Labour’s Joan Burton.
Under pressure to explain why it had not been tackled, the Department of Finance added an amendment to the Finance Bill this week.
Now, Labour’s Joan Burton has tabled an amendment seeking a full report on the scale of abuse of the exemption.
She has looked for the Department of Finance to publish a report within a month of the Finance Bill being passed on how it has been used as a “means of avoiding inheritance tax”.
Joan Collins TD said she wanted the report to go further and examine how much has been lost and why previous opportunities were not taken to close it.
Ms Collins said: “I think we need to look back at the scale of this. We need to find out why this was created in the first place — who opened it up and allowed it to be abused.
“What’s really frustrating is that there were opportunities to close this down and it should have been tackled a long time ago.
“There is a huge public interest in finding out how much money has been lost over the years and in looking at why these loopholes were allowed in the first place.”
In a statement, the Department of Finance said they did not believe a further report into the operation of the scheme was warranted.
They said: “When the issue of the dwelling house exemption, and the possibility that it was being used as a means of tax-efficient wealth transfer, was raised with the Minister he asked that empirical evidence be gathered to assess this. Revenue carried out an investigation of the use of the exemption for this purpose.
“Informed by this report the Minister introduced an amendment to the Finance Bill at Committee Stage.”
They said that the investigation by Revenue had “conservatively” estimated the total loss to the exchequer at almost €19 million over the period from 2011 to 2015.
They said: “As this investigation has been carried out, and a significant modification of the exemption has been included in the Finance Bill, a further historical report regarding [its use] … would not seem to be warranted.”
The move to close off the loophole came after widespread evidence was gathered over a number of years by both the Department of Finance and Revenue Commissioners that the exemption was being “much abused”.
Earlier this year, a whistleblower from the wealth management industry met with Departmental officials to warn them of the scale of its misuse.
He told them in that previous eighteen months, use of the exemption had “taken off” and cited one case where parents had bought each of their four children properties worth in excess of €1 million and gifted them entirely tax-free.
The loophole could have been closed in 2014 when a detailed submission was prepared for Minister Michael Noonan warning him about the tax avoidance.
However, Minister Noonan — for reasons not explained in the official records — opted not to act then and the submission seeking change is bluntly marked “No”.