Inheritance Tax and 1/2 share of a house.

homerjay2005 · 29-08-2014 11:08am #1

a friend of mine has been looking after a distant relative (along with another distant relative in their family) for many years now and they jointly have been given the house in the will with immediate effect as sadly the man passed away last month.

She is looking at buying the other person out of the house.

does anybody know how much inheritance tax she will need to pay (%) and would she be able to get a mortage for 1/2 the house?

her worry is that for taxation purposes, she could be forced to get the full mortgage, pay tax on the full amount and then pay off the mortgage - the money left after the tax (if that makes sense).

or perhaps an easier question, how can she pay inheritance tax on her own half, if she doesnt actually have any money?

all advise or experience really appreciated.

D3PO · 29-08-2014 11:50am

what does "with immediate effect" mean. There will be a probate process nobody gets anything with immediate effect when somebody dies.

re how can she pay her inheritance tax. She either will need to get a loan if she cannot afford it herself or she will have to agree to sell the property and use the proceeds to pay the inheritance tax and keep whatever is left.

Seamu$ · 29-08-2014 1:07pm

What were formerly known as Inheritance Tax and Gift Tax are now Capital Acquisitions Tax (CAT). The deceased mans Will must be executed before any property will be registered in your friends and their relatives names. As DP3O says this may take quite some time. The longer it takes, the further any tax liability is pushed. Details of CAT can be found here and here. The house will have to be valued by an auctioneer/estate agent for the purposes of the tax. The lower the valuation the better for tax purposes!

As the deceased man is a "distant relative" the Group C threshold is likely to apply, so if the house is valued at €200k for example, the value of your friends inheritance is deemed to be €100k, and the tax liability would be €100,000 - €15,075 (Group C threshold) = €84,925 x 33% (CAT Rate) = €28,025.25.

Your friend should, at the very minimum, seek advice from a Solicitor to act on their behalf to ensure their interests are protected, and the Solicitor will be able to assist with the tax calculations. (There may be allowable deductions such a funeral expenses etc. to be paid which can be used to reduce the tax liability.)

Once the Will is read there may be other assets other than the house such as cash that your friend might inherit also.

Your friend will have some time to arrange the tax payment. "If the valuation date is between 1 January and 31 August, you must complete the tax return and pay the tax on or before 31 October in that year. If the valuation date is between 1 September and 31 December you must complete the tax return and pay the tax on or before 31 October in the following year." So a valuation date between Sept and Dec can be quite useful if it can be arranged. If your friend doesn't have enough cash to pay the CAT they will need to take out a bank or credit union loan to do so.

Once everything has gone through, your friend can approach a bank about getting a mortgage to purchase the remaining 50% of the property. It is an entirely separate transaction to the inheritance. For example, if the house is valued at €200k for CAT purposes and then your friend pays €110k for the other 50% of the property, their relative has made a €10k gain and will be liable for Capital Gains Tax on the sale.

Hope that helps a little. If they don't know anything about this at all I would strongly suggest they seek professional advice.

Skybox · 29-08-2014 1:19pm

Looked up this link here which may be of use http://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html and two points sprang to mind!!!

Special circumstances
In certain circumstances, it is possible to pay the tax by instalments over a period not exceeding 60 months. This applies to any property where the beneficiary does not have full and complete ownership.

and

A gift or inheritance of a house which has been your main residence may be exempt from Capital Acquisitions Tax if you do not own or have an interest in any other house. You must have lived in the house as your main residence for the three years immediately preceding the date of the gift or inheritance.

Would agree 100% with previous posters to seek professional advice from either a solicitor or a tax accountant.

Mrs OBumble · 29-08-2014 4:59pm

I would involve both a solicitor and a tax-accountant. Twice the professional fees, I know. But in my experience they tend to know about different stuff.

There's also the small matter of whether the other person who has inherited wants to sell, wants to sell to you, and is prepared to accept market value. Do not underestimate the hassles that can come up here.

And questions of how the value of the property is maintained while the legal processes happen. Eg is there someone taking care of it in the winter, making sure the heating is on for a few hours each day etc. Does that someone live there? Do they pay rent, or are they paid for what they do, etc.

homerjay2005 · 29-08-2014 7:46pm

thanks for the info, i have sent those links on to her, i think it makes sense. ive no idea if the other person wants to sell, i am keeping out of it!

D3PO wrote: »

what does "with immediate effect" mean.

my friend and her relative are already looking after the property, its been handed over to them in that sense, as in they have the keys and are cleaning it, throwing out rubbish, painting it etc etc.

Inheritance Tax and 1/2 share of a house.

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