Inheritance Taxes

nosmo-king

A man leaves his house to his niece about twenty years ago. It will become hers after the death of his own duaghter who will live on in the house . The daughter dies about two years ago.
To calculate how much tax is due does one work on the value of the house at about thenty years ago (when the man died) or the value at the time of daughters death.
Look forward to any info
Tks

ambro25

...licks finger and sticks it in air, gauges, licks again, gauges some more...

and ventures: at the time of the daughter's death, since the house does not become part of the niece's estate before then.

Now, what he should have done was leave the house to the niece when he pegged, under covenant that she lets his daughter live in it until her passing = inheritance tax earlier (so cheaper, considering real estate boom lately).

Or even better, sells it her in viager [FR term, sorry, I don't know the English term for this: basically, she pays him (€1 a month/year/whatever), he stays in, she gets house when he pegs - minus inheritance tax].

Or better still - flog the bricks, stick the cash in a numbered account and sign up power of attorney for niece, provide the account number & the power of attorney to the niece upon passing - again minus inheritance tax.

dermot_sheehan

nosmo-king wrote:

A man leaves his house to his niece about twenty years ago. It will become hers after the death of his own duaghter who will live on in the house . The daughter dies about two years ago.
To calculate how much tax is due does one work on the value of the house at about thenty years ago (when the man died) or the value at the time of daughters death.
Look forward to any info
Tks

I haven't done tax law for several years now so this is very rusty and I stand to be corrected on anything as tax law changes every bloody year. You should really go to a professional tax advisor


The question is what interest the daughter was given, according to s. 11 of the Capital Acquisitions Tax Act http://www.irishstatutebook.ie/ZZA8Y1976S11.html a transfer takes effect when the donnee is beneficially entitled in possession. I suspect, but do not know that this applied in this case, the daugher was either given a life estate, or else the house was transfered to to niece for the benefit of the daughter for the rest of her life. In either of these cases the daughter would be "beneficially entitled in possession". I'm not sure what the situation would be if the house was transfered to the niece and a right of residence created in favour of the daughter.

In the case I outlined, the daughter would have been liable for capital acquisitions tax, so it would have been paid when the father died (It might not have been because the threshold is very generous for direct lineal descendents, about €380,000 now, it would have been something similar taking into account inflation 20 years ago). Capital acquisitions tax of 20% of the value of the house at the date of the daughther died would have had to been paid (with about a €38,000 exemption). The value date for capital gains tax purposes is reset to the date of death, so if the niece sells the house now she's liable to the change in value since that date at 20% (This is assuming she can't avail of the principle private residence exemption, which she can't I believe if it's been her principle private residence for less then 3 years I think.

I hope this makes some sort of sense.


For capital gains tax purposes a transfer on death is not s disposal, and the value is reset at death. So for capital gains tax purposes is the change in value between the time the daughter died and the present time.

EducatedGuess

Viager is also known as a Reverse Annuity Mortgage or Charitable Remainder Trust. E.g. a person would sell their property to a purchaser in exchange for a down payment and regular cash installments for the rest of their life [while continuing to live in the house]. The only catch is that when the person dies the property is surrendered to the purchaser. The advantage of a viager agreement is it allows elderly people to benefit from the sale of their homes while retaining its use. The downside is that if the person dies one week after entering the arrangement, then the buyer gets the property for a fraction of the cost.

ambro25

EducatedGuess wrote:

Viager is also known as a Reverse Annuity Mortgage or Charitable Remainder Trust. E.g. a person would sell their property to a purchaser in exchange for a down payment and regular cash installments for the rest of their life [while continuing to live in the house]. The only catch is that when the person dies the property is surrendered to the purchaser.

Thanks for the precisions

EducatedGuess wrote:

The advantage of a viager agreement is it allows elderly people to benefit from the sale of their homes while retaining its use. The downside is that if the person dies one week after entering the arrangement, then the buyer gets the property for a fraction of the cost.

It's only a downside if you're the seller - but by then it doesn't really matter, though!

(Of course, the reverse is equally true: if you close the deal with an OAP age 75 for X per year/month and you pay for 5 years, great. But if you end up paying for 25 years, depending how much 'X' is relative to the total value of the house, maybe not so great - 'tis a gamble alright, but no more so than a 'normal' mortgage with interest rates subjected to central banks' decisions/especially since it's contractual between individuals and once the deal is done, if you've been clever with your terms, interest rates etc. never need become a factor)

nosmo-king

Thanks for all replies
A lot of work to be done!