Inheritance tax planning as per Irish Times

Calahonda52

http://www.irishtimes.com/business/personal-finance/death-and-taxes-five-ways-to-reduce-the-tax-bill-on-your-estate-1.2275372

Is a link to a number of suggestions
Number 3 has me puzzled:
3 MOVE THE CHILDREN BACK HOME If you have children and fear they may face taxes due to the size of their estate, you could consider availing of family-home relief as a way of preserving their exemption thresholds.
Under this relief, if a child lives in the family home for three years leading up to the gift or inheritance (and has no other property themselves), the parent can then gift it to them tax free, as long as the child then stays in the property for six years after the handover and doesn’t own other property in that time.
Certain nuances can make it less restrictive. Consider the example of a couple who have a family home worth €550,000 and an investment apartment worth €250,000. With just two children, each is likely to face capital acquisitions tax on assets of about €175,000 (allowing for the tax-free threshold of €225,000 applying to each one of them).
If, however, one of the children moved into the apartment with their partner, and stayed there for three years, the parents could then gift the apartment to that child, and they wouldn’t be liable to any capital acquisitions tax. And, while ostensibly she’s supposed to stay in the apartment for a further six years, a trading-up clause in the relief would allow her to sell the property and trade up to a larger home straight away.

How is the apartment, an investment property, a family home?

dogsears

Calahonda52 wrote: »

http://www.irishtimes.com/business/personal-finance/death-and-taxes-five-ways-to-reduce-the-tax-bill-on-your-estate-1.2275372

Is a link to a number of suggestions
Number 3 has me puzzled:
3 MOVE THE CHILDREN BACK HOME If you have children and fear they may face taxes due to the size of their estate, you could consider availing of family-home relief as a way of preserving their exemption thresholds.
Under this relief, if a child lives in the family home for three years leading up to the gift or inheritance (and has no other property themselves), the parent can then gift it to them tax free, as long as the child then stays in the property for six years after the handover and doesn’t own other property in that time.
Certain nuances can make it less restrictive. Consider the example of a couple who have a family home worth €550,000 and an investment apartment worth €250,000. With just two children, each is likely to face capital acquisitions tax on assets of about €175,000 (allowing for the tax-free threshold of €225,000 applying to each one of them).
If, however, one of the children moved into the apartment with their partner, and stayed there for three years, the parents could then gift the apartment to that child, and they wouldn’t be liable to any capital acquisitions tax. And, while ostensibly she’s supposed to stay in the apartment for a further six years, a trading-up clause in the relief would allow her to sell the property and trade up to a larger home straight away.

How is the apartment, an investment property, a family home?

If the child moves in there and lives there its their home, especially as they have to be there for 3 years. An investment property for one person is a home for another.

In any case the rules of this relief make no reference at all to a "family home". They simply refer to a "dwelling house" (an apartment would qualify) and have rules about the period of time a person has to live there (and some other requirements e.g not owning other property at the time etc). So the article was misleading if it made you or anyone else think it had to relate to a family home i.e the home of the parents and children referred to in the article. I can see how you might think that but all the rules require fundamentally is that the property is being gifted to (or inherited by) a person whose dwelling house it was for the required time.

As a general rule articles about tax in newspapers are just inaccurate enough to not be total bull**** but not sufficiently accurate enough to be of any great use to anyone.

brucky

The threshold for Inheritance tax changed in 2009. As an only child if I was to inherit my mother’s house I would be unfairly penalised by the current €250k limit. This would without doubt inflict a massive financial liability on me, and my family. In addition to this and as a member of the negative equity generation it means that without doubt I would be forced to sell the family home and it would feel like a double blow. This the same for a lot of families accross the country. We should now lobby Minister Noonan & the TD's ahed of the October budget. Your parents work all their life and a vast chunk is taken by the tax man its completely unfair & unjust. The economy is starting to turn and we should be pushing to have the threshold increased as Irelands is the highest in Europe.

Mr. Incognito

The Article is misleading to be honest. It has some sprinking of truth in it.

For example, one does not simply set up a trust for example. It has to be irrevocable and for defined reasons such as education or making provision for a need.

Dwelling House Relief yes, in limited circumstances for the Child to be free of CAT, but CGT still applies for the parent unless its the family home. PPR relief would apply if its the family home otherwise there is a CGT hit which is why the article mentions the family home.
You would also have to pay stamp duty on the transfer.

It's like all things. You have to dumb it down and over simplify for a mass audience but tax is nuanced. It is not one size fits all. It's just a consequence of getting lost in translation

Calahonda52

brucky wrote: »

The threshold for Inheritance tax changed in 2009. As an only child if I was to inherit my mother’s house I would be unfairly penalised by the current €250k limit. This would without doubt inflict a massive financial liability on me, and my family. In addition to this and as a member of the negative equity generation it means that without doubt I would be forced to sell the family home and it would feel like a double blow. This the same for a lot of families accross the country. We should now lobby Minister Noonan & the TD's ahed of the October budget. Your parents work all their life and a vast chunk is taken by the tax man its completely unfair & unjust. The economy is starting to turn and we should be pushing to have the threshold increased as Irelands is the highest in Europe.

1: if you are going to make an argument it does help to begin with the correct facts.
The limit to which you refer is now 225k, since 2012
2: You don't have to take the house, even if left it.
3: You may not be left it, you have no entitlement to anything from your mothers estate.
4: If she has to go into care and uses the unfair deal scheme they may be nothing left.
5: You are still going to have a chuck of money even after paying the tax.
6: House price appreciation has zip to do with folk working all their lives

Mr. Incognito

brucky wrote: »

The threshold for Inheritance tax changed in 2009. As an only child if I was to inherit my mother’s house I would be unfairly penalised by the current €250k limit. This would without doubt inflict a massive financial liability on me, and my family. In addition to this and as a member of the negative equity generation it means that without doubt I would be forced to sell the family home and it would feel like a double blow. This the same for a lot of families accross the country. We should now lobby Minister Noonan & the TD's ahed of the October budget. Your parents work all their life and a vast chunk is taken by the tax man its completely unfair & unjust. The economy is starting to turn and we should be pushing to have the threshold increased as Irelands is the highest in Europe.

Limit is the Tax Free Threshold.

So if the House is worth 300 K you only pay tax on 75K at 30%.

That means you inherit an asset worth 300K and pay 22.5K (Ignoring annual exemption.

That's not excessive or unfair.