Tax on inherited house that becomes PPR

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mjeddy

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Hi,
My mam has passed. My sister will now inherit the rental property where she has been living & paying rent for 20 years.
She will obviously pay a chunk of Inheritance Tax.

My question is, if this continues to be/becomes my sister's Principal Residence, and she then goes on to sell it say in 2 years, will she owe CGT on the difference between the sale price and the probate valuation?

If not then would people not just lowball the Probate Valuation price in such cases?

Any help much appreciated!
 
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Who was paying rent - your mother, your sister ?
Who owned the house ?

If you sell a property that was your PPR, you get relief for the period that it was your PPR + 1 year

If the Probate Valuation is not at market rate, the Revenue will come calling
 
Thanks, edited post to make a bit clearer!

My mother owned the house as an investment property, my sister paid rent and lived there.

So my sister will inherit and pay Inheritance Tax - my question is does she have any CGT obligation if she then goes on to sell it a few years later, or in other words does it at some point qualify as her PPR and become exempt?

The Probate Valuation will be market rate - but that's a range, maybe 10% around a median value if you get a bunch of valuators.

Eg: the probate valuations are 500k -550k. She pays IT, lives for 2 more years in the house, sells it for 600k. Does she owe any CGT?
 
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If she lives in the property as her PPR before selling it, then there is no CGT - the property will be her PPR for the whole period of ownership

She may have a CAT liability if she is inheriting a house that worth € 550k and the tax-free threshold is € 335k for all gifts/inheritences since Dec 1991

If she has no prior inheritances/gifts, the CAT tax will be (550 - 335) x 33% = € 72k
 
jpd said:
She may have a CAT liability if she is inheriting a house that worth € 550k and the tax-free threshold is € 335k for all gifts/inheritences since Dec 1991
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If so, she'd be well advised to live there as her PPR for sufficient time after inheriting it to qualify for Dwelling House Relief, providing she otherwise qualifies.
 
T McGibney said:
If so, she'd be well advised to live there as her PPR for sufficient time after inheriting it to qualify for Dwelling House Relief, providing she otherwise qualifies.
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Was that not done away with because it was being abused? (parent buying a second home and letting child live in it and them inherit it tax free under Dwelling House Relief).
 
Steven Barrett said:
Was that not done away with because it was being abused? (parent buying a second home and letting child live in it and them inherit it tax free under Dwelling House Relief).
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Was it? The relief is still on the books although there were changes to it alright.

The person receiving the inheritance here should check in any case.
 

Qualifying conditions for inheritance on, or after, 25 December 2016​

You will be exempt from Capital Acquisitions Tax (CAT) on the inheritance of a dwelling house if, at the date of the inheritance:
  • the house was the only or main home of the person who died (this condition does not apply if you are a dependent relative)
  • you lived in the house as your only or main home for the three years immediately before the date of the inheritance
  • you do not own, or have an interest in, any other house
  • you do not acquire an interest in any other house from the same disponer between the date of the inheritance and the valuation date
  • the house continues to be your only or main home for six years after the date of the inheritance. This does not apply if you:
    • are aged 65 years or over at the date of the inheritance
    • are required by reason of employment to live elsewhere
    • or
    • are required to live elsewhere because of mental or physical infirmity, and this is certified by a doctor.
 
It seems unlikely, based on the OP's description, that the exemption would apply, as the property is described as an investment property of the parent, which was let to the daughter.

Worth checking though, certainly, given the CAT exposure.
 
T McGibney said:
Was it? The relief is still on the books although there were changes to it alright.

The person receiving the inheritance here should check in any case.
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I don't know, I was hoping you would tell me :) I remember there were some changes made but I can't remember what they are.
 
torblednam said:

Qualifying conditions for inheritance on, or after, 25 December 2016​

You will be exempt from Capital Acquisitions Tax (CAT) on the inheritance of a dwelling house if, at the date of the inheritance:
  • the house was the only or main home of the person who died (this condition does not apply if you are a dependent relative)
  • you lived in the house as your only or main home for the three years immediately before the date of the inheritance
  • you do not own, or have an interest in, any other house
  • you do not acquire an interest in any other house from the same disponer between the date of the inheritance and the valuation date
  • the house continues to be your only or main home for six years after the date of the inheritance. This does not apply if you:
    • are aged 65 years or over at the date of the inheritance
    • are required by reason of employment to live elsewhere
    • or
    • are required to live elsewhere because of mental or physical infirmity, and this is certified by a doctor.
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Thank you. I think the first line is the bit that was changed. Previously, it did not specify that it had to be the disponer's home.
 
jpd said:
If she lives in the property as her PPR before selling it, then there is no CGT - the property will be her PPR for the whole period of ownership

She may have a CAT liability if she is inheriting a house that worth € 550k and the tax-free threshold is € 335k for all gifts/inheritences since Dec 1991

If she has no prior inheritances/gifts, the CAT tax will be (550 - 335) x 33% = € 72k
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Ahh thanks for that jpd!

torblednam said:
It seems unlikely, based on the OP's description, that the exemption would apply, as the property is described as an investment property of the parent, which was let to the daughter.

Worth checking though, certainly, given the CAT exposure.
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This seems excluded based on it not being my Mam's PPR.


So based on this am I right in thinking for my sister if there is a valuation range of 500k - 550k for this investment house we should use the lower as there is no future liability?

But for the family home divided between the 3 other siblings, if the valuation range is 900k - 990k, then we are better using the upper so as to avoid CGT owed by estate if it sells higher than the probate value?
 
mjeddy said:
So based on this am I right in thinking for my sister if there is a valuation range of 500k - 550k for this investment house we should use the lower as there is no future liability?

But for the family home divided between the 3 other siblings, if the valuation range is 900k - 990k, then we are better using the upper so as to avoid CGT owed by estate if it sells higher than the probate value?
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Attempting to play around with valuation ranges is a recipe for trouble. Invest in a quality independent valuation of both properties, performed by the best and most knowledgeable valuer you can find, and you won't regret it.
 
Slightly off topic and of no use to the OP's sister at this stage but if this situation were to arise again could some kind of a rent to buy arrangement have been agreed between the mother & daughter such that she wouldn't have such a large tax bill when she inherited the house. Seems like paying both rent and then inheritance tax on the same property could have been avoided. I appreciate the rent may not have been at market value.
 
1 sibling wants to low ball the valuation on an inherited rental to minimize their CAT bill in the knowledge they won't have a future CGT bill if they ever sell because it is their PPR

3 other siblings want to over value the parents PPR to use up all of the CAT exemption threshold to avoid a future CGT bill when sold.

Asking a valuer to go high and low on different properties sounds a bit suspect

T McGibney said:
Attempting to play around with valuation ranges is a recipe for trouble. Invest in a quality independent valuation of both properties, performed by the best and most knowledgeable valuer you can find, and you won't regret it.
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This should be the only approach taken by the executor
 
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