# Living with parents and inheriting the home



## Kramer (24 Jan 2007)

A neighbour of mine lives with his parents and will most likely be there for the forseeable future.
Are there any implications (legal/financial etc.) for him inheriting the house if his parents pass away before he does?

His parents have mentioned transferring the house to him before they pass away and will be receiving legal advice on this but I would like to be able to pass on some advice to them to put their minds at ease if I can (Obviously any advice received here must not supercede any advice given by qualified solicitors/tax advisors etc.)

Thanks


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## Guest111 (24 Jan 2007)

Well, he'll pay tax at 20% on inheritance over and above approx €440,000


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## Kramer (24 Jan 2007)

Is there no regulations covering the fact that it is also his PPR?


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## Guest111 (24 Jan 2007)

Kramer said:


> Is there no regulations covering the fact that it is also his PPR?


 
I'm open to correction but I don't think so.


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## Towger (24 Jan 2007)

I think if you lived there for 2 years they did away with the tax.


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## Guest111 (24 Jan 2007)

Towger said:


> I think if you lived there for 2 years they did away with the tax.


 
Are you sure about that?!
I vaguely remember something along those lines...and you have to stay in the property for 10 years after?


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## mf1 (24 Jan 2007)

How to approach issue? 

1. Offspring

If his parents want to give him the house they have loads of options: transfer entirely now, transfer part now, sell to him at market  value, at less than market value, keep an absolute right of residence in the property etc.,etc. He can borrow but a bank will want outright entitlement to repossess the house if necessary. 

If its their PPR , no CGT but there will be stamp duty payable at half normal rate on the share they gift or sell. He may have CAT depending on the value. 

Its a very good deal for him if its at  less than market value although if he is going to be looking after them, that has a cost value also. If there are other siblings, at least one will go ballistic at the perceived loss of their inheritance - don't ask! The old adage of whats mine is mine and whats yours is partly mine is alive and well in inter family situations. 

2. Parent

Why would you transfer your only or part only asset incurring legal fees and triggering a potential CAT/Stamp duty situation?  What happens if everyone falls out? What happens if he marries and new wife wants more space/new house? Where is your protection? 

My experience is that about 50% of these situations work very well with all parties clearly understanding the big picture and being willing to do it for the reasons that make it practical. The other 50% are riven with upset, torment and disaster as the dawning reality of what they have done hits everyone down the road. A solicitor can only do so much explaining - clients have a real habit of making a decision, not thinking it through, blindly going ahead and then wondering who to blame?  

So - for the parties to decide. 

mf


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## Kramer (24 Jan 2007)

mf1 - Thanks for your detailed and informed answer.
1. Only Child
2. No income for son apart from a few odd jobs 
3. Parents want him to have the house (at the moment ) but are worried that when they pass on he will be left with a huge tax bill and will lose the house
4. The house would be very conservatively worth €700k

Thanks again for all advice, as I said they will be seeking their own prefessional advice but are very worried so I am trying to gather some info to try and put their minds at ease before they schedule this.


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## Perplexed (24 Jan 2007)

To the best of my knowledge if he fulfills 3 criteria he can inherit without any Inheritance Tax.

1. It has to be his residence for at least  3yrs before it becomes an inheritance.
2. It has to be the only house he owns or has an interest in.
3. He has to continue to live in the house as his home for 6 years after it legally becomes his.

The son/daughter inheritance tax allowance is not required in this case.

If he inherits it otherwise ie when it is not his home (ie he is not living there),there is a tax exemption of approx €450k before he has to pay the 20% tax.

There is also something I think about it being ok for him to sell within the 6yrs provided the funds are used to buy another home for himself.

If the parents make a gift of it to him now  or if he buys it for a "knockdown price" there will either be CGT for the parents as it has to be deemed to be sold at market value, or Inheritance tax for him. One can be offset against the other. 

It's quite complex & they definitely need legal advice but I hope this gives you some idea.


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## Guest111 (24 Jan 2007)

Just as a matter of interest who values the property in these cases?


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## mf1 (24 Jan 2007)

Market value. What is Market Value? What a willing purchaser would pay. How do you show that? - valuation from a reputable Auctioneer/Estate Agent. 

Most solicitors have a fair idea of market values in their own area so when the client tells you its worth (pick a random silly figure) you tell them about self asessment, Revenue audits,  Revenue adjudication ( to get stamp duty at half rate), Revenue pulling Deed and presenting to Valuation Office, and then penalties and interest if (your random silly figure) is perceived to be too low.  Also Revenue have the very best access to current market values on most types of properties as they are dealing in hundreds of them every day. 

Alternatively, put the property on the open market. Market value ? What a willing purchaser would pay. 

mf


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## Guest111 (24 Jan 2007)

mf1 said:


> Market value. What is Market Value? What a willing purchaser would pay. How do you show that? - valuation from a reputable Auctioneer/Estate Agent.
> 
> Most solicitors have a fair idea of market values in their own area so when the client tells you its worth (pick a random silly figure) you tell them about self asessment, Revenue audits, Revenue adjudication ( to get stamp duty at half rate), Revenue pulling Deed and presenting to Valuation Office, and then penalties and interest if (your random silly figure) is perceived to be too low. Also Revenue have the very best access to current market values on most types of properties as they are dealing in hundreds of them every day.
> 
> ...


 
That doesn't really answer any question.
Auctioneers/Valuers will put down whatever you ask them to put down within reason.
What about larger unique properties...some days they could be worth 2 million, another day 3 million.
It sounds very vague and open to abuse.


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## jpd (24 Jan 2007)

The Revenue have a fair idea of what the market value is - obviously there is some room for negotiation as unless the house is sold, it is impossible to determine it's "market value" - but if you submit a valuation that is too low, you leave yourself open to penalties and interest for late payment, etc if they come back and revise the figures later. Obviously, if you use a figure that's too high, then you may pay too much tax.


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## Perplexed (25 Jan 2007)

In a way the arguement is academic. When the "market value" details are sent  to revenue then the parents will pay CGT at 20%. The son will buy at the "knockdown" price & the difference between that price & the market valuation" is liable to Gift Tax at 20%

So's not to have two tax liabilities on the same event, one can be offset against the other. If the house is valued very high, the parents have more CGT & the son has less GT & visa versa.

A solicitor or accountant can explain the whole thing a lot better than me - hope I haven't confused everyone !

I think I've even confused myself as I have a feeling that this would apply to a property other than the PPR !


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## Towger (25 Jan 2007)

jpd said:


> The Revenue have a fair idea of what the market value is -


 
In the days of property tax (not too long ago) a house near my parents was bought for £110k at auction. The owner use what value to pay his property tax and increased it by the rate of property inflation for subsequent years. 2 to 3 years later he sold the house at auction and got £440k. Three weeks later he got a bill from Revenue for back dated property tax + penalties + interest for about £7k. You can't beat them..!!!!

Towger.


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## Guest111 (26 Jan 2007)

Perplexed said:


> In a way the arguement is academic. When the "market value" details are sent to revenue then the parents will pay CGT at 20%. The son will buy at the "knockdown" price & the difference between that price & the market valuation" is liable to Gift Tax at 20%
> 
> So's not to have two tax liabilities on the same event, one can be offset against the other. If the house is valued very high, the parents have more CGT & the son has less GT & visa versa.
> 
> ...


 
You don't pay CGT on the sale of your home.
They could simplty sell him the house at €497,000 less than the market value. Then no tax would be payable. Obviously as market value is not an exact science there a little room for manuevoure here.


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## wheels (30 Jan 2007)

Andy Doof said:


> You don't pay CGT on the sale of your home.
> They could simplty sell him the house at €497,000 less than the market value. Then no tax would be payable. Obviously as market value is not an exact science there a little room for manuevoure here.



Say for example the house was worth 500,000 and the parents sold it to their son for 10,000. What would have to be paid then and roughly how much? Is that legal? A friend of mine is in a similar situation and his parents are looking to give him a rental property they own but he is unsure how to go about it.


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## KalEl (30 Jan 2007)

wheels said:


> Say for example the house was worth 500,000 and the parents sold it to their son for 10,000. What would have to be paid then and roughly how much? Is that legal? A friend of mine is in a similar situation and his parents are looking to give him a rental property they own but he is unsure how to go about it.


 
Parents can gift a child €497,000 tax-free. This is a cumulative figure (either before they die or after)

So selling a house for €10,000 that's worth €500,000 to a child is essentially gifting €490,000 to the child. This does not incur any tax (assuming it's the first such gift)


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## mf1 (30 Jan 2007)

But stamp duty would be payable by the recipient on the market value of the property. And if the property was not the PPR of the donor then CGT would be payable by them on their "gain"  

mf


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## KalEl (30 Jan 2007)

mf1 said:


> But stamp duty would be payable by the recipient on the market value of the property. And if the property was not the PPR of the donor then CGT would be payable by them on their "gain"
> 
> mf


 
Yes, but that's a separate issue. You'd pay that anyway if you were buying it from a stranger.
The donor would not be liable for CGT...how does making a capital loss, even if it is manufactured, make you liable for CGT?!


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## mf1 (30 Jan 2007)

"how does making a capital loss, even if it is manufactured, make you liable for CGT?!"

Because its manufactured. If you have a choice to sell and make a loss or sell and make a gain, and you choose to sell at a loss, you still pay CGT on the deemed disposal

mf


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## ClubMan (30 Jan 2007)

KalEl said:


> The donor would not be liable for CGT...how does making a capital loss, even if it is manufactured, make you liable for CGT?!


Because _CGT _is assessed on the fair market value of an asset. Normally the sale price will be the fair market value but where it is obviously not (e.g. when the asset is sold for a significant discount to the fair market value) then it is the fair market value and not the discounted sale price that matters.

_Post crossed with mf1's._


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## KalEl (30 Jan 2007)

ClubMan said:


> Because _CGT _is assessed on the fair market value of an asset. Normally the sale price will be the fair market value but where it is obviously not (e.g. when the asset is sold for a significant discount to the fair market value) then it is the fair market value and not the discounted sale price that matters.
> 
> _Post crossed with mf1's._


 
That doesn't make any sense. Imagine I sell an investment property to you Clubman.
The property is worth 100,000. I paid 50,000 for it. Forget about the inflation/time adjustment.

If I sell that to you for 10,000 I cannot set the capital loss against another capital gain as it is a manufactured loss. You will be liable for capital gains tax at 20% on virtually the full 90,000. 
But I don't pay CGT on a capital gain I haven't made


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## Newby (30 Jan 2007)

If you sold it to an unconnected third party and all you could get for it was €10,000 then €10,000 is the market value. It was a bad investment. You have an allowable loss (of €50,000 less €10,000) on your investment.

If you sold it to someone at undervalue (€10,000) even though the market value is much higher (€100,000) your gain would be calculated on the market value (€100,000 less €50,000). (i.e. The market value in this case would be the value if you sold to a third party that wasn't connected).

Obviously the loss and gain calc's are a bit more detailed than that.


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## KalEl (30 Jan 2007)

Newby said:


> If you sold it to an unconnected third party and all you could get for it was €10,000 then €10,000 is the market value. It was a bad investment. You have an allowable loss (of €50,000 less €10,000) on your investment.
> 
> If you sold it to someone at undervalue (€10,000) even though the market value is much higher (€100,000) your gain would be calculated on the market value (€100,000 less €50,000). (i.e. The market value in this case would be the value if you sold to a third party that wasn't connected).
> 
> Obviously the loss and gain calc's are a bit more detailed than that.


 
This makes no sense at all...the Revenue do not tax this same transaction twice. 
The buyer has made a capital gain through this undervalue. They get hit with the CGT. The vendor has artificially manufactured a capital loss so pays no CGT, but equally cannot utilise this fake capital loss elsewhere.


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## Newby (30 Jan 2007)

My previous posts were two separate scenarios.

If the property is worth €100,000 (what someone else would be willing to pay for it) and you sell it to someone at €10,000 - your capital gains tax will be based on the market value of the property (€100,000) less allowable costs.

See here, particularly Chapter 1 Point 3 and Chapter 3 point 2 which relate to market value.

There would be Capital Acquisitions Tax implications for the person to whom you sold the property as it would be a gift.


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## KalEl (30 Jan 2007)

Fair enough, read those Revenue Leaflets.

It still seems a very odd to hit someone with CGT when they haven't made any gain.

3.2 seems to suggest the buyer will be deemed to have bought the asset at market value. This would suggest no CAT liability which cannot be the case?


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## Northie (1 Feb 2007)

Unfortunately odd or not Newby is correct. Have come across this myself except with the added layer that the house was originally inherited.

Ie Grandfather left house to his daughter (all necessary tax, inheritance etc paid) approx 30 years later the owner wanted to gift the house to her daughter. Was advised by Revenue this would trigger CAT (obviously) to the recepient but would also trigger a CGT liability for the owner. Because of increasing house prices in the area it would cost the owner appprox 60 grand to gift the house to her daughter! The two taxes can be offset against each other but the value of the house was under the limit of Mother-daughter gift so no CAT payable. Still left a CGT bill of 60 Grand plus stamp duty (at half the rate).

In this case it wasn't the PPR of the owner.

In the end mother left things as they were, she died about 2 years later and left the house in her will to the daughter. Value of house had gone over the threshold but daughter was living in the house 4 years as her PPR so availed of the Dwelling Home Exemption (mentioned earlier in the thread)


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