Home economics: Sinead Ryan answers your property questions
Q. My mother has left me her house in its entirety, a fact I only discovered after she died and which has upset both me and my sister, who expected it to be shared equally. The date of the will coincides with a particularly tough time in my life, and I expect she thought she was doing me a favour. But I want the inheritance rightfully shared with my sister - what are the tax implications, if any, of splitting it with her? The house is worth around €500,000 and we propose to sell it.
Sinead replies: You definitely have a problem here. You cannot retrospectively re-write a will, however well intentioned.
Solicitor Susan Cosgrove tells me, however, that there is an instrument called a 'Deed of Family Arrangement' which allows beneficiaries in an estate to reach an agreement and divide property out of line with the will, which must be made within two years of the death so it is not treated as a further disposal of assets, but I also queried this directly with Revenue who said that although any tax treatment would depend on specific circumstances, generally speaking the transaction could generate two hefty tax bills.
For you, inheriting as a Group A beneficiary the Capital Acquisitions tax-free threshold is €310,000, creating a tax liability of €62,700 assuming there are no other assets. "If the inheritor [you], then decides to sell the house and split the proceeds with a sister this will be a second CAT event, and if the amount of cash gifted exceeds the Group B tax-free threshold (currently €32,500), the sister will have a gift tax liability," Revenue adds. This would, based on a gift of €250,000, amount to a hefty €71,775 by my calculations.
Revenue also told me you could choose to disclaim the inheritance altogether provided that you haven't already taken any benefit and that the disclaimer does not specify what happens to the bequest afterwards. In practice, it would have the effect of your mother not having left a will at all, and a court would determine the distribution of the assets under the Succession Act 1965. Potentially, this could mean you and your sister get left the entire estate equally and no tax would be due, but it's a risk, and pre-supposes there are no other parties who might claim a right to the estate. Talk to a solicitor first and see if you can intervene with Revenue on a special case basis before going down this road.
Q. My parents have a flat in the UK from a time when they lived there. It is rented out, and they receive and pay tax on income on it. However, they are very worried about the implications of Brexit. Is it likely to affect the tax arrangement between the two countries and would they be better off selling up now?
A. The glib answer is I haven't a clue. However, neither does anybody else. But changes to tax treaties are very unlikely post-Brexit. The UK has 130 Double Taxation Agreements (DTAs) in place and it would take years to re-write these for no particular advantage. Barry Flanagan of Taxback.com adds that DTAs are written to an OECD model, not an EU one, so it's not really about Brexit at all.
He adds: "In respect of the potential UK tax liability that could arise if your parents decide to sell, capital gains tax (CGT) could arise. Individuals resident in the UK are subject to CGT at 18pc, rather than our 33pc rate.
"Historically, non-residents selling a UK property were exempt, but UK CGT for non-residents was introduced in 2015 with the gain apportioned over the whole period of ownership, so only the portion related to the period of ownership after that date is relevant. Three methods exist for calculating the above, and things like domicile also come into it, so specialist advice is definitely recommended".
You're in no rush, but at some point, a visit to a tax expert would be beneficial for your parents.
The Ryan Review
Someone contacted me the other day to say he had "heard something" about a new interest-only mortgage and wondered where he could get one, expressing delight these were being sold again.
With relief (mine, not his), I told him they were only for buy-to-let properties and he wouldn't be able to avail of one for his new house. He wasn't comforted by my explanation about why this was a good thing.
The BTL interest-only product is being marketed by ICS, to professional investors on a maximum 70pc loan-to-value basis. There's nothing wrong with it, and I'm sure it was run past the Central Bank.
That doesn't mean it shouldn't be of concern though. It's a 'thin end of the wedge' argument which sees old practices we thought we had done away with, start to creep in again. What next? The 100pc mortgage? Thankfully CBI rules ban that now, but memories are short, and the property market is under pressure and who knows what a future government might decide is 'best' for its people.
Interest-only loans are fairly common in other jurisdictions, however, most haven't faced the utter catastrophe we continue to bear the fallout from.
Is it okay that anyone (even risk-taking investors) repay a loan over 10 or 15 years based solely on a crossed fingers approach to capital growth? BTLs make up a far higher percentage of mortgages in long-term arrears than private homes, so surely an ultra cautious approach is wisest.