Property and inheritance tax – your questions answered
Crowe tax director, Michael O’Scathaill answers Sunday Times readers’ questions on property and inheritance.
The following is an extract from the 31 January 2021 edition of the Sunday Times.
Question: I am a widower aged 73 with no children. I wish to leave my house, which is valued at €300,000, to my deceased wife’s niece and her three children. Is it true that I can only leave €13,500 to each of them, and then they pay 33 per cent tax on the remainder of the estate? I could possibly include their parents, knowing they would pass the inheritance on.
Terry
Answer: I understand from your query that you are considering bequeathing the house in which you live, currently valued at €300,000 to your late wife’s niece and her three children in four equal shares and that this is the only benefit they will receive from your estate. Furthermore, I understand they do not live with you in this house, nor do they intend doing so in future so that the Dwelling House Exemption from CAT is unlikely to apply.
The first thing to consider is the relevant CAT class threshold applicable. Gifts/inheritances between parents and children fall into Class A, those taken from aunts/uncles, brothers/sisters and grandparents fall into Class B and the rest fall into Class C.
In this case, as the proposed beneficiaries were blood relatives of your late wife and not you, the inheritance will fall into Class C. This threshold is currently €16,250 and it is only once this is breached that CAT, currently at a rate of 33% will be payable. All other Class C gifts/inheritances taken since 5 December 1991 must however be amalgamated with this inheritance for the purposes of determining if the threshold has been breached.
Assuming that no such prior gifts/inheritances have been taken by any of the four beneficiaries, the tax payable by each of them would be €19,387, or €77,550 in total. In addition to quantifying the tax liability, they would also need to consider how to fund it. This may not be straightforward as the house may take time to sell and if they intend living in it at that stage alternative sources of finance will have to be sought, although Revenue in certain circumstances facilitate the payment of the tax due over a five year period, albeit this would be subject to interest charges.
Your make particular reference to including the parents as beneficiaries; I understand this to refer to your inclusion of the children’s mother, your late wife’s niece, as a beneficiary, rather than transferring the house to the three children only, thereby enabling her Class C threshold of €16,250 to be used, as assumed above. If a second parent was to be included as a beneficiary, that parent’s Class C threshold, if unused might further reduce the CAT liability by up to €5,362.
In turn, the parents might gift their share to the children, and if this did not cause each child’s Class A threshold of €335,000 to be exceeded no CAT would arise on that gift; however, this would have to be at their parents’ discretion as, if your bequest to them was conditional in any way on the subsequent gift, it could be deemed to be a direct bequest from you to the children.
For additional information on inheritance tax, or any personal tax matters, please contact a member of our tax team.
Question: I am a widower aged 73 with no children. I wish to leave my house, which is valued at €300,000, to my deceased wife’s niece and her three children. Is it true that I can only leave €13,500 to each of them, and then they pay 33 per cent tax on the remainder of the estate? I could possibly include their parents, knowing they would pass the inheritance on.
Terry
Answer: I understand from your query that you are considering bequeathing the house in which you live, currently valued at €300,000 to your late wife’s niece and her three children in four equal shares and that this is the only benefit they will receive from your estate. Furthermore, I understand they do not live with you in this house, nor do they intend doing so in future so that the Dwelling House Exemption from CAT is unlikely to apply.
The first thing to consider is the relevant CAT class threshold applicable. Gifts/inheritances between parents and children fall into Class A, those taken from aunts/uncles, brothers/sisters and grandparents fall into Class B and the rest fall into Class C.
In this case, as the proposed beneficiaries were blood relatives of your late wife and not you, the inheritance will fall into Class C. This threshold is currently €16,250 and it is only once this is breached that CAT, currently at a rate of 33% will be payable. All other Class C gifts/inheritances taken since 5 December 1991 must however be amalgamated with this inheritance for the purposes of determining if the threshold has been breached.
Assuming that no such prior gifts/inheritances have been taken by any of the four beneficiaries, the tax payable by each of them would be €19,387, or €77,550 in total. In addition to quantifying the tax liability, they would also need to consider how to fund it. This may not be straightforward as the house may take time to sell and if they intend living in it at that stage alternative sources of finance will have to be sought, although Revenue in certain circumstances facilitate the payment of the tax due over a five year period, albeit this would be subject to interest charges.
Your make particular reference to including the parents as beneficiaries; I understand this to refer to your inclusion of the children’s mother, your late wife’s niece, as a beneficiary, rather than transferring the house to the three children only, thereby enabling her Class C threshold of €16,250 to be used, as assumed above. If a second parent was to be included as a beneficiary, that parent’s Class C threshold, if unused might further reduce the CAT liability by up to €5,362.
In turn, the parents might gift their share to the children, and if this did not cause each child’s Class A threshold of €335,000 to be exceeded no CAT would arise on that gift; however, this would have to be at their parents’ discretion as, if your bequest to them was conditional in any way on the subsequent gift, it could be deemed to be a direct bequest from you to the children.
For additional information on inheritance tax, or any personal tax matters, please contact a member of our tax team.
