Hypothetical inheritance issue with house.

Squipo

This is a hypothetical question.

Imagine if John and Mary had a house in an affluent area, say, Foxrock.

They built an unauthorised extension without planning permission.

They have an adult son.

They both die and the son inherits the house.

The house is valued at €1,000,000. Well above the €335,000 limit. So 33% of €665,000 must be paid, ie, €219,450. Their son doesn’t have this money nor did his parents leave money.

He can’t sell the property due to the unauthorised extension.

What happens?

Xander10

https://www.boards.ie/discussion/2058357052/hypothetical-inheritance-issue-with-house

Apply for retrospective planning permission. Get same. Sell house . Pay tax

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Mrs OBumble

Anything can be sold, if the price is right.

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Viscount Aggro

Does the son live in the house... Or own any other property?

Dwelling house exemption.

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Mrs OBumble

https://www.boards.ie/discussion/comment/122296001#Comment_122296001

Find a house like that IRL, and I'll buy it from you for €1k, no matter what any solicitor advises.

3DataModem

"The house is valued at €1,000,000."
- If it cannot be sold at 1m, then it is not valued at 1m.

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Buddy Bubs

Id imagine retrospective refit of the house to whatever standards is allowed and then sell it.

DOCARCH

https://www.boards.ie/discussion/comment/122296382#Comment_122296382

I have never heard of an unauthorised development/extension devaluing a property to any great degree, so, if you are trying to suggest the house value might be 1/4 (or something like that) less, and thus inheritance tax less, Revenue may very simply reject a lowball valuation.

Revenue may decide/impose value on the house and then the tax will simply be due and not Revenue problem whether it can be sold or not!

Lots of houses that come up for sale have issues with unauthorised development/extensions. Either dealt with by means retention permision or simply knocking!

And/or, if the unauthorised development/extension has been there for more than 7 years then the local authority is statute barred from taking enforcement proceedings, and while title may not be squeaky clean for a person to buy the house with mortage funding (althought does happen), no such issues for cash buyers (once they are aware what they are taking on).

3DataModem

https://www.boards.ie/discussion/comment/122296382#Comment_122296382

The executor / administrator will have to provide a valuation of the house that is fair and honest. It will probably be something like "if we knocked down the crappy extension, we could sell it for X, therefore X is the value". If X is (say) 850k then that becomes the inherited value.

However OP is asking what happens if they don't sell.

Well, the solicitor advising the executor / administrator will advise them that the tax should be paid prior to transfer of the house. If not paid, then Revenue will whack on interest and penalties until it CAN be paid. The interest rate is higher than any other interest rate out there, so the inheritor is motivated to get a mortgage on the property to cover the tax (or indeed, sell). If an inheritor reaches out to the revenue and says "no cash, can't pay" then the revenue generally will agree to a payment plan, but they'll be pretty damn serious about it. A house worth 850k more or less anywhere in Ireland could in theory be rented for 3k per month or more, and Revenue knows this. Revenue also knows how much you earn, because … they are Revenue.

HOWEVER…. if the adult son lived (and really lived) in the house for the previous 3 years, and has no other property, then they may be exempt from Inheritance tax, but they'll have to stay living in the house for a further 6 years.

i.e. the revenue doesn't make a person homeless if they live at home and their parents die.

Peregrinus

https://www.boards.ie/discussion/comment/122296379#Comment_122296379

This. If the house can't be sold for €1 million, why has it been valued at €1 million?

Assuming the parents haven't yet died, you have two choices.

First, sort out the PP now, before they die, so that when the sad day comes the house can be sold for €1 million (or whatever the market value is at that time of such a house with no planning violation hanging over it). Everybody's happy.

Secondly, wait until the parents die. Then value the house based on what you could get for it from a buyer who knows he's goin to have to sort out the planning issue — let's say €800k at today's prices, but obviously when the time comes you'll need a professional valuation.

In the second scenario, when the parents die the son has the option of selling the house for €800k (or whatever), paying CGT, trousering what's left; or (b) borrowing to pay CGT based on the €800k valuation, sorting out the planning problem (God willing) and then selling for $1 million (or whatever). The €200k increase in value between death and sale will attract CGT, and son will be banking on whatever is left to him after paying CGT and paying the costs of sorting out the planning problem will more than cover the cost of borrowing to pay the CAT liability.

3DataModem

The son would be well advised to move in during the 800k-1m "upgrade" to avoid CGT.

gipi

Check out a section 72 insurance policy, which is specifically designed for inheritance tax.

Son takes out the policy, which pays out when parents die.

https://mmadvisors.ie/section-72-policies/

Peregrinus

https://www.boards.ie/discussion/comment/122296623#Comment_122296623

Depending on how long this takes to sort out, moving into the inherited house to establish it as his PPR risks losing PPR status in relation to the house he already owns - you can only have one PPR at any time. The possible consequences of this would need to be factored into the calculation.

Chris_5339762

https://www.boards.ie/discussion/comment/122296397#Comment_122296397

Revenue dont, but Fair Deal pretty much do.

Deeec

Another thing to bear in mind is dept of social welfare. They also do a review of the deceased persons estate. I had an uncle who was in receipt of a non contributory pension. It seems he wasn't honest about his income, cash assets and property when he applied for the pension and wouldn't have been entitled to what he was recieving. Social welfare ended up demanding 36k from his estate when he died. The solicitor said this wasn't unusual at all and happens in many cases.. I wasn't aware that dept of social welfare could also take a chunk.

Not applicable in every case but is worth thinking about.

Geuze

https://www.boards.ie/discussion/comment/122297120#Comment_122297120

Yes, this is common, and welcome to see the State take action against fraudulent welfare claims.

My great-aunts were caught for this, well to be precise, their estate was caught for this.

Geuze

@Deeec

I had a chat with the head of non-con pensions a few years ago.

He said that the non declaration of assets is an issue, especially famers with land, etc.

Also, he said that while the non-con pension is in payment, some of the pensioners spend so little, and save so much, that they subsequently fail the means-test.

Deeec

https://www.boards.ie/discussion/comment/122297161#Comment_122297161

Yeah that was the issue in his case. He had land but actually never earned much money from it. He lived very frugally and spent nothing which grew his bank balance. He would have been better off from a fair deal point of view and social welfare view to have spent every penny.

I guess he thought when he filled in the forms he was being clever or in his eyes he wasn't rich. Lying on forms always catches up with you in the end.

Claw Hammer

https://www.boards.ie/discussion/2058357052/hypothetical-inheritance-issue-with-house

The fact of an unauthorised extension doesn't make a property unsaleable. Even properties that have no planning at all can be sold. All that happens is that a buyer aware of the issue will negotiate a discount. If the unauthorised extension has been there over 7 years and enforcement is statute barred it is less of a problem. A bank lending on a valuable property will ge3nerally only lend with a low LTV and won't be bothered if the LTV is down around 50%. The real trouble with unauthorised extensions is at the bottom of the market with buyers looking for 90% mortgages. The lenders will be loath to lend. Even so, there are plenty of cash buyers around. There is a road in Castleknock where the original developer slotted in an extra house by taking 1 foot of ground from every other house on the road so that the houses as built do not match the site for which they have planning. Houses sell on that road without trouble for over €1m.

Inheritance tax (CAT) has to be paid according to the tax year in which the disposal is deemed to have been made. It is usually the date of death but can be later if there are complications.

Rosahane

https://www.boards.ie/discussion/comment/122296015#Comment_122296015

A certain size of single story extension, such as a conservatory to the rear of a house can be without planning permission. Something like 20 Sq metres!