My mother has proposed to sell me her house, providing me with an “inheritance” discount of 25 per cent to make the acquisition more achievable for me and my spouse. She’s also contemplating selling it to me below the market price.
Both of us are worried about our likely tax implications. The process might not be straightforward, but I believe there must be a simpler method to handle it.
Currently, I’m a tenant under the threat of eviction. We’re both impatient to purchase a property and believe this could be a fortunate chance we should take advantage of.
Many will agree that being on the brink of losing your home can be profoundly distressing. Given the tumultuous state of the Irish rental market, eviction remains a perpetual concern.
Therefore, your mother’s proposal could not have come at a better time.
The concept of the inheritance discount is sound as well, though it may affect your tax-free inheritance allowance. Whether this will create a tax problem will depend on the total sum.
Frequent readers of this column know my vexation with the Irish propensity to leave wealth behind for their family or friends. While this is a nice gesture, it’s often done at the expense of the elderly not ensuring their comfort in later years.
The other point is that the intense concentration on bequeathing assets to relatives could result in relatives not getting financial help earlier in life when they truly need it.
Although family disputes might surface when some members get financial aid and others worry about their potential “loss”— as if there’s any entitlement to inheritance. However, it is entirely feasible to adjust a will to include lifetime donations and ensure fair distribution over time, provided the will-maker wishes.
An elderly man who is set to inherit fifty percent of his sister’s home is concerned about potential tax implications. The man, who is currently a tenant and facing likely eviction due to landlords wanting the property back, lacks the financial means to buy a property.
Fortunately, his mother has offered to sell him her property, which could resolve his housing situation. This would also include a 25% “inheritance discount” and it could be possible for the property to be sold at a price lower than its market value.
However, this could give rise to inheritance tax complications. If his mother chooses to sell the property at a price below the current market rate, the difference between the two amounts would be regarded as a gift by the Tax Office.
This might not exactly pose a problem as an allowance of €335,000 is given to children as gifts or inheritance in a tax year, but a property worth more than the limit might cause a tax liability issue.
Looking towards the near future, there is a growing call for the government to revise the inheritance tax policies. It is suggested that the allowance may potentially be increased from €335,000 to €400,000.
Whether this proposed change would translate to be beneficial for the elderly man remains to be seen. This would largely depend on if he previously inherited from his father, and if his mother’s house’s below-market price is higher than the €335,000 threshold.
He should bear in mind that the tax rules that would apply to this transaction are those that are in place when the property is transferred, not those that might be introduced in the future.
As per the mention of the “inheritance discount”, it’s important to note that this too, beyond the initial €3,000, would be factored into his lifetime limit for receiving gifts or inheritances.
Should the inheritance deductions and any under-market price fall below €335,000, you won’t have to meet any tax obligation, despite this reducing your ability to receive inheritance tax-free in the future. However, in my opinion, this shouldn’t worry you. It’s paramount to address your present needs. The deal brings forth the possibility of owning a house for the long-term, which you wouldn’t otherwise be capable of financing. If this results in an extra tax payment for future inheritance, then that’s how it must be.
It’s crucial that this purchase is directly for you, excluding your wife as her entitlement to receive from your mother’s generosity is considerably lower – a lifetime cap of €16,250. After ownership is granted, there’s no constraint against you subsequently naming the property under both you and your wife.
Obviously, this presents the question of your mother’s accommodation status. This matter however is best kept for a separate discussion. Isolated to this particular deal, your mother won’t incur any tax charges because her primary residence’s sale doesn’t capitulate to capital gains tax irrespective of any discounts. Had she been selling you a second property she possesses, the case would be divergent, but that’s not our present circumstance.