Mother’s right of residence and my tax bill

My mother transferred our family home to me, her son, in 1995 with one proviso – that she retained a right to live there until her death. The house was valued at £30,000 at that time. I paid stamp duty plus solicitor’s fees. I have done some upgrading – new doors, windows, kitchen, etc.

My mother passed away 12 months ago, which then let me sell the house for €90,000. Would there be a capital gain tax on the sale as I only had the right to sell this year?

Mr P.R., email.

I don’t think this is likely to result in a tax charge for you but it does raise interesting issues that we have not looked at before.

Inheritance of father’s home will not create tax charge

---

Challenge Welfare on those missing PRSI payments

---

Will home caring credits get me a full pension?

---

Rearing a family and access to the State pension

---

The situation here appears to be that your mother effectively handed over ownership of the property to you with what is called a right of residence.

Ownership is the key thing here as if your mother had a life interest in the property as against a right of residence, she would have retained ownership of the property until she died.

As it happens, she had right of residence. And that right did not necessarily expire if she had to move out of the property. As it happens, I gather your mother lived with you in her final years but, though she could have relinquished her lifetime right of residence voluntarily – freeing up the house to be sold – it appears she did not, or that the issue simply never arose.

The key thing, in general, though it doesn’t affect you now, is that you don’t actually have to reside in a property for there to be a valid and legally enforceable right of residence.

The flip side, of course, is that while a right of residence is a right to live in a property, it does not give the holder ownership of the property. Your mother’s ownership of the property passed to you back in 1995 when she gifted it to you.

Threshold

That would have been considered under gift tax – capital acquisitions tax – at the time. As regular readers will be well aware, there is a threshold on the value of assets that a child can receive from parents over their lifetime free of tax. Back in 1995, that would have been €226,267, so the €30,000 value of the house transferred to you would have been well within the threshold and not subject to tax unless you had already received gifts or inheritances from your parents of more than €196,267.

And, in fact, the value of the transfer would have been even less because of the right of residence.

Now Revenue has a very complicated formula for working this out. And it is further complicated because, now that your mother’s rights are extinguished by her death, you have received an inheritance (of the value of her rights) relating to the property in addition to the discounted value of the 1995 gift.

And that new cumulative benefit to you from the property would be set now against the 2017 threshold – €310,000 – not the earlier 1995 threshold.

In your case, it is academic. Given the sums involved – and barring any other major inheritance from your parents that would bring your benefit above the €310,000 mark – you will not be liable to any capital acquisitions tax.

The issue of capital gains tax does not arise for you. It would be an issue if you had been gifted the house at €30,000 unencumbered – ie, with no right of residence or anything else that would have stopped you selling it between 1995 and 2018 – and the €90,000 value at which you sold. But, again, that is not an issue in your circumstances.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice