Sometimes we get questions that really only require a very brief answer. We take a selection of them below
On the matter of inheritance tax, I understand that the Group A threshold of €335,000 is an aggregate threshold between father and mother.
Can you tell me please what the position would be where one parent dies while the threshold is €335,000 and leaves part of their estate to a child, the value of which exceeds the threshold, but the other parent dies in a year when the threshold is higher, say €400,000, and they leave the balance of the estate to the child on their death when the threshold is higher?
Does the original threshold of €335,000 which applied when the first parent died apply to all inheritances from mother and father combined regardless of increases in the threshold between the dates of death of the two parents?
Mr M.B.
To hear some of the political posturing right now, you’d be forgiven for thinking that inheritance tax relief was so insignificant as to be hardly worth it. But tax free thresholds are a valuable relief when it comes to inheritance, particularly the most generous threshold, Category A, which applies largely for inheritances (or gifts in excess of €3,000) from a parent to a child.
Rising house prices mean there is growing pressure on the Government to raise the threshold for the first time in five years when Minister for Finance Jack Chambers presents his budget on October 1st, so it is certainly topical.
The key thing here is the threshold in place when the person dies.
Let’s take three scenarios.
1: Your dad dies when the threshold is €335,000, leaving you an inheritance worth €300,000. As it is under the current threshold, it is exempt from tax.
In a few years’ time, when for argument’s sake the threshold has risen to €400,000, your mother dies, leaving you an inheritance of €80,000. This brings you over the old threshold but you remain under the new threshold now in place, so no tax applies.
The fact that it is above the old threshold is irrelevant as that threshold no longer applies.
2. Your dad dies when the threshold is €335,000, leaving you an inheritance worth €370,000. It is above the €335,000 limit, so you will pay capital acquisitions tax on the €35,000 of the inheritance that is above the tax exempt threshold at the current capital acquisitions tax rate of 33 per cent. That’s a tax bill of €11,550.
In a few years’ time, when the threshold has risen to €400,000, your mother dies, leaving you an inheritance of €20,000. Combined with your earlier inheritance from your father, this brings your total inheritance from your parents to €390,000.
As this is below the €400,000 threshold now in place, you pay no tax on the inheritance from your mum, but you do not get back the tax you paid on the earlier inheritance because it was measured against the limit in place at that time.
3. If we take that same scenario as #2 but in this case your mother leaves you €200,000 rather than €20,000, you will now have received an inheritance of €570,000 between your two parents. As this is brings you above the €400,000 limit, you will pay capital acquisitions tax on €170,000 of the inheritance received from your mother – a tax liability of €56,100.
No allowance is made for the fact that you previous paid tax on some of your father’s inheritance that would now be below the new threshold. So, between the two inheritances you will pay tax of €67,650 while another person who received identical inheritances but got both at a time when the threshold was at the higher €400,000 rate will have a lower tax bill, just the €56,100.
Dwelling home exemption and homeowner rule
I read your article with interest – especially in relation to dwelling home exemption.
You say the person inheriting must have lived in the property for at least three years before the homeowner died. Are there any rules as to where the homeowner lived during the same period?
Mr S.H.
A bit like inheritance tax relief, the dwelling house relief is potentially a tremendously valuable tax relief for the recipient so it will be little surprise that it is quite tightly circumscribed.
As you say, the beneficiary must have lived in the property for at least three years before the homeowner dies in order to be eligible and must have no interest in any other property – owning even a share of a holiday home would disqualify you. And they must live there for six years after they inherit – or six years in that home and one bought with the full proceeds of any sale of that property.
And the homeowner? Well, unless the recipient is a dependent relative – i.e. someone unable to live independently – the homeowner must have lived in the property as their only or main family home up to their death. The legislation is silent on how long that must be for. The obvious answer would be at least the three years the beneficiary is there but the beneficiary might have lived there under two or more separate family owners, for instance.
And there is one important exemption to the requirement for residency – where the homeowner is not living in the property because, due to “mental or physical infirmity” they are in a hospital or even a long-term nursing home.
Gifts for children and staying within the rules
I am aware that you can receive €3,000 from any person in a calendar year without becoming liable to tax on it.
With that in mind, I wish to start gifting my infant children €3,000 per annum indefinitely. However, given that they are less than 7 years old, the bank (PTSB) has informed me that their accounts have to be in my name. Given these children’s accounts are in my name, does it still hold true that the €3000 per annum will not be liable to tax when the children are older?
Ms P.H.
If that is what the PTSB told you, they did not quite tell you the full story. It is certainly true that no child that young can have an account in their own name. However, PTSB allows you to have the relevant child’s name noted on the paperwork of an account opened by an adult.
That would give you (and Revenue) some comfort that the account and the sums within it were intended for the child and not simply a way of scamming the Revenue.
As an aside, any adult can open an account in this way at PTSB for a child, not just the parent, It could be a grandparent, a friend or even a neighbour.
When the child is older, the account can be transferred into their name.
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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