Selling to avoid inheritance tax

[HouseQ]

Hi All,

I would like a bit of advice, I currently own 2 properties - one I live in with my son and another that is rented out. On advice of my solicitor I am looking into way to reduce the inheritance tax bill that my son may have in the future. The house we live in - we both have been here continuously for 25+ years and therefor from my understand if this was my only property that my son would inherit it tax free (as this is his main residence).

However if I still have my other property then he would be subject to a huge inheritance tax, such as the market price of our main residence.

Therefore my simple question is if I sell the other property and get say 300k, will my son inherit the family home tax free - and then be left to pay tax of say 33% in current terms on the full amount of my cash, or does the threshold apply first?

Hope the above makes sense.

 

[Brendan Burgess]

As you are talking about potentially "huge" amounts of tax, you should go to a tax advisor, probably an accountant.

As I understand it, your home will be left out of the CAT equation completely as he has been living in it. Whether you pass it on by sale or by inheritance doesn't matter, it will be exempt from CAT and CGT. That is the law at present, but it could easily be changed in the future. So it might be worth gifting it to him now.

If you leave an investment property worth €300k to your son, he will pay 33% CAT on it. I don't think it matters if you gift it to him now or leave it after you.

If you give him a gift worth €300k now, he will pay CAT at 33% on the thrshold over €225k or around €25k. It will be the same if you leave it to him.

However, if you gift it to him now, you will pay Capital Gains Tax on any gain you have made in the property at 33%. He will be able to set the CGT against his CAT.

An interesting point is would this be considered a property investment for him and therefore would be exempt from CGT if he keeps it for 7 years? I don't know the answer to this, but I don't see why not.

As you can see, you need to consult a specialist.

 

[Joe_90]

Definitely get some advice, I'm not sure the solicitor is providing good guidance.

The dwelling exemption may provide relief see the requirements. http://www.revenue.ie/en/tax/cat/leaflets/cat10.html

If you pass the rental property to them as a house or cash the tax will be the same.

 

[HouseQ]

I plan on getting expert advice, I was just looking for a few options before I walk in blind. my understanding of the primary residence is that it must be the only property that my son inherits for it to be tax free, hence the second property could cause financial headache in the future.

The recipient must not, at the date of the gift/inheritance, be beneficially entitled to any other dwelling- house or to any interest in any other dwelling- house

When I say huge - the figures could be upwards of 250k

Thanks for the advice.

 

[huskerdu]

Here are some sources of information that you should read, if you have not already done so

http://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html

http://www.revenue.ie/en/tax/cat/leaflets/cat10.html