I’m a single person living in the family home. I never married or had a family of my own. I have two brothers and they have their own homes.
I want to let my house to my nephew/godson. He stays with me a few nights a week for the past 10 years. Is there a way that I can do that?
Ms M.H.
I am not entirely sure whether you are suggesting you want to leave the house to your godson when you die or let it to him now.
The latter is quite straightforward. If you were letting it to him now, he would either have to pay the market rent or he would be seen to be getting a gift from you on the difference between the market rent and what, if anything he pay. That would be set against a lifetime limit of what he can get from you and other close relatives. And what’s that limit?
Well, the first €3,000 of rent forgone each year would be covered by the small gift exemption. As he is your nephew, he then falls into category B for gifts and inheritances — where he can receive lifetime benefit of €40,000. That includes any gifts or inheritances from you, from his brothers and sisters, any other aunt or uncle or any grandparent.
Above the €40,000, he pays tax at 33 per cent to Revenue.
I suspect you mean to leave the property to your godson and this also raises similar issues. It is a big bugbear for any childless adults — whether single or otherwise — and is subject to an ongoing campaign led by general election Independent candidate and former Fine Gael minister for justice Alan Shatter. Essentially, as they have no children, anyone benefiting from them in a will or through a gift is more likely to pay tax.
Children can receive up to €400,000 in assets or cash from their parents either by way of gifts or inheritance. The best anyone else — like a nephew — can do is just a tenth of that, €40,000.
There is a logic to this, especially in the context of government policy that continues to favour families and married couples in our tax code. But that’s of little consolation to people like you who would like to leave a substantial gift to a favoured relative only for them to have to sell it to meet the tax bill.
And it is certainly something that I am increasingly getting representations from people.
There is only one way around this that I can see and that is something called dwelling house relief. However, your godson will need to be spending more than a “few nights a week” with you to benefit.
Dwelling house relief says that someone can receive a property free of inheritance tax if they meet certain requirements. These include that the property is their main home for at least three years before the owner dies and that they have no financial interest in any other property.
That doesn’t mean your godson could never not spend the night in your home but it would definitely need to be his main home, where all his bills and other mail are sent and the address at which he is registered, for instance, on the Electoral Register, his bank accounts etc.
The property also needs to be your main or family homes, as it is.
Finally, your godson would need to continue to live in the house for at least six years after you died; otherwise, he would face a clawback of the relief — ie, he would face an inheritance tax bill.
He would be allowed to sell the property in that time — not that this is what you intend — as long as he used all the net proceeds to buy another property. If the house or apartment he bought was cheaper, the surplus would again become liable for clawback.
However, there is an exemption to this requirement to live there if he had to live elsewhere for his job, for instance, if his work was so far from this home that he could not reasonably commute from there every day.
Aside from the dwelling house exemption, your nephew and godson will certainly face a tax bill on any inheritance of your home and that might well force him to sell the property. Of course, living there full-time for the next nine years (at least) might also not work for him.
Will the inheritance tax rules change to allow people without children to nominate someone as a “favoured relative” to benefit from the higher tax-free threshold reserved for children?
I cannot see it in the short term. People in a couple who lose out from the full tax-free exemption on inheritance between spouses simply because they are not married (civil, not necessarily religious), regardless of how long they have been together are likely to be further forward in the queue for any reform when it comes.
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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