tax implications of a property gift

I’m trying to understand the tax implications of the gift of a property as well as timing.

Background: My in-laws are getting older like the rest of us… but they are getting to the stage where they need more help. One option is for us to move in with them to help out. The property is worth €600k. However, their house would require significant alteration to accommodate our family pack of 5 along with the 2 of them… I can fund the renovation (say €300k) by selling our PPR (€550k) after the renovation is complete. This would be a long-term move for us. But I'm unsure of the tax implications...

Question:

• My in-laws have joint ownership of the house. If they both gift her their share (each €300k x 2) does my wife come under the €325k threshold in that scenario? Or are the gifts assessed together (€600k)?
• We could wait till the renovation is complete to transfer ownership. Say the renovated house is now worth €900k but we have funded €300k renovation. Are we exposed for the CAT for the €575k (€900 - €325k threshold)?
• Am I correct in saying my wife is in Category A of the CAT groups; while our children are in Category B of the CAT group? Am I in Category C – so stranger in blood?

Is there anything else I am missing? This is new to me, so still processing this proposal…

I appreciate there are many angles to which to assess it, but just want to clear away the financial questions first.

A key point is that your wife doesn’t have two slices of Group A €335k threshold. She has one, against which gifts and inheritances from both parents are assessed.

There is a thing called Dwelling House Exemption which is designed to eliminate inheritance tax in circumstances where someone inherits the property in which they cohabit with the deceased property owner.

It should be possible to structure a deal where the inheritance of the property is exempted.

However, the nub of the issue is whether you should do this at all. Is the property appropriate or will it be after the renovation? Or are you trying to fit square pegs in round holes? Are there other siblings who might go mad at the prospect of this? And are your in-laws a pain who’ll drive everyone off their rocker? Or will your family drive them off their rocker?

Gordon Gekko said:

However, the nub of the issue is whether you should do this at all.

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Fully agree. This is what you should be focussing.

These arrangements have a habit of going badly wrong.

• Your parents in law become difficult and you don't want to live with them any longer
• Your parents in law need full-time care but you can't put them in care because they gave you the house at a discount.
• You and your wife split up - who owns the house?

Find another solution.

Brendan

sm7940333 said:

our family pack of 5 along with the 2 of them…

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Your kids are probably teens, putting you in your late 40's/early 50's and your in-laws in their 70's. While you are correct that we are all getting older, there is a real possibility that one or both of your in-laws could have 20 years left in them so bear that in mind as this would be a long term commitment. You could end up being a pensioner looking after an even older pensioner!

sm7940333 said:

If they both gift her their share (each €300k x 2) does my wife come under the €325k threshold in that scenario? Or are the gifts assessed together (€600k)?

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Your spouse has a lifetime limit of €335k so regardless of which parent it comes from or the sequence in which she receives it, she will pay CAT on anything above the threshold.

sm7940333 said:

We could wait till the renovation is complete to transfer ownership. Say the renovated house is now worth €900k but we have funded €300k renovation. Are we exposed for the CAT for the €575k (€900 - €325k threshold)?

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I'm not sure about the CAT implications but you absolutely should not be spending €300k on a property that is not fully owned by you, especially when you need to sell your current PPR to fund the €300k.. If you go ahead with the plan, make sure it is fully owned by you and your spouse before any renovations start. Also, don't assume that €300k work results in €300k appreciation in value

In this situation, everyone needs to be protected from each other. If the parents gifted the property to you and your spouse, you benefit from the gift, they benefit from the modernization (€300k renovation) and the family support. All sounds good.

However, they would need assurances of their right of residence and this would most likely be registered on the property. While it sounds cold, if anything were to happen in your marriage, the property could not be sold with such rights existing. No one would touch it and you (personally) would be left in a really difficult situation.

Just a shooting from the hip answer and may not be an option. I am assuming the 300k is cash and not funded by a loan. I dont think this would work if a mortgage is needed. Could you and your wife use the 300k to buy a half share in the house at market value. Your inlaws use this money to do the needed renovation to the house. A deal is made that your wife will inherit the house when her parents die and you try to ensure that she qualifies for in dwelling relief meaning no tax on that half when she gets it.

sm7940333 said:

by selling our PPR (€550k)

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Why not just try to move to live very near them?

You are nearly as much help to them being a two-minute walk away as living with them. And without all potential downsides of seven people spread over three generations living together.

If you need cash to fund it then your parents could get an equity release on their own property (look up Seniors Money) on their own property. They could lend this to you to help fund your own purchase near them and you can pay them back very slowly.

Apologies for the delay in replying – had to travel at short notice for work. Thanks all for the replies. Plenty to ponder & process… I’ve tried to provide some additional info below based on the comments & questions…

Finances
We’re in a good place financially. We could fund the renovation by selling shares (say €250k in my current employer), then sell our current PPR (€550k) when renovations complete. I’m nearly mortgage free on PPR (€10k left & to be paid off by year-end). I wouldn’t want to keep my current PPR as a rental given my past experience: https://www.askaboutmoney.com/threads/retiring-as-an-accidental-landlord.225877/

PPR vs In-Laws House

• We’re currently living about 2 miles from them – other side of a “village” (which is a nicer way to say an over-grown town without the infrastructural investment needed given its population).
• PPR: Our 5-bed room house is in the middle of an estate & we’re on the main road that is getting busier. Our back garden is typical of new housing estates – so small. It’s a new house, so good BER.
• In-Laws House: Nice cu-dec sac with plenty of garden space even after an extension. Their side of the village does not have as many traffic challenges (more road options to escape the village). Older house so renovations will include bring it up to a good BER.

Proposed House Set-Up

• My in-laws have a good-sized 4-bed with a potentially sizable attic to be finished as well – saying it’s a 4-bed does not do it justice. Attic alone could be 2 bedrooms both with an ensuite & still room…
• However, given their age (late 60s / early 70s), my initial house plan would have them take up living on the ground floor – so move their bedroom to the second living room on the ground floor. This could be a self-contained space for them (living room, kitchen, WC, bedroom & ensuite) with their own entrance / hall. I would remove the stairs from their living space.
• My current plan would be an extension for us that includes a separate entrance, hall, kitchen & modified stairs. The modified stairs enable two separate living spaces separated with a door connecting them. In addition to the extension, I would do external insulation & add PV & solar panels for water etc. We would have a 7 bed house then.

Rest of In-Laws
My wife is 1 of 3. Siblings are good with it – if they were not, I would kill the idea right now. In-laws just want a “fair” distribution of their assets. So if we acquire my in-laws PPR, we would have to pay off the siblings.

Things to Think About
You’ve given me a few things to think about. Is it the right thing to do? If so, how to do it?
But I'm going to have to ponder the first question for a while...