My wife and I are dual US (expat) and Irish (resident) citizens who have been living in Ireland since we retired almost 20 years ago. We are now facing the prospect of returning to the US for the remainder of our lives.
We have been living (continuously) in a house we built in Galway more than 20 years ago, and are trying to decide whether to sell the house before we emigrate or to leave it as a joint inheritance for our three children. Could you please advise us as to what the Irish tax consequence would be in either of these situations?
The house has been our primary residence for the past 19 years, and has never been let. I would estimate that it has appreciated in value around €400,000-€450,000 since construction in 2004. Am I right in assuming that there would be no (Irish) capital gains tax if we were to sell the house, since it has been our primary residence?
And, conversely, would each of our three children receive a €335,000 inheritance tax threshold exclusion if we left it to them? Is this a situation where placing the house in a trust prior to emigrating would make any sense?
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Mr R.K.
It sounds as though you have enjoyed your 20-year retirement to Ireland and are quite correctly trying to tie up any loose ends before your return Stateside. You do not say so specifically here, but I am assuming your three children are US-based, or at least not based in Ireland.
The main Irish asset is your home – and your quandary is how best to deal with it.
If you put your home on the market and it triggers a bidding war, the price might rise far higher than you had expected and that might look inflated in the eyes of Revenue
The key thing for you is that, as of now, this property is what the Irish tax authorities call your principal private residence or, more colloquially, the family home. And while the sale of property or other assets in Ireland are normally subject to capital gains tax, the family home is an exception. If you choose to sell your principal private residence, you are, in general, entitled to do so without having to worry about capital gains tax.
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That “in general” qualification can do a lot of lifting in these things. There are two scenarios where you might face a tax charge of the sale of a family home. The first of these is where you have a large garden. The exemption allowed by Revenue applies only to a property sitting on a site of up to one acre. Any land over the one acre included as part of the sale would raise a capital gains charge for you.
In this context, it is worth noting that Revenue says the permitted acre does not include the footprint of the home itself – so the issue is not the overall size but the size of the site over and above the footprint of the home itself.
The second scenario where you might face a capital gains tax liability is where the property is sold at an inflated price because it has development potential.
This can be a tricky one, especially in a volatile property market. Clearly, if you market the house in the sale process as having development potential, you are going to find your principal property relief is restricted in part. But you can find Revenue casting a quizzical eye in far less straightforward situations. For instance, if you put your home on the market and it triggers a bidding war, the price might rise far higher than you had expected and that might look inflated in the eyes of Revenue.
The thing here is to be clear on how the property is marketed and on the reasons behind the eventual price it secures – insofar as you are aware of them. Estate agents handing any sale for you would tend to have a feel for what is going on in any bidding war and it is worth noting down such information.
Holding on to your house as an inheritance for your children is a trickier proposition. Cross-border inheritance can be a complex issue at the best of times
Other than those two scenarios, you are entitled to sell your family home without any worry about capital gains tax. It does not matter how long you lived there or how the value of the property has risen over that time. The main criteria is that it was the family home and the place where you have lived over those years.
Of course, if the property has been rented out at any time over your period of ownership, that would limit your exemption to capital gains, but you make it clear that this is not an issue in your case.
Holding on to it as an inheritance for your children is a trickier proposition. Cross-border inheritance can be a complex issue at the best of times.
In general, if neither you, your wife nor any of the children live in Ireland, then you would not be held liable to inheritance tax here. But those rules change when it comes to physical immovable property – ie, a house. In that case, the property is subject to Irish inheritance tax, regardless of where you are living when you die or your children are living when they inherit.
Of course, whether they actually end up paying anything on it depends on the value of the property when you die. With three children, the property’s current value and the tax-free threshold they could avail of, it seems unlikely.
So, for certainty, given that there will be no tax charge if you sell it as your principal private residence (with the caveats outlined above), but there could be an inheritance tax charge if you hold on to it, selling seems to make sense. There might also be logistical challenges, albeit surmountable, for your children in terms of sorting out title to a property here when they live abroad. And, of course, there is the more prosaic issue of them maintaining a property from that distance.
In either case, I do not really see how putting the property into a trust helps one way or the other.
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. This column is a reader service and is not intended to replace professional advice
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