Consequences of delaying/disclaiming a life interest in house/residence

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Cruxty

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Hi

My aunt died recently. I'm the executor.

She left a life interest in her house (value €200k) to her partner, Mick, currently aged 74, and not in great health. She had no other assets on death.

On his death the remainder interest in the property will go to her two adult children, there will be no CAT liability as they'll be well within Group A thresholds.

I've done the calculations for re CAT due to be paid by Mick on inheriting the life interest. As they were strangers (Group C), the CAT liability is significant, circa €17k.

If Mick were to pass away before probate takes place, will the above CAT liability be levied on his estate, or not, does anyone know, please?

I have researched this question a lot. I'm aware that normally when a beneficiary dies before probate, the associated CAT liability is assessable on their estate. I'm wondering is this still the case / same treatment when it's a life interest that is being considered please?

If it is assessable on his estate, am I right in saying that the CAT can only be recovered from any assets that he bequeaths i.e. if he dies with no assets to bequeath, the debt dies also?

Another option is for him to disclaim the life interest. Is the valuation date for the remainder interest then taken as the date of my aunt's death or as at the date on which Mick disclaims his life interest, does anyone know, please?

Any response/guidance greatly appreciated.

If any further clarification is required, I will post promptly.
 
I guess in the first place you don’t need to concern yourself as executor with the benificaries tax affairs, that is between them and revenue.

Having said that normally the right of residence is calculated ~10%, or maybe this applies, revenues CAT valuation of limited interest. Both of those would result in a tax bill of less than you calculated. And the second one you would not really know until date of death. And revenue might consider for such a minor inheritance that although not married the couple were in an “enduring relationship” and that there was no tax to pay, especially if he has 0 savings, or recommend he pay €10 per week. You could advise Mick not to pay until after his death and revenue can get whatever bit of money he has left.

If he disclaims his life interest where does he live?

If he owed revenue €17K and has no assets when he dies then there is 0 to pay. And if Mike has no money who is paying for the funeral when he dies?

You probably have researched it more than me but that’s my tuppence worth.
 
Thanks Clamball.

Sorry, I should’ve said I’m also part-time carer / close to Mick.

I’m quite confident re my CAT calculations (€200k x 0.3352 (life interest factor)) = €67,000

€67,000 - €16,000 (Group C threshold) = €51,000

CAT = €51,000 x 33% = €17,000

I know a right of residence would be taxed differently, but this is n/a as he’s been left a life interest.

Wrt where would he live, good question, my thinking is delay probate for a few years, in which time he’ll more than likely be in a nursing home, he has mobility issues at present, but obviously we’d have to see how things go.

He has his funeral already paid for.

So, I suppose my main question still is what would happen were he to die before taking possession of his life interest, if anyone else has experience of same please
 
This is all very sad. Would he be eligible for CAT exemption?

I think the best thing to do if he is not exempt is to acknowledge the debt with revenue and put a payment plan in place maybe €5 or €10 reduction per week from pension. And the settle with what is left on death. Be sure to avail of living alone allowances in the meantime.

And surely by continuing to live in the house after the death of his partner he already has taken possession of his life interest?
 
Thanks Clamball.

Although I’m familiar with the dwelling house exemption, tbh, in my haste, I had completely overlooked it here, I just hadn’t considered that it might apply to inheritance of a life interest / I was over focused on calculating life interest, and other ways to avoid it..

I’ve just read Revenue guide and guidance notes on dwelling house exemption. They don’t specifically state whether or not it applies to a life interest. Google is no help either.

But I am guessing that it would apply. Mick most definitely satisfies all other conditions.

Thank you so much Clamball. You pointed me towards something I totally missed.

Maybe someone else might confirm if dwelling house exemption can apply to inheritance of a life interest please

If it does, then happy days.
 
Just a follow up..

I signed up to taxworld this morning, and found the same query with an answer.

Their opinion is that the dwelling house relief does apply to a life interest, as there is nothing in the legislation to say it doesn’t.

Thanks again Clamball, you’re a star. Problem totally solved. No tax liabilities.

If I can be of any assistance wrt any income or capital gains tax questions, was my area in the past, PM me anytime.
 
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