Tax implication of providing a house for a relative

I think there is a balance to be struck between being the most tax efficient and achieving the desired goal of supporting the niece. They don't really go hand in hand.

If the niece has limited means and no real avenue to increase earnings and the OP is confident that this sum of money is not significant to their overall wealth and financial security then I think the best option is a cash gift to the niece.

If you gift €300k, she will receive €40k for Group B when the new thresholds apply. If you have a partner, you can both gift €3k now and €3k in January so another €12k tax free.

The remaining €248k will generate €82k in CAT.

From your €300k gift, your niece would have €218k to purchase a property. So allowing for costs associated with purchase she could probably buy up to €190-200k.

If you provide a loan now of €248k and a gift of €52k to use up CAT thresholds, she will be able to buy a better property but would still face a future CAT bill.

That would be messy if she cannot afford it and you are no longer around to protect her interests. She could try paying down the loan and you could also write off some of it over the years with the small gift exemption. But ultimately she would likely face a CAT bill that she can't afford.

I think the best solution is to take the hit of CAT now and buy a property net of that amount. You can probably save a bit of tax but ultimately you want to avoid a situation where she is in the house but can no longer live there due to a future CAT bill.
 
It's a bit of a conundrum as to what to do for the best. That is why I wanted to put her name on the deeds, god forbid I die next year, at least she's on the deeds. The changing nature of revenue is a concern, who knows what may or may not be allowable in the not so distant future.

Nobody did actually answer my query of joint ownership with her on the deeds if I purchase a small house outright as to what our tax obligations are with this though.
 
_OkGo_ said:
I think the best solution is to take the hit of CAT now and buy a property net of that amount.
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You are paying an avoidable €82k which makes little sense.

I am all for the tax tail not wagging the dog but this is an excessive price to pay for something which can be achieved without the tax bill.
 
Claricias said:
Nobody did actually answer my query of joint ownership with her on the deeds if I purchase a small house outright as to what our tax obligations are with this though.
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It's the worst of all solutions.
She has Principal Private Residence , or half of one, and must account for gift tax on it immediately.

You own 1/2 an investment property and will pay CGT on any gains if you decide to give it to her before your death.

And she will face another hit from CAT on the second half.

And you will probably pay about €5,000 in tax and legal advice.
 
Is the issue more that you want her to have a guaranteed roof over her head then giving her ownership of a house? In that case maybe a Right of Residency (https://legalguide.ie/rights-of-residence/) may be appropriate?
You could possibly structure it so she has caretaker status and maybe there's nominal rent (=€3k(/€6k) p.a.) which could be offset by an annual gift from you (and OH?). In such a case the ownership of the house remains within your (families) estate and in due course could fully revert to them.

<EDIT. Sorry - just see this was already raised>
 
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Claricias said:
Lifetime right of residence might work, I'll look into it., thank you.
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If you were to buy a property in joint names should anything happen to you it will pass to your niece by survivorship. Also outside probate. Rent a room is €14,000 tax free to the occupier. Again outside the RTB. No tax liability. You could draw up an agreement whereby she could repay you a certain amount per year. My concern is you mentioned her previous home was sold? By whom? Would they have an influence in her future?
 
I think you also have to consider the possibility that she might get married or be in a co-habiting relationship at some point and what the impact of this will be on the ownership of any property.
 
Brendan Burgess said:
You are paying an avoidable €82k which makes little sense.

I am all for the tax tail not wagging the dog but this is an excessive price to pay for something which can be achieved without the tax bill.
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I'd agree but I haven't seen any suggestion in the thread so far that avoids the tax bill.

Hoping that she would classify as a dependent relative is too risky. Totally and permanently incapacitated is a high bar to meet. The alternative of hoping everyone lives long enough for the niece to reach 65 is also high risk.

What you are asking of the niece would be to remain incapacitated for the next 35 years. The OP knows the details but I'm sure if the niece can manage some sort of employment or independence that she would want to do it. Does she classify as dependent if she meets someone and gets married? Far to many variables to control

All you are doing is kicking the CAT down the road hoping it disappears when more than likely it could get even bigger if the dependent relative criteria aren't met.

All options should be explored and tax minimised but I wouldn't be confident of avoiding the CAT bill altogether
 
Silversurfer said:
If you were to buy a property in joint names should anything happen to you it will pass to your niece by survivorship. Also outside probate. Rent a room is €14,000 tax free to the occupier. Again outside the RTB. No tax liability. You could draw up an agreement whereby she could repay you a certain amount per year. My concern is you mentioned her previous home was sold? By whom? Would they have an influence in her future?
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There's no other family member that has the means to help her. She has 2 siblings that are self sufficient, also 2 half siblings from her fathers second marriage. He's still about but useless. Any property would be kept well out of his reach. She sees her siblings every so often, but never her father or his new family.

The family home was sold when her mum died 6 years ago, they each got about 40K after fair deal scheme and all fees paid. She wanted to stay in the home but the siblings wanted their inheritance for deposits. (understandable) With no income she wasn't in a position to purchase anything so rented and is now in a position where all she can afford is 4 counties away from her family and friends.

I would be happy for her to sublet a room and avail of the 14K tax exemption. It's one of the few things allowed with a non contributory pension.
 
misemoi said:
I think you also have to consider the possibility that she might get married or be in a co-habiting relationship at some point and what the impact of this will be on the ownership of any property.
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I have thought of this, but again, whatever deal we come to would be in the solicitors agreement that would be drawn up beforehand.
 
_OkGo_ said:
I'd agree but I haven't seen any suggestion in the thread so far that avoids the tax bill.

Hoping that she would classify as a dependent relative is too risky. Totally and permanently incapacitated is a high bar to meet. The alternative of hoping everyone lives long enough for the niece to reach 65 is also high risk.

What you are asking of the niece would be to remain incapacitated for the next 35 years. The OP knows the details but I'm sure if the niece can manage some sort of employment or independence that she would want to do it. Does she classify as dependent if she meets someone and gets married? Far to many variables to control

All you are doing is kicking the CAT down the road hoping it disappears when more than likely it could get even bigger if the dependent relative criteria aren't met.

All options should be explored and tax minimised but I wouldn't be confident of avoiding the CAT bill altogether
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This. I would hope at some point she would be capable of working, even part time.
And I do worry that she wouldn't qualify as a dependent.
I'd absolutely love if she met someone and got married.
 
You can't predict the future - just look at a few different scenarios.

1) She recovers her health, meets someone and lives happily ever after.

If you own the house and let it to her. Great result. She inherits a house from you on your death. Faces a CAT bill because she is well, and under 65. Between herself and the partner, she pays the CAT. Or you leave her additional cash to pay the CAT.

If you gift the house to her now, she pays a big lump of CAT. And lives happily ever after.



2a) She is 65 when you die
2b) She is under 65 when you die, but qualifies as a dependent relative
2c) She dies before you
2d) She meets someone, splits up and they demand half the house

Owning the house yourself is better in all these circumstances

The really bad outcome for you is that you give her the cash now. She pays a big lump of CAT. She dies before you and leaves you the house. You pay a big lump of CAT.
 
There is a lot of useful advice on this thread but it is worth also considering a Section 72 life insurance policy. This is basically insurance that pays out the CAT liability of the recipient of an inheritance. I have no idea about how costly it is but assume that it is cheaper and less hassle the younger you start.

What I would suggest is:

  1. Buy a house in your name
  2. Give your niece a lifetime right of residence. I think there should probably be some contract drawn up that obliges her to take care of it and who is responsible for repairs, LPT, bills, etc. I would include a low rent indexed to CPI
  3. Make sure that both you and your husband's wills are clear that she will inherit the house. Make sure that this is not a surprise to your own offspring
  4. Take out a Section 72 life insurance policy that will pay any CAT bill on inheritance and pay the premiums for the rest of your life
  5. When you pass away she will own the house outright with no tax bill

By the way I really admire what you are doing here @Claricias - there are lots of people with your means who wouldn't be as generous and considerate.
 
Janey Mac this thread has really taken off.

Surely the sensible thing to do is for the OP to buy the type of property they have in mind, and let it to the niece under the HAP scheme, at around the HAP limit. This puts the niece in a property where she wants to be, and presumably no worse off (or more likely better off) than in her current arrangement.

If the OP wants to give further assistance to the niece, they can do that by gift subject to the annual small gift exemption (for example they could gift the after tax rental income to the niece, and be no worse off from a cash flow perspective).

If the OP wants to provide security of tenure to the niece in the event of the OP's death, they can will a life interest, or indeed full ownership, to the niece. The worst case scenario then is that the niece has a CAT liability which is a fraction of the value of an asset they have received. Section 59 of the CAT act is in place for genuine hardship cases, so they're not going to put the thumbscrews into the lady.

For anyone unfamiliar with Section 59 it basically provides that where Revenue are satisfied that tax due in respect of a gift or inheritance can't be collected immediately without excessive hardship, they can allow payment to be postponed for such period, to such extent and on such terms (including the waiver of interest) as they see fit.
 
torblednam said:
For anyone unfamiliar with Section 59 it basically provides that where Revenue are satisfied that tax due in respect of a gift or inheritance can't be collected immediately without excessive hardship, they can allow payment to be postponed for such period, to such extent and on such terms (including the waiver of interest) as they see fit.
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Would you hang an entire strategy on niece being able to avail of this though?
 
Dr Strangelove said:
There is a lot of useful advice on this thread but it is worth also considering a Section 72 life insurance policy. This is basically insurance that pays out the CAT liability of the recipient of an inheritance. I have no idea about how costly it is but assume that it is cheaper and less hassle the younger you start.

What I would suggest is:

  1. Buy a house in your name
  2. Give your niece a lifetime right of residence. I think there should probably be some contract drawn up that obliges her to take care of it and who is responsible for repairs, LPT, bills, etc. I would include a low rent indexed to CPI
  3. Make sure that both you and your husband's wills are clear that she will inherit the house. Make sure that this is not a surprise to your own offspring
  4. Take out a Section 72 life insurance policy that will pay any CAT bill on inheritance and pay the premiums for the rest of your life
  5. When you pass away she will own the house outright with no tax bill

By the way I really admire what you are doing here @Claricias - there are lots of people with your means who wouldn't be as generous and considerate.
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I like the look of the section 72.

Given all the info I reckon that the house remaining in my name is most prudent, with a lifetime right of residence etc.

I don't have a particularly big family and I would hope anybody in my position would do the same. Myself and my husband have worked hard all our lives and are only now sitting back a bit and enjoying what we've earned. Given that we've only 1 direct inheritor and I have a family member who genuinely needs help right now, it seems almost criminal to hoard what we have until we die.
 
Dr Strangelove said:
Would you hang an entire strategy on niece being able to avail of this though?
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I would be wary of this myself.
I had always considered that she would fall into group B.
I'd always think that if even there was a loophole or a strategy to minimise the CAT, that Revenue would do their utmost to collect all dues.
 
Claricias said:
I'd always think that if even there was a loophole or a strategy to minimise the CAT, that Revenue would do their utmost to collect all dues.
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That may well be the common perception, but it is wrong.

Revenue collects the tax that is due. However, they are flexible when it comes to family issues and people are not trying to pull a fast one.

And as torblednam pointed out the law actually encourages them to be flexible.

torblednam said:
For anyone unfamiliar with Section 59 it basically provides that where Revenue are satisfied that tax due in respect of a gift or inheritance can't be collected immediately without excessive hardship, they can allow payment to be postponed for such period, to such extent and on such terms (including the waiver of interest) as they see fit.
Click to expand...
 
Claricias said:
I like the look of the section 72.
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You would probably be better off giving her the premium every year than giving it to an insurance company.

Is a Section 72 policy good value?

This was raised in another thread . I have never seen an example of how it works in practice. Let's say I am 65 and am worth €1m which I want to leave to one daughter. I am in good health. I take out insurance for the CAT bill. The CAT bill if I were to die today would be about €220k (€1m...
www.askaboutmoney.com
 
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