UK tax rules on an Irish inheritance from my mother

My mother died in August 2018 and her house is up for sale at the moment. There is a life loan on the property of around €200,000 which has to be paid to Bank of Ireland on the sale of the property. The house is on the market for €750,000 and we have an offer of €710,000 at the moment.

My brother lives in Ireland and I live in the UK. The value for probate is €720,000 and the agent is asking me what is my inheritance tax allowance. He says if the property sells for more than the value for probate my brother and I are liable for CGT.

Can you explain what the rules are for inheriting money from my mother’s estate in Dublin and living in the UK?

If the property sells for €710,000 and the bank is paid that leaves €510,000 less about €20,000 fees and bills, before the remainder is divided between my brother and me.

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Ms J.S., UK

I’m not really sure what the agent is doing getting involved with your inheritance tax-free threshold. Inheritance tax is a self-assessed tax in Ireland and not really an issue for an estate agent.

But where do you stand with any tax liability?

You have a property valued for probate at €720,000. As you don’t give other details of the estate, I’m assuming the property accounts for pretty much the bulk of the estate.

Before anything passes to you or your brother, the life loan must be paid. It is likely secured on the property anyway but even if not, it will have to be deducted from the sale price if there are no other assets with which to pay it off. It is a debt under probate.

That means the actual probate value of the property is closer to €520,000. In your original question, you quote the life loan in sterling. If that is the case, clearly the residual value of the property would be even less – closer to €495,000 – but it would be unusual to have a sterling life loan on an Irish property, not least as this is a Bank of Ireland loan, so I am working on the basis that it is in euro.

As children, under Irish rules, each of you is allowed to inherit €310,000 from your parents. This is called the category A threshold under the Capital Acquisitions Tax (Inheritance Tax) regime. The threshold was increased to €320,000 in the last budget, in October, but, as your mother died before that date, it is the lower threshold that will apply.

Substantial gift

The €310,000 is a lifetime threshold so, apart from the value of this house, you need to consider the value of anything else you and your sibling will inherit under your mother’s will plus anything you may have inherited from your father plus any substantial gift you received from your parents in your adult life (anything more than €3,000 in any one year).

Being in the UK can complicate matters depending on the nature of the inheritance but, in this case, if there is no other inheritance apart from the share of the property, then it appears you will be inheriting assets to the value of just over €250,000 at most so it should not lead to any inheritance tax bill for you in the UK or your brother here in Ireland.

Finally, turning to CGT (capital gains tax), if the house is sold for a sum greater than the amount declared in probate, it could lead to a tax charge on the excess amount.

When the sale is complete, you look at the price received and then deduct the costs incurred in the sale, such as estate agent and legal fees.

Thereafter, your brother will have a €1,270 annual exemption before assessing capital gains at 33 per cent. For you, it is likely that, as a UK tax resident, it will be the UK capital gains tax exemption that applies. And that is good news for you as the UK exemption currently stands at £11,850.

Even if your mum’s house does eventually sell for €750,000, the gain between you would be €30,000 before expenses, and closer to €20,000 after expenses. In sterling terms, the capital gain on your half share would be less than £13,400 before expenses and certainly less than the £11,850 UK limit after expenses. I don’t expect you would have any capital gains tax bill.

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