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Life Tennancy & Capital Gains

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  • 30-07-2020 5:28pm
    #1
    Smouse156
    Registered Users Posts: 529 ✭✭✭


    Hi, difficult question but does anyone know how a life tenancy effects the Capital Gains Tax on a property? Is there some offset. Eg. Someone inherited property in 1980 subject to a life tenancy. No rent is paid and person in property dies in 2000. If house was sold today, how would the CGT be calculated? Based on taking over house in 2000 upon death of resident or from original ownership date in 1980.

    Is there any offsets to reduce CGT liability?


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    #2
    y0ssar1an22
    Registered Users Posts: 16,027 ✭✭✭✭y0ssar1an22


    x = person who passed away
    y = person who inherited house
    z = person who got life interest



    in 1980, when X passed away, Y should have filed an IT38 (CAT form), and take a deduction on the value of Z's life interest.

    when Z passed away, Y needs to file another IT38 form where their own life interest is calculated and taxed.

    base cost for CGT, will be the MV of the house when Z passed away.

    there are no real offsets available, as there will be no CGT paid by Z to offset potential CAT liable to Y.

    ETA: leaving out a very important word!


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    #3
    Smouse156
    Registered Users Posts: 529 ✭✭✭Smouse156


    y0ssar1an22 wrote: »
    x = person who passed away
    y = person who inherited house
    z = person who got life interest



    in 1980, when X passed away, Y should have filed an IT38 (CAT form), and take a deduction on the value of Z's life interest.

    when Z passed away, Y needs to file another IT38 form where their own life interest is calculated and taxed.

    base cost for CGT, will be the MV of the house when Z passed away.

    there are no real offsets available, as there will be CGT paid by Z to offset potential CAT liable to Y.

    Hmm, thanks but let me make this clearer. My grandfather owned the house. In 1980 he put the house in my mother’s name as her brother was getting the family farm. My grandmother lived in that house until she passed away in 2000.

    It was for all intents and purposes her home, my mother lived in a different house and only took over the maintenance or the house after 2000. It’s now sale agreed so we are looking to reduce CGT as far as possible naturally.

    Can an argument be made that she really inherited the house in 2000 given that it was my grandmother’s private principal residence till she passed and this was the understanding when my grandfather signed over the house. My grandfather died in 1984 as well. I’m not sure what documents if any were signed bar the transfer of title.

    I realise it’s a complicated issue but any advice most welcome.


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    #4
    Marcusm
    Registered Users Posts: 10,184 ✭✭✭✭Marcusm


    y0ssar1an22 wrote: »
    x = person who passed away
    y = person who inherited house
    z = person who got life interest



    in 1980, when X passed away, Y should have filed an IT38 (CAT form), and take a deduction on the value of Z's life interest.

    when Z passed away, Y needs to file another IT38 form where their own life interest is calculated and taxed.

    base cost for CGT, will be the MV of the house when Z passed away.

    there are no real offsets available, as there will be CGT paid by Z to offset potential CAT liable to Y.

    What CGT would be payable by Z? The life interest ceased to exist upon Z’s death. Even if it had been an interest which survived Z’s death there would not have been any CGT as it does not apply on a disposal by a decedent’s personal representatives!


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    #5
    y0ssar1an22
    Registered Users Posts: 16,027 ✭✭✭✭y0ssar1an22


    Smouse156 wrote: »
    Hmm, thanks but let me make this clearer. My grandfather owned the house. In 1980 he put the house in my mother’s name as her brother was getting the family farm. My grandmother lived in that house until she passed away in 2000.

    It was for all intents and purposes her home, my mother lived in a different house and only took over the maintenance or the house after 2000. It’s now sale agreed so we are looking to reduce CGT as far as possible naturally.

    Can an argument be made that she really inherited the house in 2000 given that it was my grandmother’s private principal residence till she passed and this was the understanding when my grandfather signed over the house. My grandfather died in 1984 as well. I’m not sure what documents if any were signed bar the transfer of title.

    I realise it’s a complicated issue but any advice most welcome.

    has your mother ever lived in the house for PPR relief?

    https://www.revenue.ie/en/gains-gifts-and-inheritance/cgt-reliefs/principal-private-residence-ppr-relief.aspx

    Yes, the base cost for CGT will be MV when your grandmother passed away in 2000.


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    #6
    y0ssar1an22
    Registered Users Posts: 16,027 ✭✭✭✭y0ssar1an22


    Marcusm wrote: »
    What CGT would be payable by Z? The life interest ceased to exist upon Z’s death. Even if it had been an interest which survived Z’s death there would not have been any CGT as it does not apply on a disposal by a decedent’s personal representatives!

    No CGT for Z.

    But the base cost for CGT when Y sells it.


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    #7
    Marcusm
    Registered Users Posts: 10,184 ✭✭✭✭Marcusm


    y0ssar1an22 wrote: »
    No CGT for Z.

    But the base cost for CGT when Y sells it.

    Y inherited the property subject to the life interest of Z. Y’s seemed vase cost is the market value in 2000 discounted by the value of the life interest held by Z. Y will be entitled to indexation relief you to 31 December 2002. The base cost us not impacted by Z’s death and there is no inheritance from Z not any valuation at that time.


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    #8
    Marcusm
    Registered Users Posts: 10,184 ✭✭✭✭Marcusm


    y0ssar1an22 wrote: »
    No CGT for Z.

    But the base cost for CGT when Y sells it.

    You said there was CGT for Z; read your own post!


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    #9
    y0ssar1an22
    Registered Users Posts: 16,027 ✭✭✭✭y0ssar1an22


    Marcusm wrote: »
    You said there was CGT for Z; read your own post!

    Yep i went back and looked. I've just edited it there.

    apologies for any confusion


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    #10
    Marcusm
    Registered Users Posts: 10,184 ✭✭✭✭Marcusm


    y0ssar1an22 wrote: »
    Yep i went back and looked. I've just edited it there.

    apologies for any confusion

    But the rest of your post about CAT payable by Y remains and I think that is also wrong. There is no inheritance passing from Z to Y. They are not joint tenants.


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    #11
    y0ssar1an22
    Registered Users Posts: 16,027 ✭✭✭✭y0ssar1an22


    Marcusm wrote: »
    But the rest of your post about CAT payable by Y remains and I think that is also wrong. There is no inheritance passing from Z to Y. They are not joint tenants.

    x = person who passed away
    y = person who inherited house
    z = person who got life interest


    when x died, y was liable to CAT on the property reduced by z life interest.

    when z dies, y will have a (potential) CAT liability based on the annual value.

    https://www.revenue.ie/en/gains-gifts-and-inheritance/valuation-date-and-the-value-of-certain-benefits/rights-of-residence.aspx


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    #12
    Marcusm
    Registered Users Posts: 10,184 ✭✭✭✭Marcusm


    y0ssar1an22 wrote: »
    x = person who passed away
    y = person who inherited house
    z = person who got life interest


    when x died, y was liable to CAT on the property reduced by z life interest.

    when z dies, y will have a (potential) CAT liability based on the annual value.

    https://www.revenue.ie/en/gains-gifts-and-inheritance/valuation-date-and-the-value-of-certain-benefits/rights-of-residence.aspx

    That’s an adjustment to the original inheritance and not an inheritance from Z. Probably a distinction without a difference but it is important for thresholds etc - ie it is not an inheritance from Z and the original X to Y threshold applies.


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