I am single and 37 years of age on an income of about £14,000 per annum. With current market trends, I can never expect to own my own place. I propose to offer to purchase an interest of between 25 per cent and 30 per cent in the family home which is owned outright by my parents, who are both pensioners. The family home's current value is about £100,000 and the money would allow for renovations and extension. My parents are agreeable to the idea. What are the tax liabilities both for myself and for my parents in such an arrangement. There are five siblings in the household; would they have any say in the disposal of the house?
Ms P.K., Tallaght
You are not alone in despairing of owning your own property. While it might not be the norm elsewhere, the Irish emphasis on home ownership places huge pressure on people to purchase their own place. The ongoing bull market in property, especially in Dublin, has made it practically impossible for single earners - even those on a reasonable salary - to buy their own first property without help from a healthy savings account, an inheritance or from family.
The situation you outline raises two sets of issues - legal and financial. The former are by far the more important. In this case, you say the home is owned outright by your parents; that obviates the need to get the approval of any mortgage lender which would be a complicated and time-consuming legal process.
However, there are still complex legal issues surrounding any such purchase. To begin with, whether you acquire joint tenancy or tenancy in common confers different rights upon the death of your parents. You would need to clarify whether your stake would grant you the right to acquire or receive the residue upon their deaths.
In addition, the rights of your siblings would in large part depend upon their status. If they are still dependent, either through age or incapacity, they would have the right to insist that they be properly provided for under the terms of the Succession Act, when that time arrives. While it does not appear from your letter to be an issue in this particular case, such a requirement might affect any current proposal with regard to the family home.
However, if all children are adult and self-sufficient - in legal terms anyway - it is largely up to your parents to do what they wish with the property. After all, they could just sell it to a third party and make alternative arrangements for their own accommodation. In law, the only requirement is that a surviving spouse inherit at least a third of any estate upon the death of their partner.
Had the house been mortgaged, you would have required the consent of the lender. Among other things that would have required you to accept joint and equal liability with your parents for the mortgage regardless of the stake you would hold in the property as a result of the agreement. It would also involve you being vetted by the mortgage lender for creditworthiness in the same way as a mortgage applicant, even though the deal was essentially one between you and your parents. The reason is that a contract would have existed between the lender and your parents, in which the property acts as security.
Given the issues which might be involved, I feel it is essential that both you and your parents get proper legal advice. This could be done through the one solicitor, although they may suggest separate advisers should they perceive a possible conflict of interest. After all, should anything go wrong, the cost might be extremely high.
On the tax front, among the issues which need to be considered are stamp duty, gift tax and capital gains tax. From your parents' perspective, there should be no liability. They are, after all, dealing with the family home, which is not subject to capital gains.
You, however, might be opening yourself to the possibility of accruing a capital gains tax liability depending on how the Revenue perceives your interest in the house. As long as it is maintained as your principal and private residence, no capital gains or income tax applies. Should your circumstances later change - in the event of you buying and moving into another property - you might find yourself liable to such taxes.
In addition, you may attract a stamp duty liability upon registering the deeds of the house anew with your name included. In your particular circumstances, however, this is unlikely as, in cases where a third party is buying a portion of the principal family residence which will also be their principal residence, no such duty is payable on investments up to £60,000. Given the stake you intend to buy, and your estimated valuation of the property, this is unlikely to be breached. However, the details still need to be submitted and stamped exempt.
There is also the possibility of a gift tax liability depending on the price you pay. The determining factor will be the market value of the property. If that is judged to be below the assessment put on it in the deal, a liability to gift tax might arise depending on the sum involved and previous gifts received by yourself.
Given the uncertainties, it would be advisable to get professional advice in this area as well as for the legal issues.
My father died recently leaving his entire estate to my mother. The estate consists of various assets such as shares in his name, monies held in joint bank accounts and property consisting of a house and agricultural land. The value of the land would be quite considerable. Since this is a straightforward will, I am trying to bypass the solicitor. The bank involved has allowed my mother to get control of the bank accounts but we were told the shares would not be transferred until we get the grant of probate and I assume this applies to the land as well.
In filling in the form from the Probate Office, do we need to include the details of the bank account and do we have to get my father's accounts in order for this year to take into account any tax he might owe? Also what does the Probate Office charge for such matters?
T.B., Wexford
As you say this is a very straightforward will in that everything is passing not just to the one person, but to the spouse. As such, there is no reason why you should not be able to organise the granting of probate yourself.
I am assuming from your letter, although you do not say so, that you are the appointed executor to the will. The one thing to remember is that while the granting of probate is technically a very simple procedure in cases such as this, you retain a responsibility to find and include all the assets and debts of the estate before the instructions in the will are executed following the granting of probate.
Having talked to the Probate Office, I am told the details of the bank account do not necessarily have to be included on the probate form you have received, but it would be good practice to do so and would avoid any confusion later on. The matter is somewhat simplified in that the accounts were in joint names in any case and your mother was the other signatory.
In relation to the calculation of your father's tax liability for the current tax year, the Probate Office tells me that there is no particular requirement for this to be sorted out in order to receive a grant of probate. However, it will obviously have to be met out of the estate and if the estate is previously disbursed, the executor could face the liability. In this case, with the estate being transferred to the spouse, banks will not require a tax clearance certificate before releasing funds. However, for your own peace of mind as executor, you should ensure that funds are available to meet any income tax demands.
Probate tax is another thing you will not have to worry about. In the ordinary course of events, it is levied on all estates above a threshold of about £11,000 at a rate of 2 per cent. However, the one exception is the transfer of estates between spouses.
Similarly, you will not have to worry about inheritance tax as there is no limit on the transfer of estates between spouses.
In relation to costs, the answer is that, yes, the Probate Office does charge a fee for processing the application. This is worked on a sliding scale depending on the size of the estate. Both it and the expenses you incur in collecting the information necessary to process the grant of probate are allowable against the estate.
What you need to do now is complete the form you have been sent by the Probate Office and return it. An appointment will then be arranged at which you will be asked to supply full details of the estate, which you should hopefully have ascertained by that stage, a death certificate and the original will. After a period to allow time to sort out any remaining details, a second meeting will be held. At this stage, if there are no further complications on either side, you will be required to sign the documents and attest to their accuracy.
While it does not affect your particular case, it is worth mentioning that, in general, for the purposes of probate tax, agricultural land is assessed at 30 per cent of its market value as are any agricultural buildings.
Send your queries to: Q&A, Business This Week, The Irish Times, 10-15 D'Olier Street, Dublin 2, or email to dcoyle@irish-times.ie
