My father would like to sign over the family home to myself and my two sisters now while he is still alive. He lives with his partner, and has no interest in her property. The family home is his only property.
I have been living in the family home for the last five years with my partner and two children, initially to look after our mother who was dying from cancer. We have no other interest in a property.
We would like to continue living here and take it over as our home while we can still afford it.
So if our dad was to transfer this property to the three of us, would he be liable for any tax?
I would then like to buy my two sisters out of their share. Would there be any tax implications for any of us? The property have been valued at over €1 million.
Ms LG
I can see why you and he would be keen to get this resolved, but you might need to think again on the timings and how it is done.
There are different rules for gifts and inheritances in Ireland, even though they are governed by the same legislation. This is particularly so for something called the dwelling house exemption – a valuable relief from tax that allows a person to inherit a property free of tax under certain circumstances.
[ Inheritance tax is a real bugbear for people who do not have childrenOpens in new window ]
If you take the house in his will after he dies, have no other property and have lived in it as your main family home for the previous three years, you would not have any inheritance tax to pay – presuming he currently lives in the house as his main family home. The exemption falls if his main home is now his partner’s house.
If, however, you take it as a gift while he is still alive, you cannot avail of that exemption unless you are either over the age of 65 or are a dependent relative – with dependent being defined as someone unable to provide for themselves due to being “permanently and totally incapacitated due to physical or mental infirmity”.
I suspect you do not meet either of those criteria.
Of course, liability to tax does depend on value and relationship to the donor.
If the property is worth less than €1.2 million and there are three of you inheriting or receiving it as a gift, then you would each remain under the current tax-free threshold of €400,000 for children inheriting from their parents.
That presumes (a) you inherited nothing from your mother when she died, and (b) none of you has received any large gifts (anything worth more than €3,000 from your parents in a given tax year). If you have, you will likely find yourself above the €400,000 lifetime limit. You pay capital acquisitions tax on anything above that limit.
If you proceed as you intend, there will be no tax payable by your father – as long as this is still his main or only family home, his “principal private residence” – which I think you can argue it is. It is unclear if he would have a life interest in the property – ie, the right to continue living there – or whether he plans to live in his partner’s house, but that would impact the timing and, potentially, the liability to inheritance tax.
You three, however, would be liable for stamp duty on the transfer. It is levied at 1 per cent up to the value of €1 million and 2 per cent on anything between that and €1.5 million, presuming the house sits on a site that is no more than one acre. If it is larger, the bill would be higher.
In this case, you would be facing a bill north of €10,000.
That aside, your plan to subsequently buy your sisters out of their share of the property could expose them to capital gains tax. That would be assessed on any increase in the value of the property between the time the three of you received it from your father and the time you actually complete the buyout of their shares.
Any capital gain above €1,270 is charged at 33 per cent. Again, there would likely be liability to stamp duty on those transfers.
As your father is not married to his current partner, she has no “legal right share” to a portion of his estate when he dies. However, if he was to marry her, she would automatically be entitled to a third of his estate, given he has children. It would be higher if he did not.
That legal right supersedes anything that might be in his will – unless she chooses not to exercise her right. So, if his will left the property to the three of you siblings and that was all he owned, she would be able to demand a third of the value. Of course, if he has gifted the property before that, it becomes a moot point.
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
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
