The programme for Government promises to highlight inequalities and implement policies to do better by people. There is a sizeable group of people in this country who are suffering from inequality that follows them even when they have passed away. Today, I am asking the Tánaiste to tackle the unfairness of the situation that arises when a person who does not have any children of their own dies and leaves their house to a close family member. Currently, the child of a parent who dies does not pay tax on the first €335,000 of the value of what he or she inherits, but a beneficiary who is not a direct descendent, such as a nephew or niece, only enjoys a fraction of that tax-free allowance, even though he or she may have been the closest person to the deceased for decades.

According to a report by Daft.ie based on prices for the first quarter of this year, in Galway city the average asking price for a house is more than €335,000, while in Dublin it is well over €400,000. I will use the example of a house whose value is in between those figures, at €350,000, that has been left to a niece who has been unfailing in looking after the needs of her uncle or aunt for years, perhaps running messages, visiting them every day, bringing them to medical appointments and taking them on social outings, demonstrating a true family bond. The first €32,500 is tax-free, which is less than one tenth of what the house is worth. The niece will have to pay tax at the rate of 33%, or one third, on the remaining value of the house. That means that the niece must pay capital acquisitions tax amounting to more than €100,000. There are some very limited exemptions from inheritance tax for a favourite niece or nephew in certain situations, but they are very restricted.

Our current inheritance rules are effectively punishing people for not having children of their own. I am sure the Tánaiste will agree that that is wrong. These people have worked all their lives and have paid all their taxes, just like people who have become parents. In fact, those who have never married will have paid much more tax, having borne the brunt of our taxation system as single people who are doubly penalised. It is worth noting we have gone backwards in relation to tax-free thresholds. Until 2009, the tax-free allowance for a niece's or nephew's inheritance was more than €54,000.

I have in the past suggested changing the rules relating to a family home in pre-budget submissions to the Minister for Finance. My question to the Tánaiste is simple. Will the Government commit to changing this grossly unfair taxation regime when forming the next budget?

I thank the Deputy for raising this important issue. We believe it is appropriate to apply inheritance tax on transfers of wealth between generations. If people are taxed on earned income, it is only fair that people should also be taxed if they inherit income. It has always been recognised, however, that where the beneficiary is a child, including certain foster children, there should be a generous threshold before inheritance tax kicks in. These are called group A inheritors and the threshold is currently €335,000. A child can inherit up to €335,000 from a parent without having to pay any inheritance tax at all. It only kicks in on the amount above that.

However, the view has always been taken that where the beneficiary is a brother, sister, niece, nephew, lineal ancestor or lineal descendant of the disponer, a much lower threshold should apply due to the greater distance in relationship. This explains the current group B to which the Deputy referred, where the threshold is €32,500. It should be noted that in certain situations nieces or nephews may qualify for a favourite niece of favourite nephew release in respect of gifts or inheritances. In those situations, they are treated as though they were a son or daughter. Qualifying nieces or nephews are those who have worked substantially on a full-time basis for a period of five years prior to the gift or inheritance being given carrying on or assisting in the carrying on of a trade, business or profession of the disponer. For the nephew or niece to be deemed to be working substantially on a full-time basis in the business, he or she must work more than 24 hours per week at the place where the business, trade or profession is carried out or more than 15 hours per week where the business, trade or profession is carried out exclusively by the disponer, any spouse or civil partner of the disponer or the nephew or niece. That is the current situation whereby a nephew or niece could qualify as though they were a son or daughter.

The point the Deputy made is correct. I think that probably is too narrow. We should examine ways of broadening it. An example that occurred to me is a situation in which a favourite niece or nephew is acting as a carer and has been looking after an aunt or uncle in the last couple of years of his or her life. That is not counted. It counts if a niece or nephew worked in a business but it does not if the same niece or nephew was caring for an aunt or uncle, full time or part time, in the last couple of years of his or her life. In that case, the favourite niece or nephew status does not apply. There may be a number of such examples on which the Deputy and I could work together. We could change those rules. I do not think it would be right to change them wholesale and to treat every niece and nephew as if they were the same as a son or daughter but where there are particular cases like that, we could broaden the criteria. My office and that of the Minister for Finance would be happy to take that issue further with the Deputy.

I thank the Tánaiste for his response. It is a different scenario in Northern Ireland and Britain. A niece or nephew in the same situation in those jurisdictions would not have to pay a penny in inheritance tax. Several other countries in Europe and around the world also make it easier for family members to hold onto the family home. Sweden, the Czech Republic and Norway have all scrapped inheritance tax. The same is true in Austria where a small property transfer tax must be paid instead. The niece or nephew being left a €350,000 house would pay little more than €40,000 in Poland, approximately €20,000 in Italy and less than that in Bulgaria. Australia, New Zealand, Canada and India are just some of the other countries in which no inheritance tax is paid. Will the Tánaiste commit to resolving the inequalities that exist in the inheritance tax system in Ireland for people who have no children and wish to leave their homes to a close family member?

I thank the Deputy. We are not going to abolish inheritance tax. As I said earlier, we think it appropriate that if we tax earned income for which people have worked, it is, therefore, also appropriate that we tax unearned income that people receive by means of inheritance, capital gains or other means but I agree that we should increase the thresholds over time. That threshold of €335,000 has been increased in recent years. It is supposed to be pitched around the cost of an average house so the average person could pass on the average house to a child without being liable for inheritance tax. As house prices rise, we need to continue to look at that threshold. It has been increased in recent budgets. We also need to examine the issue of a nephew or a niece being counted as a favourite nephew or niece, particularly if they have been involved in caring duties. I am not going to make a commitment to abolish inheritance tax because I do not agree with that. However, we can make changes to make the system fairer.