Mother inheriting a house, passing it straight to my brother and I. Tax implications

Lord TSC

Hey all,

I'll start this off by saying the plan is to talk to an actual accountant soon about this. But as I'm completely ignorant on the topic, I wanted to ask here so that when I do talk to them, I have some level of idea what to expect.

My grandmother recently passed away (after spending the last 7 years in a nursing home). At the time she went into the nursing home, she had left no will, and, being honest, we never expected her to last as long as she did. As such, her house was basically left empty. It was already in a dodgy state when she went in; now, it's basically unlivable in without heavy investment.

It's currently going through probate, but since my mother has no siblings, etc, we are 99% confident it will go to her. The solicitor has already briefed us on the taxes that may be due when Mom inherits the house (specifically in relation to the fact the house has been vacant for a few years, etc)

She has decided she wants to pass it on immediately to myself and my brother. I'm self-employed, and my brother has a "normal" job. The plan currently would be to sell the house, and try to buy somewhere else (probably an apartment, based on price ranges), and to then rent it out.

I am aware that there's probably going to be a myriad of tax implications as a result of all of this.

Presumably in the process of handing the house over to myself and my brother, that opens us up for some tax, as we aren't inheriting the house directly. We presume that when we sell the house, that we'll be taxed on the money going into a joint bank account?

Basically, what should we be expecting, and whats the best way to handle them transfers? The value of the house is roughly €120k, and there's a further 20k in the bank she'll inherit, which (if I'm reading right) falls under the threshold for inheritance tax.

If she gifts the house to us, what are we looking at tax wise? Does it count as falling under "inheritance tax" (I notice some sites seem to combine "gifts" and "inheritance" under one page). If we sell the house immediately, as a self-employed person, am I going to get hit with a massive tax bill on that end too?

As I said, I do plan on talking too an accountant in the next month or so about it, but if anyone had any thoughts about what to expect, I'd really appreciate to hear them

seamus

Gift tax and inheritance tax are functionally the same thing. Gift/inheritance from parent to child are in group A, which has a lifetime tax free exemption of €335,000.

So assuming your mother has inherited nothing else from her parents, then the full sum is tax free - the house and the cash in the bank.

In theory your mother should be able to pass the house onto you and brother tax-free, because the same exemption applies.

However there is a gotcha with CAT - if someone passes their inheritance to someone else within 3 years of receiving it, it's considered to be a direct gift from the original person. In this case, if your mother gives the money to you and your brother within 3 years, then it's not considered a gift from your mother, but a gift from your grandmother.

This puts the inheritance in a different tax band with a tax free exemption of 32,500. In your example, if you and your brother receive €60k each, then you pay no tax on the first 32,500 and 33% on the balance; €9,075.
This also causes an issue whereby you've used up your lifetime exemption for that group.

The best course of action in this case would be for your mother to sell the house immediately upon receiving it, put the money into a fixed-term savings account and then after 3 years give the money to you and your brother.

An accountant though may know of loopholes or other ways around it.

Calahonda52

In the context of the gotcha, could the Ma distribute 6 k of the cash each year, 3 k each, under the small gifts exemption?

Viscount Aggro

Within 3 years - could mean in the years before the inheritance also, correct?
It does not say,after the inheritance.
What if parent gifts money in months, years before the inheritance is received by your mother? Open to interpretation by Revenue.

Viscount Aggro

Seamus,

Your information is incorrect.
Check the Revenue website for CAT rules.
The 3 year rule for gift splitting is not relevant is this example.
Its 2 different issues, unrelated - the mother is inheriting the property.
She is then gifting the property or the cash from its sale.
They can use category A allowance for CAT.

thegolfer

seamus wrote: »

Gift tax and inheritance tax are functionally the same thing. Gift/inheritance from parent to child are in group A, which has a lifetime tax free exemption of €335,000.

So assuming your mother has inherited nothing else from her parents, then the full sum is tax free - the house and the cash in the bank.

In theory your mother should be able to pass the house onto you and brother tax-free, because the same exemption applies.

However there is a gotcha with CAT - if someone passes their inheritance to someone else within 3 years of receiving it, it's considered to be a direct gift from the original person. In this case, if your mother gives the money to you and your brother within 3 years, then it's not considered a gift from your mother, but a gift from your grandmother.

This puts the inheritance in a different tax band with a tax free exemption of 32,500. In your example, if you and your brother receive €60k each, then you pay no tax on the first 32,500 and 33% on the balance; €9,075.
This also causes an issue whereby you've used up your lifetime exemption for that group.

The best course of action in this case would be for your mother to sell the house immediately upon receiving it, put the money into a fixed-term savings account and then after 3 years give the money to you and your brother.

An accountant though may know of loopholes or other ways around it.

As Vigo Said, incorrect.

The three year rule relates to the Dwelling house relief.

No gotcha clause, this thresholds class a, and class a remain.

davindub

I am going to say that Seamus is not incorrect from my reading of the situation. I'll post the below from the Revenue guide on the Capital Acquisitions Tax Consolidation Act 2003 or you can view the act

I am not a CAT expert, but my understanding is that if the mother passes the property she inherited (inheritance is same as gift) within 3 years, the below would apply. If the mother sells the property and this funds the subsequent gift, the below would apply.

Revenue guide
Summary
This section seeks to prevent tax avoidance by gift-splitting. Where 2 or more gifts are made by successive disponers within 3 years, the second or subsequent gift is deemed to have been made by the original disponer to the ultimate beneficiary. Genuine cases are excluded from the scope of the section.


Details
Where 2 or more gifts are made by successive disponers within a period of 3 years, the second or subsequent gift is deemed to have been made by the original disponer to the ultimate beneficiary.

(1)
Example
A gifts property to B. B gives it to C who, in turn, gives it to D. The gifts are made within 3 years. C and D are deemed to take their gifts from A.
The section does not apply where the second or subsequent disposition was not made with a view to enabling or facilitating the making of the first disposition or the recovery of the cost of that disposition.

Viscount Aggro

Incorrect interpretation;

I called the CAT section in Revenue for clarification.

The first part is an inheritance, from grandparent to child.
Its not a gift, by definition.
The second stage is a gift.
The 2 are unrelated events.
Therefore, gift splitting is not involved.
Thats how they explained it to me.
See the worked example on Revenue website. Its clearly an example of gifting of an asset, via 3 generations, within 3 yearperiod.

davindub

Viscount Aggro wrote: »

Incorrect interpretation;

I called the CAT section in Revenue for clarification.

The first part is an inheritance, from grandparent to child.
Its not a gift, by definition.
The second stage is a gift.
The 2 are unrelated events.
Therefore, gift splitting is not involved.
Thats how they explained it to me.
See the worked example on Revenue website. Its clearly an example of gifting of an asset, via 3 generations, within 3 yearperiod.

No need to be rude please.

You might actually explain when you called Revenue and what was the context.

You may be right about the Revenue treatment of the legislation, and if you are great to know but I would hesitate to make an assumption that avoidance of the thresholds can be achieved by inheritance and then gift based on the worked example.

Lord TSC

Thanks for the feedback, everyone.

I've got an appointment booked with an accountant for next week anyway, but I super appreciate the help, especially (if I'm reading this right) Viscount for ringing up Revenue

v638sg7k1a92bx

A lot of Bro tax advice on here. You need to hire a Chartered Tax Adviser.

Viscount Aggro

Let us know how you get on, and what your accountant says?
I think this requires more than a standard accountant to advise on,
and I have often been given conflicting answers from Revenue staff.

pablo128

Don't they take the nursing home fees from the estate now?

Spanish Eyes

If your mother inherits under intestacy from her mother (your grandmother), she will have a tax free threshold of 335k provided she hasn't been gifted or inherited anything else from either of her parents.

If so, depending on the value of the house, she may have no CAT to pay.

She can (when the property is registered in her name) then gift it to you and your brother. You will both have a tax free threshold for this gift from your mother of 335k each.

Gift splitting is not an issue here. Gift splitting is an anti avoidance measure to prevent say a grandparent gifting to a child, and the child immediately gifting to their child which is what the grandparent wanted to achieve, but if they had gifted directly to grandchild, the Tax Free threshold is only 33.5k.

That's all, and it could be planned that way with Class A threshold for all transactions if the Section 8 rule was not there.

No one can plan re a death really, so it only applies to gifts.

JustAThought

pablo128 wrote: »

Don't they take the nursing home fees from the estate now?

only f the ‘fair deal’ - meaning the unfair deal - was set up and in place - may or may not have happened. OP regarding the 20k - your mother could withdraw this in cash amounts and just give it to you like many families do - no need for a declaration or using up tax credits. Wouldnt it be smarter and more rax efficient for your mother to inherit, rent it out and let it appreciate, and when nature takes its course you could then inherit using your child inheritance tax credit - make lot better logic in my book? Regardless, my condolences on your grannys death - your mom sounds like a very generous person.

Spanish Eyes

pablo128 wrote: »

Don't they take the nursing home fees from the estate now?

Only if the 7.5% levy for three years (if the property was the family home), was deferred.

If it was, 22.5% of the value of the house is recovered from the estate alright.