My spouse and I, currently in the latter part of our 70s, dwell in a sizeable semi-detached property, estimated to be worth roughly one million euros. We are parents to a single, middle-aged son who has chosen to reside with us throughout his life. Despite a slight impairment, he sustains regular employment. While his disability doesn’t hamper him from seeking more lucrative work, he finds happiness in his current role. He is the sole beneficiary of our home in our will, with intentions of him staying in it indefinitely. However, we are concerned if he will have to confront inheritance tax tied to the property’s worth exceeding his inheritance allowance. I vaguely recall reading previously that recent laws consider tax exemption only in circumstances where the heir has a severe cognitive or physical disability. It worries us that the house might need to be put on the market to take care of capital acquisition tax post inheritance.
It’s understandable for parents with children, even with minimal disabilities, to spend considerable time worrying about their child’s future, particularly when their own time has passed. While most parents dissipate worries as their children mature into self-sufficient adults, your situation doesn’t afford that luxury.
However, there’s some uplifting news.
You were accurate in stating that reforms on property gifting only consider those with severe physical or mental disabilities, hampering their self-sufficiency. In 2016, this amendment was aimed to eradicate what was viewed as intentional tax evasion committed by affluent families who were exploiting tax loopholes to finance their adult children’s living expenses, including gifting homes.
According to Revenue, a “dependent relative” refers to a family member either perpetually and completely incapacitated due to physical or mental disability, preventing them from self-support, or of at least 65 years at the time of inheritance. The inability to generate income from any form of employment indicates complete incapacity, which must also be a permanent condition.
Without mincing words, the dwelling house exemption wouldn’t apply if you intended on transferring your home to your son while you’re still breathing. However, the “dependent relative” clause doesn’t hold if your son inherits the house.
For the dwelling house exemption to be valid, certain criteria are to be achieved. The house must have been resided in by you or your spouse as your primary residence prior to your passing, or before you were admitted into a hospital or nursing home due to health reasons. Your son has to live in the house as his main accommodation for at least three years prior to the demise of the last surviving parent among you and your spouse, and continue to reside for a further six years. Even if your son chose to sell the house within that period, he’d still be eligible for the exemption as long as all the proceeds were used to buy another property. Otherwise, any unused amount would be subject to capital acquisitions tax or inheritance tax.
Importantly, your son must not own any other property when he assumes ownership of this house. This includes inheriting another home or apartment belonging to you. Judging from your outlined plan, your intentions align perfectly with this anticipation. Bearing this in mind, there’s no obstacle to your son inheriting your home under the dwelling house exemption luminously free from any tax liabilities. Consequently, you can breathe easy knowing that the house you bequeath him, to provide him with shelter, wouldn’t be seized to fulfil any inheritance tax bill.
The house’s estimated value of around €1 million is irrelevant, as the dwelling house exemption holds regardless of the house’s worth as long as the land it sits on doesn’t exceed one acre. This will still leave him a tax-free inheritance threshold of up to €335,000 to account for any other inheritance he might get from either of you.
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