Saturday 22 October 2016

Your questions: Must my mum pay capital gains tax on house inherited from her aunt should it be sold?

Jim Hegarty

Published 25/10/2015 | 02:30

'If two capital transactions are linked, such as a gift of a property from an aunt to her niece - and an immediate sale of that property at the time, the CGT paid by the aunt can be written off the inheritance tax bill owed by the niece on the gift'
'If two capital transactions are linked, such as a gift of a property from an aunt to her niece - and an immediate sale of that property at the time, the CGT paid by the aunt can be written off the inheritance tax bill owed by the niece on the gift'

Q. My mother inherited part of a house from her aunt about 16 years ago. She paid the required inheritance tax for her share due at that time. My mother never lived in this house - she continued to live in her own home after inheriting part of my aunt's property.

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The house is now being sold, and we wish to know whether Capital Gains Tax (CGT) would be due on any possible gain made on the sale - on top of the inheritance already paid. If CGT must be paid, can the inheritance tax already paid be offset against the CGT liability?

Rose, Kinsale, Co Cork

A. If two capital transactions are linked, such as a gift of a property from an aunt to her niece - and an immediate sale of that property at the time, the CGT paid by the aunt can be written off the inheritance tax bill owed by the niece on the gift. However, the two transactions must be directly linked.

In your case, the inheritance received by your mother sixteen years ago is not linked to the current sale of the house - they are separate transactions based on the facts presented. Therefore, should the house be sold now, your mother will have to pay CGT on it - and she won't be able to get any tax relief for the previous inheritance tax paid.

The CGT bill will be based on your mother's share of the sale proceeds - but that bill can be reduced by her share of the costs of the sale, such as legal fees and outlays. She will be allowed a reduction for the value of her inheritance sixteen years ago and this can be multiplied by a factor of 1.193 (the indexation factor for assets acquired in the tax year 1999/2000 - if that was the year of the inheritance) when calculating the deductible cost.

There are other ways that your mother can reduce the CGT bill she will possibly face when her late aunt's house is sold. She can write off the cost of capital losses from previous asset sales - as long as she has already not claimed tax relief for those losses.

She can also claim the personal CGT exemption of €1,270 - if she has not already claimed it. Under that exemption, the first €1,270 of taxable gains in a tax year are exempt from CGT.

Your mother must then pay CGT at a rate of 33pc on her taxable profit. This tax is payable as preliminary tax in December 2015 if the sale occurs by the end of November 2015, or in January 2016 if the sale occurs in December 2015. Your mother must file a tax return stating any gain she made from the sale. That return must be filed by October 31 of the year after the property was sold (or mid-November, if the return is being filed online).

So, if the property was sold in November 2015, the return would need to be filed by October 31, 2016 (or mid-November 2016 for online tax returns).

Your mother could face tax penalties and interest if she fails to meet these payment and declaration dates.

Q. I am an Irish national who has been working in the Middle East continuously since April 2013, with no Irish earnings since that date. I have filed annual returns with the Revenue Commissioners during my time in the Middle East and have met the conditions for being tax-exempt in Ireland on my overseas earnings.

I wanted to pay voluntary PRSI while overseas so that I would have contributions towards the State pension for my time abroad. As I understood it, the contributions were based on 6.6pc of your earnings in Ireland in the previous year, or €500, whichever was the greater.

I paid voluntary contributions in 2014 on this basis for 2013, based on my Irish earnings from January to March 2013. I then applied to pay in 2015 for 2014, but was told by the Department of Social Protection that I have to pay on all of my earnings in 2014. Is this correct?

Joseph, Dubai

A. Voluntary contributions for PRSI are paid at 6.6pc of reckonable earnings in the previous contribution year - or €500, whichever is higher, once you were originally assessed for PRSI in Ireland at Class A, E or H. Different rules apply to other categories.

The Social Welfare (Consolidated Contributions and Insurability) Regulations 1996 (SI No 312 of 1996), as amended by SI No 514 of 2014, define 'reckonable income' in relation to a voluntary contributor, as "all income derived from any employment, including any trade, business, profession and so on".

This is interpreted to include worldwide employment income when calculating the charge for voluntary contributions. Therefore under this definition, the Department's advice that you pay contributions based on 6.6pc of all of your earnings in 2014 is correct.

Despite the cost, you are wise to make voluntary contributions to the Irish State pension while you are abroad. Otherwise, you are unlikely to qualify for the full State pension when you retire - indeed you might only qualify for a tiny fraction of it.

Q. My husband and I hope to buy a house in Spring 2017. Some of our savings (€32,000) were in an 18-month fixed-term deposit account, which has now matured. Can you advise what we should do with the money for the next 18 months to get the most out of our savings?

We have never invested in shares but with the interest rates being so low for savings accounts, we would be willing to put a portion of our savings into shares if it gave us a better return. Would shares be a good move however over an 18-month investment horizon?

Niamh, Stepaside, Co Dublin

A. You mention you are hoping to buy a house in 2017, therefore we can assume your investment horizon is less than two years.

Shares are an equity class and are considered a higher risk than deposit accounts for the simple reason that they can fluctuate on a daily basis depending on the markets - and you are never guaranteed a return of your original investment or indeed, an investment return at all. Equities (shares) are only suitable for medium- to long-term investment horizons, as time allows you to see out market fluctuations.

Unfortunately, deposits are your only option if you are planning on a house purchase in 2017. Consider a demand account as opposed to a fixed-term account as there are providers offering competitive rates while allowing you access your funds immediately. This will stand to you should you find a house you would like to buy before 2017.

It would also be wise to seek mortgage pre-approval at this stage.

Email your questions to or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

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