Tuesday 16 July 2019

Your questions: Could unmarried daughter face tax bill if partner dies?


'Does the deceased's share of the family home automatically transfer to the surviving unmarried partner in the event of death?'
'Does the deceased's share of the family home automatically transfer to the surviving unmarried partner in the event of death?'

Michael Gaffney

Q. I have a daughter who is not married but who has a long-term boyfriend. She and her partner have two children. They have a joint mortgage for their family home - which all four of them live in. My daughter also has a house mortgaged in her own name which is let out. I am concerned that should my daughter's partner die, she could be left with an inheritance tax bill if left her partner's share of the family home.

Could my daughter - or her partner - have an inheritance tax liability after inheriting the deceased's share of the family home - in the event of one of them dying? Also, does the deceased's share of the family home automatically transfer to the surviving unmarried partner in the event of death?

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John, Co Kildare

A. Your daughter could have a tax bill if her partner were to die and leave his share of the family home to her. The same applies vice versa if your daughter were to die. This is in contrast to the situation for married persons where there is an exemption from tax.

The tax would be based on the value of the share of the house - as reduced by the related mortgage taken over.

There is a once a lifetime exemption for the first €16,250 of the inheritance, but after that, the excess is taxed at 33pc.

There are two possibilities to consider here. Firstly, there is a possible exemption - known as the dwelling house exemption. To qualify for this exemption, the surviving partner must have lived in the house for three years before the death of the other partner. The problem with this is that the surviving partner must not own any other property. Your daughter would have to sell her investment property. There are other detailed conditions which should be checked but they should not be problematic. Alternatively, the partners could consider leaving their share of the house equally between the surviving partner and the children. Each child has a lifetime inheritance tax exemption of €320,000, so it is likely that there would be very little tax overall in this scenario. However, the children would at that stage own part of the house so in the future that situation may need to be resolved.

I would not assume that the share of the house passes automatically on death to the other partner. Your daughter will need to get legal advice on this.

Property losses and tax

Q. I am currently disposing of two rental properties. One property - if sold on the open market - would make a considerable loss. The other property - if sold on the open market - would make a considerable gain. I am considering gifting the property which would make a loss to a family member - rather than selling it. Will disposal in this manner allow me to generate a loss - and could I then offset this loss against the gain made on the second property (which I plan to sell)?

Joe, Co Sligo

A. This is a good question which highlights a trap which likely catches a few taxpayers each year. The tax law specifically stops taxpayers availing of losses in this way. It provides that where a loss is made on disposal of an asset to a connected person (such as a family member), that loss can for tax purposes be offset only against gains in other transactions with the same individual. So the loss generated here would not be available to reduce tax on the gain made on the second property.

Share tax and death

Q. I understand that there is no capital gains tax (CGT) due on any uplift in a property's value on death. So if for example, I bought a property a number of years ago for €200,000 - and on my death, the property is valued at €300,000, I understand no CGT is due on the uplift in value of €100,000. Would the same apply to the increase in the value of shares bought some time ago? Also, would it be more tax-efficient to sell the shares before death?

Marie, Co Longford

A. You are correct. There is no CGT payable when assets are transferred on the death of the transferor. This is true for shares and for any other asset - as well as property. The person who inherits the asset is treated as acquiring it for its market value on the date of death. The market value in this case is €300,000. So if that person sells the property shortly after inheriting it, there is no CGT at all.

For the above reason, and to answer your second question, it generally works out better from a tax point of view if the shares are not sold before death. There is one possible exception to this. If the shares are gifted (before death), then the CGT paid by the donor can be written off against any CAT (Capital Acquisitions Tax - also known as gift tax) bill due to be paid by the donee. This can sometimes work out well depending on the numbers involved, and other circumstances including the relationship between the individuals.

Also bear in mind generally that there is inheritance tax (the same CAT mentioned above) on assets transferring on a death. This is a separate tax to CGT.

Dissolving a company

Q. My son has a small limited company. He has no employees - and just he and his wife are directors. His wife never had a wage from his company. Due to a downturn in his business, he is considering dissolving the company. How would he go about doing this?

Mary, Co Monaghan

A. I assume that there is not much in the company by way of assets or liabilities.

Your son could hire a liquidator and get the company formally liquidated. The liquidator will go through the normal procedures to liquidate the company, and once liquidated, that is the end of it.

Like most services you will find high- and low-cost providers, with the higher prices promising more quality and reliability, but on average the cost is typically a few thousand euro.

A cheaper possibility is not to liquidate the company but simply to have it 'struck off' the register of companies. This is referred to as a voluntary strike-off. He can close down the company and no more tax returns or filings in the Companies' Office are necessary. This is not as final as a liquidation. If in the future, someone claims that the company owes them money, they can seek to resurrect it.

However, if the company does not have any debts, then you may not worry about anyone pursuing the company in the future.

This is cheaper than a liquidation and there are many accountants, company secretarial providers and solicitors who provide this service. Again, there are a range of prices but a typical average price including Vat is about €1,500.

Your son can reduce the costs beforehand by paying off any creditors, and taking any extra cash out of the company. If there are material assets or liabilities, he may need expert advice.

Michael Gaffney is a tax expert with KPMG

Email your questions to  lmcbride@independent.ie or write to 'Your Questions,  Sunday Independent Business, 27-32 Talbot Street, Dublin 1'. 

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

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