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What a gift of a house means for inheritance tax

Every country has its own often very different regime when it comes to how gifts and inheritances are treated

A daughter is trying to understand the tax implications of her mother handing over to her a home she owns. Photograph: iStock
A daughter is trying to understand the tax implications of her mother handing over to her a home she owns. Photograph: iStock
Dominic Coyle's picture
Dominic Coyle
Tue Jul 02 2024 - 00:01

My mother owns a house in Ireland with a value of €300,000 which in her will is left to me. However, if she was to gift it to me now while she is alive, is there a time limit of when I would have to pay inheritance tax when she passes away?

We visit the house every six to eight weeks and I pay insurance, property tax and the upkeep for the house as I plan to retire there.

Ms D.E.

* I get the sense from this letter that you might not be in Ireland yourself and that might complicate things. It is not necessarily so but every country has its own rules on how inheritances and gifts are taxed or not. For instance, in Ireland, it is the recipient who is taxed whereas in the UK it is the estate of the deceased. Other countries will have their own variations.

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The good news here is that you are already committed to this property, paying a significant amount of the ongoing running costs. It is little surprise in those circumstances that your mother intends the property to pass on to you.

Given the paucity of information, and your stated intention to reside in this property, I think the best I can offer is to explain how tax would work for an Irish tax resident.

In Ireland, broadly, the position is the same whether the property is handed over now as a gift or via an inheritance at death. We do not, for instance, have something equivalent to the British seven-year rule where a gift is no longer taxable if the person making it survives more than seven years after the gift is made.

Here, capital acquisitions tax (CAT) applies equally on a gift or an inheritance. The rate is 33 per cent but, more critical are the allowances.

These vary depending on the relationship between the disponer – the person making the gift or leaving the asset in the will – and the beneficiary. Also, they are cumulative so you need to tot up any large gifts (anything over the value of €3,000 received in any one year) received from anyone in the same category over your lifetime.

That €3,000 figure is covered by something else called the small gift exemption which is available to everyone and covers a gift or gifts to that amount received by you from a person in a tax year. You can receive gifts to that figure from many different people as it happens.

So if you receive a gift or inheritance from an uncle (by blood, not one who has married into the family), it will be totted up alongside any other gifts or inheritances you receive from anyone in the same group which covers close linear relations – great-grandparents, grandparents, uncles, aunts and siblings.

There are three groups. Category A generally covers gifts and inheritances from parents to their children. It is the most generous with a lifetime tax free threshold of €335,000.

The linear relations mentioned above feature in Category B where the lifetime limit is a far more modest €32,500. Finally there is Category C which covers everyone else referred to as “strangers in blood”. This could include neighbours and friends but it would also include close relations such as in-laws and cousins. And with a tax free threshold of €16,250, tax can quickly become an issue.

The only advantage of going the gift route the prospect of the additional €3,000 small gift exemption minimising the impact on your lifetime CAT limit

All thresholds are set by the Minister for Finance and can change from time to time. The applicable threshold is the one in pace on the date of the gift or inheritance.

In your case, the threshold of €335,000 more than covers the value of this home whether you take it as a gift or an inheritance, although it would limit what you can otherwise receive from your mother in inheritance before facing a tax bill.

The only advantage of going the gift route the prospect of the additional €3,000 small gift exemption minimising the impact on your lifetime CAT limit. That exemption does not apply to inheritances but in the context of this property, it really is small beer.

For those who do find themselves with a capital acquisitions tax liability, the payment date is October 31st if the bill arises in the first eight months of the year, and October 31st in the following year for gifts and inheritances received over the final four months of a year that push you over the tax-free threshold.

If a gift in your mother’s lifetime pushed you over the limit you cannot wait until she dies to pay the bill but are constrained by those deadlines above – another difference between our regime and that in Britain.

As I said at the outset, your circumstances might be quite different if you are not living here. In that case, you might be best to see the advice of a tax adviser familiar with the regime in your jurisdiction.

* This article was edited on Saturday, July 6th, 2024

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice

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