Q&A: Dominic Coyle – how much inheritance tax do I have to pay?

My mother, with whom I have been living for the past six years, wishes to leave her house, worth about €900,000, to me in her will, and I am concerned about the amount of inheritance tax I will have to pay.

We sold our main house in Dublin in order to move in with my mother and care for her when she became ill. We have some savings, but if I don’t get the exemption, I will probably have to sell my mother’s house to pay the tax.

In order to avail of the Dwelling House Exemption for CAT, I see on the Revenue website that, “The recipient must not, at the date of the gift/inheritance, be beneficially entitled to any other dwelling-house or to any interest in any other dwelling-house. The Revenue’s view is that a dwelling-house means a building or part of a building being used or which is suitable for use as a dwelling.”

I have a mortgage on a one-bed apartment which I rent out. The outstanding loan is about €235,000. I suppose I will have to sell it to qualify for the dwelling- house Exemption. Are there any alternatives? Can I pay off the mortgage and gift the apartment to one, or both, of my children?

The other issue is that my husband owns a cottage in the country, which we use for weekends and holidays. Does the fact that I am his spouse mean that I also have a beneficial interest in that property, and so I would not be eligible to receive the dwelling-house exemption anyway?

Ms SW, email

The issue of inheritance tax is very topical just now as Budget 2016 looms. It has been speculated widely that the Government will make some move to increase thresholds – at least to accommodate the transfer of a family home.

However, even that might not be enough to ease your position. The current threshold for inheritance by a child from a parent is €225,000 and that is an aggregate figure which means that any substantial gifts received from either parent to date or inheritance received on the prior death of your father, if relevant, are taken into account.

The rumour mill says that this figure might be raised to around €500,000. What’s not clear is whether that will be a general threshold on the value of all assets or relate simply to the value of the family home.

As recovering property prices mean that the value of family homes increasingly put them beyond the current inheritance tax threshold, there is understood to be pressure from within Fine Gael particularly to address that specific problem.

Of course, assuming the Government does not also reduce the rate of capital acquisitions tax from the current 33 per cent, you still face a bill of around €133,000 even assuming the limit is raised to €500,000 and that there are no other assets in the inheritance apart from the family home, which is unlikely.

Will your investment property adversely impact your entitlement to avail of the dwelling-house exemption? Yes, certainly.

It is worth remembering why the exemption is there. It was put in place to get around the heartbreaking position where a family member essentially sacrificed themselves to stay home to mind a parent or parents and effectively faced homelessness on their passing as they had no capacity to meet the tax bill.

Clearly, if people already owned other property, the hardship would not arise. So, ownership of any other property – or an interest in it – would preclude you from availing of the exemption.

Could you dispose of the property by gift or sale? As far as I can see from the Revenue information, the answer is yes though clearly this is a major decision in itself – both for you and possibly your children – and not one to rush into.

In relation to the cottage owned by your husband, I’m not certain. My instinct is that Revenue would consider it a family asset and one in which you have a beneficial interest , therefore disqualifying you from the dwelling-house exemption.

However, as it is in his sole name and the financial issues at stake here are substantial, I think you would be well advised to get professional legal advice on that specific issue.

Finally, your mum might look at spreading her assets across a wider number of beneficiaries to limit some of the impact of capital acquisitions tax.

Do we have to pay tax on €100,000 gift for house? My partner and I are receiving €100,000 as a gift towards buying our house from my partner's father. The house costs €320,000 and our mortgage is €220,000. Do we have to pay tax on this €100,000 or does it come within the €225,000 lifetime gift allowance?

Mr SB, Dublin

Depending on the nature of the gift, you will not have to pay tax on that amount but it will certainly count against the capital acquisitions allowance. If the gift is purely to your partner, it will be set against the lifetime limit of €225,000 governing gifts and inheritances from a parent to a child.

If, however, it is a gift to you jointly, half of it will be set against that limit for your partner and the balance will be attributable to you.

That could raises issues as €50,000 would exceed the limit of Category C gifts/inheritances to “strangers” which stands at €15,075. Despite your relationship with his daughter, in legal terms you are a stranger to this man. The same is true even for sons or daughters in law.

In practical terms, and assuming you have received no previous gifts or inheritances from people other than direct relatives, you would have a 33 per cent tax charge on the €31,925 over the threshold (and allowing for the €3,000 small gift exemption). That means a not insignificant bill of €10,641.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.