My single niece, a mother to two little ones, has a property on a mortgage. I, on the other hand, am an octogenarian, residing alone in my own house just a stone’s throw away, with no mortgage to worry about. She could potentially move into my house with her kids, sell her own property, clear her mortgage and have some finances to spare. In case of my death, regardless of whether she resides with me or not, I plan to bequeath my home to her. I’m curious to know if she would still be accountable for inheritance tax, even if she’s already domiciled in the property?
Inherited properties are generally subject to Capital Acquisitions Tax (CAT). Without any tax relief, the standard CAT is as follows: Your niece comes under Category B for received gifts/inheritances, setting a cumulative limitation of €32,500 that’s tax-free. If she hasn’t garnered any previous benefits from Category B relatives, the property value exceeding the €32,500 limit will be subjected to CAT, at a rate of 33%.
However, your niece could potentially apply for Dwelling House Relief, a complete relief from CAT, provided she and you meet certain specific requirements:
– The property was exclusively or primarily the home of the deceased at the time of their passing, with an exception for those who were away from home due to health issues, like having to shift into a care home.
– The inheritor must have inhabited the house as their only or primary home for a period of three years before receiving the inheritance.
– They shouldn’t possess, or have stakes in any other residential property.
– They shouldn’t gain an interest in any other residential property from the giver between the inheritance date and the valuation date.
– They should continue to inhabit the house as their sole or primary residence for a period of six years post inheritance, provided changes of house for upgrading are permitted.
If you give your niece the opportunity to live in your property without charging her rent, it’s viewed as an annual taxable benefit equivalent to the market rate of the rent. This could result in CAT obligations. Nevertheless, the initial €3,000 of the benefit per annum is considered a tax-free gift, and additional tax won’t be levied until the cumulative benefits exceed the tax-exempt limit of €32,500 over several years. The remaining taxable sum would be subjected to a tax rate of 33%. You could decrease the benefit’s worth by asking your niece to pay some rent, taking advantage of the rent-a-room scheme which allows you to receive up to €14,000 yearly without incurring tax.
Upon selling her house, your niece should consider the potential implications of Capital Gains Tax (CGT). However, if she’s consistently lived in the house as her Principal Private Residence (PPR), CGT will not apply. It’s worth noting that, as she sold her house, she won’t own another home until she inherits yours when you pass away, according to your will.
Suzanne O’Neill, a tax partner at RSM Ireland, provides this general advice, and urges you to get professional counsel before acting based on the information provided. The Irish Times and its contributors won’t be held accountable for losses or damages resulting from the reliance on this advice. For property-related enquiries, send your questions to propertyquestions@irishtimes.com.