Your questions answered.
A bequest of a house
I recently received a very generous bequest of a house outside Derry (valued at around £120,000 sterling). What would my tax liabilities be - both in Northern Ireland and in the Republic of Ireland - if I were to sell the house? Alternatively, what would the potential tax liabilities be if I were to let the house for approximately £500 (sterling) per month and treat it as part of my income?
As you are normally resident in this State, you may be liable for Capital Acquisitions Tax - it all depends on your relationship to the person who left you the house.
The 2004 tax-free thresholds are €456,438 for an inheritance from parents to children; €45,644 for an inheritance from a brother, sister, niece, nephew, or grandchild; and €22,822 from anyone else.
You are obliged to make a return and pay any tax due within four months of the valuation date (usually the date of death of the person who left you the house) to the Revenue Commissioners if the value of the inheritance (either on its own or when added to other gifts or inheritances) exceeds 80 per cent of the tax-free threshold applicable.
If you let the property you must return this income as rental income in your tax return.
You are entitled to the same deductions against rental income that are available as if the property were situated in this State. Capital allowances for wear and tear may be available on some items of expenditure, such as furniture and fittings. The current rate of allowance is 12.5 per cent of expenditure per annum.
If you sell, you will be liable here on any capital gains arising on from the sale of the property. Similarly, relief will be available for any capital losses.
Should a CGT charge also apply in Northern Ireland, the Ireland/UK Double Taxation Agreement includes measures to prevent double taxation.
For CGT purposes, the reader is deemed to have acquired the property for its market value at the date of death of the previous owner. If he/she decides to sell, CGT will be calculated by reference to the net sale proceeds after allowable costs of sale (for example, solicitors and auctioneers fees) and the market value at the date of death.
In computing the gain/loss it will be necessary to convert the sterling values to euro by reference to the respective conversion rates applicable at the date of death and date of sale. Any gain may be reduced by allowable current year and unused prior year losses.
The first €1,270 of an individual's annual gains is exempt. The balance is chargeable at 20 per cent.
As all currencies other than Irish currency are assets for CGT purposes and a further chargeable event occurs if, after selling the property you then convert the proceeds into euro. This is a disposal of the sterling funds and the gain/loss will be computed by reference to the conversion rates at the date(s) the sterling was acquired and the date(s) of conversion to euro.
Send your queries to Property Questions, The Irish Times, 10-16 D'Olier Street, Dublin 2 or e-mail propertyquestions@irish-times.ie.
Unfortunately, it is not possible to respond to all questions received. The above is a representative sample of queries received. This column is a readers' service and is not intended to replace professional advice. No individual correspondence will be entered into.
