Sunday 4 December 2016

Your questions: What tax bills could arise if my mother signs her house over to me so I can care for her?

James Ryan

Published 08/05/2016 | 02:30

'Should your mother transfer the ownership of the property to you, her son, Revenue will impose market value on the transaction, irrespective of what, if anything, you pay for the property' (stock photo)
'Should your mother transfer the ownership of the property to you, her son, Revenue will impose market value on the transaction, irrespective of what, if anything, you pay for the property' (stock photo)

Q. My mother is considering signing over her house to me so we can renovate it, move in with her, and look after her in her old age. If she gifts this to me now for a market value which is below the threshold for inheritance/gift tax, what would be the tax implications be for me? Would there be any tax implications for my mum?

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My dad, who is now deceased, originally inherited this house from his parents, so if there is Capital Gains Tax - or other tax implications - how would this be calculated? My wife and I currently live in our own home, which is our principal private residence.

John, Smithfield, Dublin 7

A. Should your mother transfer the ownership of the property to you, her son, Revenue will impose market value on the transaction, irrespective of what, if anything, you pay for the property. This would ordinarily potentially expose your mother to Capital Gains Tax (CGT) on the transfer of the property. However, based on the information that you have provided, your mother should be relieved from an exposure to CGT through the application of Principal Private Residence Relief.

Should your mother transfer the property to you, you are assessable to Capital Acquisitions Tax (CAT - also known as gift or inheritance tax) on the market value of the property as you are receiving a benefit from your mother.

You are currently entitled to receive/inherit up to €280,000 from Group A disponers (typically, your parents). So if you have not received benefits from either parent previously and the market value of the property is below €280,000, it is likely that you will not pay CAT on receipt of this property.

It is worth noting however that if your mother transfers the property to both you and her daughter-in-law, you will receive a benefit of 50pc of the market value of the property and your wife will receive a benefit of the other 50pc. At €15,075, the amount which your wife can inherit (over her lifetime) from your mother tax-free is a lot lower than what you can inherit. So it is likely your wife will have to pay CAT on such a transfer - as 50pc of the value of the property is likely to be in excess of €15,075.

Any exposure to CAT could be eliminated if the transaction is relieved by a tax relief known as the dwelling house exemption.

The dwelling house exemption provides an exemption from CAT if the following conditions are met. First, the beneficiary must have lived in the property for at least three consecutive years immediately prior to receiving the benefit.

Second, at the date of the transfer, the beneficiary cannot have a beneficial interest in any other dwelling house.

Third, the beneficiary must have lived in the property for a further six-year period after receiving the legal title in the property - although there is some flexibility in cases of working abroad or the disposal and subsequent acquisition of another residential property.

There are a number of complexities to this relief and the issues that arise in your case are as follows. You, as potential beneficiaries, are currently living in your own house. It may potentially make more financial sense to move into your mother's house for at least a three-consecutive-year period prior to receiving the legal interest in the property.

If your mother is under the age of 65, any time that you - the recipients - spend living in the house with your mother before she turns 65 is disregarded for the purpose of this relief. Should you live in the property for at least three consecutive years and during this time your mother is not under the age of 65, you will have to ensure that you do not have a beneficial interest in any other dwelling house (that is, your principal private residence) at the date of transfer and that you live in the property for a further six years after that date.

Please note that although the dwelling house exemption is a valuable relief, should you anticipate that the total benefits you will receive from your mother will be below €280,000, it may make more sense for you to receive the benefit solely now and retain your own property should that be your preference.

Q. My daughter bought a house in Dublin in 2012 and she has lived in it since then. She took out a mortgage to finance the purchase of the house and the mortgage is in her name. She has married since.

My wife and I bought a house in Dublin in 2014 as an investment and it has been rented since then. We have now decided that we intend to pass this house onto our daughter and we want to try and avail of the dwelling house exemption relief - where she lives in it for three years and retains the property for a further six years.

Is it possible for her to transfer her own house to her husband, fulfilling the condition of our daughter having no house in her name when we transfer our house to her? Can her husband take out a mortgage in his own name and be the sole owner of their house?

Mike, Drumcondra, Dublin 3

A. Yes, your daughter should be able to avail of the dwelling house exemption on receipt of the interest in the property as long as she satisfies the following conditions.

First, she must live in your investment property for at least three consecutive years before the transfer; second, at the date of receipt of the legal title in the property, she must not have a beneficial interest in any other dwelling house; and third, she must live in that property for a further six years after receiving it.

Legal advice should be sought in relation to the transfer of your daughter's property into your son-in-law's name and you should also speak with a mortgage advisor about the possibility of your son-in-law taking over the mortgage.

From a tax perspective, the transfer of an asset between your daughter and her husband should not create a CGT liability in your daughter's name (under inter-spousal exemptions and the principal private residence relief) and your son-in-law should be able to receive any benefit from his wife free from CAT and stamp duty under the inter-spousal exemptions.

Assuming that the market value of the investment property has increased from the time of purchase in 2014 and when you anticipate you will transfer the property to your daughter, this may create an exposure to CGT in you and your wife's names. Revenue will impose market value on the transaction as it is a transaction between connected parties. In addition, your daughter will have to pay stamp duty of 1pc on the market value of the property.

Q. Does the dwelling house exemption only apply to dwelling houses - or does it also apply to apartments? There seems to be a great emphasis on the word 'dwelling house'.

Fionnuala, Dun Laoghaire, Co Dublin

A. The dwelling house exemption also applies to apartments. In addition, it applies to interests in other residential property. For example, if a parent and child each own a 50pc shareholding in a residential property, be it a house or an apartment, it is possible for the parent to transfer their interest to the child free from CAT under the dwelling house exemption.

It does not have to be a 100pc interest in a house for the relief to apply.

In addition, there is nothing stated in legislation that the property in question must be located in Ireland. It is possible for an Irish-resident individual to transfer a residential property that they own to a beneficiary free from Irish CAT should the recipient meet the criteria for the dwelling house exemption. In the absence of this exemption, a transfer of foreign property by an Irish resident is assessable to CAT because the disponer is Irish resident.

Email your questions to lmcbride@independent.ie 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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