Wednesday 17 January 2018

Home economics: Answering your property questions

Widower needs to make a will
Widower needs to make a will
Sinead Ryan

Sinead Ryan

Q: My wife and I divorced many years ago and she has been living in the family home since then, with our two children and is not in another relationship. They are now finished college and, under the terms of our divorce, the house is to be sold and the proceeds split equally between us.

I have since re-married and my concern is whether, for tax reasons, the proceeds are tax free to me (as they would be between spouses) or am I and my ex-wife considered under a different class? The house is worth about €540,000 with no mortgage left on it.

Sinead replies: The tax that matters is Capital Gains Tax (CGT), which is normally paid on gains arising from the sale of a property or other assets which have gained in value since purchase, with some offsets for inflation. Normally, no CGT arises on the selling of the family home or, indeed, on transfers between husband and wife. You believe since you have a new wife, this may alter the situation.

Generally speaking, once a judicial separation order or a divorce is granted, a court order is made by the judge regarding treatment of the family home (and other assets), which presumably happened in your case. In these circumstances, even though you are not living there, and it is no longer your home, the portion of the asset should transfer tax free as Revenue deems the relief to be available under these circumstances, as you are simply abiding by a court order and it is considered a Principal Private Residence for this purpose. Naturally, the same rule would apply to your ex-wife.

Now that it can be enacted and the sale made, I would recommend you re-visit your solicitor to enforce it.

Q. I enjoy your column every Friday and I have a question about inheritance. I am a widower with three children and want to leave them different things in my will. The first child is married and never got anything from me before so I want to leave him my house (worth around €450,000). The second is single, home from abroad and I want to leave him €100,000 as he wouldn’t be able to buy out the others if he got the house. He also received money from me before.

The third child’s marriage broke up and I gave money to pay off his ex-wife. He lives with his new partner and has the original house rented out. I wish to leave him the remaining €135,000 with my funeral expenses paid equally between them. By my calculations, they should not be liable to inheritance tax. Is this so?

Sinead replies: First of all, I cannot stress enough how important it is to make a will. If you haven’t, you should do so sooner rather than later. Secondly, you can leave any amount to anybody you wish, given they are all adults. There is no rule that says you must split your estate evenly.

For all, however, a tax liability may indeed arise. Currently, each can receive up to €250,000 without paying Inheritance tax under Class A Threshold. However, this amount includes all previous gifts from you and your letter doesn’t tell me exactly how much the second and third son received from you up until now. While the cash amounts you propose are under the limit, it will be important to add in previous gifts to this which might tip it over.

For the first son, a liability clearly arises. The house is valued at €200,000 more than he is allowed receive tax free. At current rates (33pc), this amounts to a tax of €66,000. The October Budget may well increase the IHT thresholds, so keep an eye on it.

My strong advice with an estate like this would be to visit a solicitor for advice when making the will. It won’t cost much and will be money well spent.

The Ryan Review

Another summer over, another report from Daft causing yet another sharp intake of breath on the subject of the cost of rents.

With just 3,600 properties available in the entire market and 1,100 in Dublin, it isn’t only students who will be living on pot noodles for a while longer. The reasons are so well rehearsed (and cannot be summed up, simple and attractive as it may sound to Government ears, in the word ‘supply’), that I won’t rehash them here.

We have to start out by the separation of private and social housing. Despite the efforts of Government to shoe-horn social tenants into the private market in an idealistic, utopian washing of the hands, it has proven not to be that simple. There are thousands of people who will never, ever, aspire to owning a home, or even renting one in the open market because they simply will never earn enough to do so. That is fact rather than opinion.

Forcing them on to a two-year lease in the private rental sector and hoping a future government will sort them out is not right. We need to build actual social housing solely for actual social tenants. If that jars with the noble but misplaced ‘inclusion’ argument, well, tough. Build them anyway. It frees up stock (not to mention the hotel rooms still being disgracefully used) for the rest of the economy.

Present policy in many local authorities is to sell off existing public housing (and no, it’s not any better to do so to sitting tenants). Social housing is a permanent asset. Flogging it is literally selling the family silver.

Indo Property

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