I have been offered to buy my mother’s house. She is hoping to give me an “inheritance” discount of 25 per cent, thus making the purchase more possible for me and my wife. She is considering selling it at less than market value to me also.
She is concerned about her tax liabilities and I am concerned about mine too. I know it’s not straight forward but surely there is a straight-forward way to proceed with this?
I am currently renting and face eviction. We are both very eager to buy something now and feel this is a great opportunity.
Mr G.S., email
There must be few things in life more stressful than the prospect of losing your home. And the reality of renting in Ireland these days is that eviction is a constant threat in what remains a deeply dysfunctional market.
So this offer from your mother seems perfectly timed.
And the idea of the inheritance discount also makes sense. But it will eat into your tax-free inheritance threshold. Whether that creates a tax issue for you depends on the sums involved.
Anyone who reads this column regularly will be familiar with my frustration at the Irish addiction to “leaving something behind” for family and/or friends. There is nothing wrong with it as a general notion but all too often it happens at the expense of the older person spending money on ensuring they can live their later years in reasonable comfort.
The other issue is that the steely-eyed focus on leaving something to relatives can often mean that, even for those fortunate enough to have that sort of money or assets available, the notion of making it available to those same relatives earlier in life when it can really make a difference to them is never considered.
I’m conscious of course of the potential for family dispute where some members get a helping hand financially and others worry that this might mean they “lose out” – as though there is any entitlement to inheritance. But it is perfectly possible to amend a will to take account of lifetime gifts and ensure everything balances out over time, if that is what the person drawing up the will wants.
[ Elderly man inheriting half the home from sister worries about taxOpens in new window ]
Your situation is a classic case in point. You are currently renting and face the reasonably imminent prospect of eviction – presumably because the landlord either intends to sell or needs the property back for use by a family member. But you do not have the financial wherewithal to purchase a home yourselves.
Your mother is of a mind to sell you her home, which will certainly address your need. That brings us to the 25 per cent “inheritance discount”. There is also the possibility that the selling price will be below market value, you say.
Both issues will have inheritance tax implications for you if not necessarily a tax bill.
Let’s start with the concept of the sale below market price. There is nothing to stop your mother doing that: however, any difference between the price you pay and the market value will be considered as a gift by the Revenue Commissioners.
This is not necessarily a problem. You are entitled receive as much as €335,000 from your parents in either inheritance or gifts above the value of €3,000 in any tax year. And that figure could rise further shortly.
There is growing pressure on Government to make some move this time around on inheritance tax. There are various options open to it but the groundswell view appears to be that the €335,000 parent to child threshold might be increased to €400,000.
This could be important to you – depending on whether you have already received an inheritance from your father or the below-market value of your mother’s home being in excess of the €335,000. The threshold that applies is the one in place at the time the transfer happens so you will not get the benefit of any increase to €400,000 – if it happens – except on gifts or inheritances taken after it comes into force.
Getting back to the detail of your position. Aside from the below-market price, you say your mother is also considering a 25 per cent inheritance discount. Again, any discount on what you actually pay for the property is set against your lifetime limit (apart from the first €3,000 in any given year).
If the inheritance discount and any below-market price do not exceed €335,000, you will not have any tax to pay, although there will be less scope to inherit free of tax down the line. That should not be a concern in my view. Your need is now. This transaction offers you the prospect of ownership of a long-term home that you cannot otherwise afford. If that means you pay tax on any additional inheritance down the line, so be it.
It would be important that this sale is to you, not to you and your wife as her ability to benefit from your mother’s largesse is much more limited – a lifetime threshold of €16,250. Once acquired, there is nothing stopping you from then putting the property into the joint names of yourself and your wife.
Of course, this all raises the issue of where your mum will be living? But that is an issue for another day. In isolation, on this particular transaction, she will not have a tax bill at all as capital gains will not apply to the sale of her family home – regardless of any discounts. If she were selling you a second home she owned, it would be different but that is not what we are dealing with here.
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 with a contact phone number. This column is a reader service and is not intended to replace professional advice
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