Taxation system of Ireland is all set for complete overhaul as the Commission on Taxation and Welfare has proposed increasing taxes on wealth, property and inheritance. The commission’s report is due to be published on Wednesday.

It has recommended that there should be a “substantial” reduction in the amount of money parents can leave to their children tax-free. However, public outcry is expected as this is a controversial recommendation to say the least.

Under Capital Acquisition Tax (CAT) rules, a child can inherit €335,000 from their parents before they have to pay tax at 33%. Back in 2009, a child could inherit or be gifted €542,544 from their parents before having to pay tax, with the rate at the time being 22%.

The commission does not put a figure on what the tax-free threshold should be, other than saying the reduction in the threshold should be “substantial”. The tax-free threshold is €32,500 for other close relatives, and €16,250 for more distant relatives or friends. The recommendation is that the ‘group A’ threshold, for a child of €335,000, should come down to nearer these other two thresholds over time.

The commission is not calling for any of its recommendations to be in this month’s Budget, but rather it wants its recommendations implemented over a 10 to 15-year period.

In the past the govt has defended the size of the tax-free threshold for children. It has argued that as the family home is the main item making up an estate, a lower threshold would force children inheriting one from a parent to sell the home to meet the tax liability.

Relentless house price inflation has led to increasing numbers of families, particularly in Dublin, facing big CAT bills because the homes they are inheriting are worth far more than the tax-free threshold of €335,000. A big reduction in the tax-free threshold would be particularly problematic in south Dublin where houses often sell for €1m-plus.

The commission also recommends that the level of agriculture and business relief from CAT tax should be changed. Under this relief, the market value of a qualifying property or farm is reduced by 90% when calculating the tax on a gift or inheritance. The commission wants this reduced to 80%, arguing that such a change would still exclude the majority of farms from the tax.

The commission has also suggested imposition of a “modest charge” if a parent gifts a child more than €3,000 a year. What is known as the small gift exemption under the CAT regime, it allows a parent to gift up to €3,000 a year to a child without them having to pay the tax at 33%. A child with two parents can get €3,000 from each a year, tax free. Amounts over €3,000 count off a child’s life-time tax-free threshold of €335,000.

It is argued that this will help tackle tax avoidance and ensure Revenue has a better record of wealth transfers.

The broad thrust of the 100 recommendations in the report concern property and wealth taxes and on the taxing on goods that pollute, rather than on income taxes.