Q We live in Dublin and our home is currently valued at €800,000. We have one child and I worry that with the way property values and wage rates are going that even with a good salary, she will be unable to manage the tax bill on this inheritance. Is there any way to manage this house price penalty for average Dublin house owners as she loves her home and otherwise may have to sell the house to pay the tax bill.
A Every parent wants to leave a little something behind for family where possible. There’s nothing inherently wrong with that although I personally feel the need for older people to think first of themselves rather than living in penury and misery simply to provide for family who may be much more financially secure and, in any case, have no absolute entitlement to benefit from the hard-earned resources of their parents beyond their early rearing and education.
That being said, property is one thing to which Irish people are very attached. But rising prices mean beneficiaries are increasingly in the position where they cannot “afford” to inherit their family home. The problem is more acute in smaller families, especially where there is only one child and in Dublin and other areas where values are typically higher and still rising.
Meanwhile, the tax-free threshold on inheritance by a child from their parents has not risen at all over many years. It is currently €335,000 which is down from €542,544 at the peak in 2009. The burden of the tax on the inheritance of the family home on those beneficiaries who are subject to the low thresholds has become an issue of considerable concern and worry to persons who may have limited resources to pay a significant tax demand on inheriting what is in effect their family residence.
While the issue of inheritance tax remains high on the agenda of politicians, there are also voices arguing that where latitude to lower taxes or higher reliefs exists, it would be better and more fairly directed elsewhere. Despite the importance of inheritance in Irish society, inheritance tax relief is increasingly seen as something that favours the better off. Many believe if you are poorer, you are less likely to benefit from an inheritance and, consequently, from any tax relief on that inheritance.
If your home is valued at €800,000, even if you were to die today, your daughter would face a tax bill of €153,450 on the €465,000 excess on the current threshold – and that is assuming she inherited nothing but the house which is very unlikely. No foreseeable increase in threshold is likely to insulate her from a substantial tax bill going forward.
One possibility is the concept of dwelling house relief, also introduced by Mr McCreevy in that 2000 budget. The relief has been amended a couple of times, most recently to deal with perceived abuse, but now allows someone who has lived in the home for at least three years before the owner dies and who continues to live there for six years after inheritance to receive the property tax free provided, they meet several other conditions.
First among these is that the property must be the only or main home of the person who has died. In addition, the relief is available only where your daughter owns no other property – or even an interest in any other property.
If she is inheriting the family home and this second property, that could present complications that could invalidate the relief so you would want to take expert advice from a solicitor about how any wills intending benefit under the dwelling house exemption are worded. Tax advice should also be taken from an Accountant or Tax consultant.
Another option is Section 72 life insurance policy designed to pay the Capital Acquisitions Tax (CAT) or Section 73 savings policy for the same purpose. I will explain these in detail in next week’s article but feel free to contact me for more information in the meantime.