What if a relative I live with leaves me their home after death?

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Huskie

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I will soon be moving in with an elderly family member to provide care for them and security as they currently live alone. I will still be working full-time but providing care and a sense of security at night. It is their intention to leave the house to me in their will but I currently own my own house.

The mortgage remaining on my house is approx €150,000 and the house value is about €350,000. I have a tracker of ECB +1.05%.

I'm reluctant to rent out my own house due to the hassle of becoming a landlord and the high tax I would have to pay. With house prices still increasing would I be better off hanging onto the house for another year or so (I know no-one has a crystal ball) and then selling up?

If so, is the best option to rent it out for a year or leave it empty? I'm happy to leave it empty (or take on a house-sitter) if the return after tax is negligible.

Current rental prices in my area are €1,800 approx and my mortgage repayments are currently around €800.

I'm also conscious that I would need to be in a position to pay the inheritance tax should my relative sadly pass away. The inheritance tax would be approximately €300,000.

Any advice or recommendations would be appreciated.
 
Where would you like to live when your elderly relative pass away ? If it's your house then rent it out and get an agent to look after it for you and sell the other on probate. If it's the new place then maybe sell up now.
 
Probably the new place and the idea of being free from a mortgage is a dream come true to be honest. I'm loathe to contribute to the current rental situation by charging someone extortionate rent but friends are telling me I'm mad not to rent it out and let the house increase in value while the mortgage is being paid by someone else.
 
Huskie said:
I'm also conscious that I would need to be in a position to pay the inheritance tax should my relative sadly pass away. The inheritance tax would be approximately €300,000.
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You need to check out the rules on this.

I am not a tax expert, but it seems to me that if your relative lives for three years and you don't own any other house when she dies, then there would be no CAT.

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  • An inheritance of a dwelling house which was occupied by the disponer (i.e. the relative) as his/her only or main residence at the date of his/her death.
Provided the beneficiary(i.e. you) :

  • Lived in the dwelling house as his/ her main residence continuously for three years immediately preceding the date of the gift/ inheritance, and
  • Does not have an interest in any other dwelling house at the date of the gift/ inheritance.
 
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Having said all that, it's very possible that your relative will change their mind and not leave you the house.

Or that she leaves you the house, and someone else challenges the will.

You won't be exempt from CAT until you are living 3 years in the house. So keep your own house for 3 years but sell it then.

If she dies before the three years is up, then you will pay the CAT but if she lives past the three years, you won't have any CAT liability.

A mortgage of €150,000@ 1% is costing you only €1,500 a year in interest. The rest of the repayment is reducing the balance so it's a form of saving.

Brendan
 
Wow, that's certainly something to consider Brendan, thanks for pointing that out. So if within the 3 years she was to pass away and I still had my own house when would the CAT need to be paid? Would I have time to sell my own house and raise enough money to cover the shortfall before I'd have to pay? And would I be able to get some sort of a personal loan to cover it if I was short?
 
You will have plenty of time to sell your house.
It will not be due until after the house is transferred to you by the executor.
Probate could easily take a year.
You may well be able to get a mortgage on the house at that stage to pay the CAT.

But don't waste energy worrying about things like that now.
The only decision you need to make is to sell your house as the three years approaches.

I will stress that I am not a tax expert, so check this out for yourself and keep an eye on the Budgets as these rules change a lot.

Brendan
 
That's certainly food for thought Brendan, I'll look into it further. Thank you for your advice.
 
Another thing to consider - what if your relation needs full time care in the future? You are working full time so may not be able to provide. If he/she ends up in a nursing home under the fair deal scheme - a percentage of the value of the house may need to be taken after her death to pay for her care. These are things you need to consider.
 
I may be missing some things or a lot of things here but here are my thoughts. I am in a somewhat similar situation and have moved in with my relative while retaining my own house for now while hoping to avail of the dwelling house exemption when my relative passes away. I have one out of the three required years done. I will certainly inherit the house and there won't be any challenges to the will. My relative's house will always be worth more than my one. If I have to pay CAT it will be 80k+ which I can pay from liquid assets but obviously I'd like to avoid this. In your case, you say you'd have to pay 300k. Your relative's property is very valuable and you should try to avoid having a 300k tax liability when you inherit it!

The point about the Fair Deal is a valid one. The max contribution towards care from the person's PPR asset value is 7.5% of the value of the property per year of nursing home care capped at 3 years. The person in care can either pay this contribution at the time or defer it in which case the HSE effectively "inherit" up to 22.5% of the property. If your relative goes into care and the HSE gets its 22.5% and you get 77.5% and if you can't claim the dwelling house exemption your tax liability will obviously be less than the 300k from a 100% inheritance but still substantial.

I'm just wondering if going for the deferral option would affect the chances of getting the dwelling house exemption. Your relative goes into care and dies having deferred the PPR part of their contribution. The HSE now wants its 22.5% - how quickly? Will there be liquid assets to pay this or will the house need to be sold - if the deferral option was chosen in the first place it would appear that there aren't liquid assets. How does this impact on the dwelling house exemption given that to avail of the exemption you need to live in the property for a few years after you inherit it.

PS if your own property becomes a NPPR (because you have moved in with your relative) you may owe CGT if you sell it for more than you paid for it. PPRs are exempt from CGT.

However I would say that the CAT dwelling house exemption and the potential to avoid a 300k tax liability is by far the most important issue here. Much more important than whether you'd owe CGT on the other property or the issue of not renting out your property (and losing potentially 1800 euros per month) because you don't want the hassle of dealing with tenants. You could leave the property idle.
 
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The 1800 is gross. You will pay tax, fees and costs, repairs etc out of that.

You would be wise to keep some of it back as a war fund for repairs and if a tenant stops paying. So that you can cover the drop in income.
 
Also note that the NPPR and other assets like a car for example are not capped at 3yrs for the Fair deal. Though there is a a total cap if the cost of nursing care is covered. I'm open to correction.
 
Also note that you might have to provide care at home before a nursing home is required. stairlifts, homecare, etc.
 
There's certainly a lot to think about there. I wonder who would be the best type of professional to offer advice in this situation - a solicitor, an accountant or perhaps talk directly to Revenue to ask the question "hypothetically"? It seems quite complex to me. Would Revenue even humour me with a response if I were to ask how I could avoid paying inheritance tax??? I'm an above board type of person and I had no idea that I could even avoid the inheritance tax until I posted here! I certainly don't want to set alarm bells ringing with Revenue!
 
But I wonder could I hold onto the property for the moment and sell it just before the 3 years are up even if I have no intention of renting it out? That way I'm reducing the balance on the mortgage and house prices may increase further.
 
Huskie said:
There's certainly a lot to think about there. I wonder who would be the best type of professional to offer advice in this situation - a solicitor, an accountant or perhaps talk directly to Revenue to ask the question "hypothetically"? It seems quite complex to me. Would Revenue even humour me with a response if I were to ask how I could avoid paying inheritance tax??? I'm an above board type of person and I had no idea that I could even avoid the inheritance tax until I posted here! I certainly don't want to set alarm bells ringing with Revenue!
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I asked this same question recently...

https://www.askaboutmoney.com/threads/future-planning-who-to-advise.207799/
 
Huskie said:
But I wonder could I hold onto the property for the moment and sell it just before the 3 years are up even if I have no intention of renting it out? That way I'm reducing the balance on the mortgage and house prices may increase further.
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It’s a point in time test, so yes, that would be fine.
 
Huskie said:
I wonder who would be the best type of professional to offer advice in this situation
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Hi Huskie

It would be very unlikely that you would find an accountant or a solicitor who would give you as comprehensive an answer as you have got here.

Brendan
 
Huskie said:
Would Revenue even humour me with a response if I were to ask how I could avoid paying inheritance tax???
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Tread carefully. Revenue are in the tax collection business, not the advice business. They routinely disclaim responsibility for wrong or incomplete "advice" dispensed by their staff.
 
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