Lifetime Interest v Right of Residence

sportsfan90

Hi All, not sure if this is one for the Taxation forum or Legal Discussion. Feel free to link any previous threads if this has come up before.

A colleague of mine is in the process of getting his parents family home signed over to him (parents in their 70s, son 30s if that matters).

While the parents want to sign over the house, they agreed that there'd have to be some protection for themselves so that they could live there for the rest of their life.

As far as I can see they have 2 options: A) parents signing house over and they keep a Lifetime Interest in the property, or B) signing it over to the son with the parents having a Right of Residence in the house.

Some of the items that I've thought of are below, I'm sure there's many more so feel free to indicate other points to consider.

Firstly, is it definitely possible to sign over a house and include a Lifetime Interest or a Right of Residence for YOURSELF? Any examples I've seen online only specify that they were given to other people (eg. in a will to a sibling or nephew).

In the Lifetime Interest option, do the parents names remain on the deeds or would it be in the sons name only?

For either option, would the son have a further tax bill to pay years down the line when both parents are deceased and he gets full use of the property for his own use with no other parties having a stake so to speak.

Revenue website states that 'A right of residence is chargeable to tax'. Is it the person getting the Right pays this or the son who's getting the house? Also what tax, do they mean Inheritance Tax, Income Tax?

In the event that Fair Deal scheme ever came into affect years down the line, would either option result in the house still being considered an Asset of the parents?

They will of course be getting a solicitor but I'd like to give them some info first so they're not going in clueless and become overwhelmed. It's quite complex so if anyone here can help me understand the differences pros/cons of the two options please that would be great.

Spanish Eyes

Can you say what the purpose of signing the house over is?

If son lives in this house with the parents and has no interest in any other property, then under most circumstances if they leave house to him in their will there will be no tax to pay due to the Dwelling House Exemption. There are other conditions so look up DW exemption.

Yes you can transfer real property and retain a right of residence. Generally the value of the ROR is accepted as being 10% of the market value. It is deducted by the recipient for tax purposes, and added back when the ROR ceases on the deaths of the donors, assuming this is way it is intended to structure the transfer.

A life interest is usually donated via a will or gift to a beneficiary. The value is calculated using the factors in Schedule 1 of the CAT Consolidation Act.

Regarding the Fair Deal, the son would be the owner of the property subject to a ROR in favour of the parents. I am not sure if the value of the ROR is taken into account for FD, but if the transfer is effected, the parents will no longer be the owners of the property.

sportsfan90

Thanks for the reply.

I'm not sure what their purpose is for signing the house over now rather than waiting until both parents pass away in 10 or 20 years time, it wasn't really my place to ask them that. Is there a reason why it would matter?

On your paragraph regarding the ROR being 10% of the market value - by 'recipient' do you mean the person receiving the house (ie the son) or the person gifting the house but receiving the ROR (ie the parents)?

On the examples https://www.revenue.ie/en/gains-gifts-and-inheritance/valuation-date-value-certain-benefits/rights-of-residence.aspx on the Revenue website, they come up with an 'Annual Value of ROR'. Does anyone know how this is calculated? In both examples it's 1% of the market value but it doesn't state if that's the method used to calculate it.

ohnonotgmail

best thing is to talk to a solicitor first. let the solicitor know what you want to achieve and let them figure out what the options are.

phildub

I'm not sure life interest works in this situation if it is left in a will, "to A for life and then B" the title would go to A, A would be entitled to sell the property however there would be a resulting trust in favour of B so A would be obligated to not dissipate the funds

Right of residence would be registered as a burden on the property so if A has right of residence and B tries to sell B would be selling with right of residence for A

CAT is calculated on market value of property however there are reductions with ROR which will then become due when B gets the full interest of the property (when A is deceased)

But these are things I've seen with wills, you really need to speak to a solicitor to get sound advice especially regarding the tax