I have a question that I've asked three different solicitors and got three different answers. My aunt, who has never married and has no children, is leaving me her home in her will. I don't live there and have not done so for the last 5½ years.
Is it better that she leaves it to me, while she is still living, so I don't incur inheritance tax charges? What is the best way to pass it on to me while incurring the lowest charges?
Ms MA, email
I don't think it matters in your case. The reference to you living with her leads me to think you have been directed towards the inheritance tax relief available under the dwelling home exemption. This is a very specific relief, and one for which the rules have been adjusted several times since it was first introduced.
At this point it is quite restricted – rightly, in my view – and is designed to protect family members who have been living with the property owner and caring for them.
There are several conditions you would have to satisfy to qualify for the exemption. And for your purposes – where you are trying to assess whether the timing of the property transfer matters in mitigating a tax bill – the most important is that it applies now only in the case of inheritance – that is, when the property owner passes.
There are two exceptions to this where the property can be gifted. The first applies only where you are a dependent family member unable to fend for yourself by virtue of being “permanently and totally incapacitated due to a physical or intellectual disability” and unable to earn a living. I am assuming that does not apply in this case.
The second is where the recipient is a dependent relative over the age of 65.
For both an inheritance or a gift, you must not own any other home – or a share in any other residential property. You must also have been living in the property for the three years before the person dies.
Assuming we are talking about the more likely scenario of an inheritance, the property must be the sole or main home of the person leaving it to you in their will.
In your case, you don’t qualify as you certainly fail the residency test. You’re not living in the house at the moment. Unless you were to move in now and hope your aunt survives another three years, the exemption will not be available to you – and you’d still have to satisfy the other conditions, such as having no other property.
Ruling that out, where does it leave you on the most tax-efficient way to receive this property?
As already stated, I don't think it matters. Whether you receive it as a gift or an inheritance, the same capital acquisitions tax (CAT, otherwise known as inheritance or gift tax) rules apply. You can receive sums up to a certain threshold free of tax; thereafter tax at 33 per cent applies.
The tax-free threshold depends on your relationship to the donor. If it was a parent, you could get assets worth up to €320,000 before tax becomes an issue.
For linear relations – gifts/inheritance from siblings, grandparents, aunts or uncles – the threshold is much lower, at €32,500. And it is half that again, €16,250, for bequests or gifts from anyone else, such as in-laws, cousins or friends.
The other important thing to note is that it is cumulative: you need to tot up any large gifts or inheritances received from other “linear relatives” to date before considering to what extent the inheritance of this home would put you over the limit. You can exclude items received under the “small gift exemption” – sums or gifts of up to €3,000 received from any person in any given year.
The bottom line is that your best-case scenario is that you pay tax on the value of this property over and above the €32,500 limit; worst case, if you have already received previous gifts or bequests, you might have to pay tax on the full sum.
Given the price of property these days – and the potential tax bill – I always advise people to seek out professional advice before proceeding, rather than relying on the guidance of a journalist. But, in light of your experience, I don’t know.
It may be that one or other of the solicitors you consulted could be aware of arcane constructs that would allow you to mitigate your bill. However, I find it disconcerting that three different qualified legal specialists have given you three different answers to what appears a fairly straightforward question.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
