We live in a house owned by my parents. It is not their family home. They had promised us the house so we sold our house and moved in. Now they say they will not give us the house until they are dead. The house is worth about €400,000. Will we have a tax bill when they die or can we claim dwelling house relief?
Mr D.R., email
This sounds messy on so many levels and illustrates, once again, why family and business should always be clearly defined.
It’s a difficult notion when so much about family is based on trust, but where large-scale financial decisions are involved, it makes sense for people to adopt a business approach – most particularly to avoid confusion and the potential for frustration and even bad blood.
What do I mean by a business approach? At its most basic level, there should be agreement in writing. Even better a simple contract drawn up with the help of a solicitor.
After all, you were making a major decision – in this case selling your own family home. And it is not just you that is involved. Your wife, or partner, finds herself in limbo. They had a home: now they are essentially guests in your family’s property.
And while, from your understanding, the initial intention was that you would be given the property, that has now changed. Who is to say it might not change again?
While you have no reason to suspect such a scenario, without some security there is nothing to rule out the prospect. Your parents could change their minds further as they age. That could be due to changing financial circumstances, such as the cost of nursing home care, for instance. Or it could simply be that they change their mind about their wishes for this property.
And then there is the tax bill. Where does this leave you?
First up, no, you will not qualify for dwelling house relief. That would work only if you were living with them in their home.
What then? Well, had your parents gifted you the property between 2001 and 2010, you would have had no tax issue as the threshold for gifts and/or inheritances to a child from a parent was higher than the €400,000 value you suggest for the property.
That threshold has since fallen, unfortunately for you. It stands now at €320,000 after the recent budget and that means that tax is an issue if you were to be gifted the property now. Yes, your partner would also have a tax-free threshold – €16,250 in relation to your parents as long as she has not previously received gifts or inheritances from anyone other than close blood relations above the €3,000 level.
Even then, you will have a tax charge of 33 per cent on any value above €336,250.
Now, if your parents wait until they die, the scenario could change. The Government is currently committed to raising the category A threshold for inheritance and gifts from a parent to a child to €500,000. However, its progress on this has been painfully slow, given other competing demands on exchequer funds. It certainly depends on the Government being re-elected, and even then. . .
And, of course, in the meantime, the value of this property could rise. Prices are currently on the increase and there can be no clarity about how that will play out over your parents’ lifetime, given the uncertainties that involves.
And that is not all. Revenue tightened the rules a few years ago in relation to parental financial support for adult children. Essentially, unless you were incapable of independent living, they don’t allow it.
What that means in the real world is that this second home is an investment property for your parents and, if someone is living there, it must be rented. Either you pay your parents market rent on the property or the Revenue will deem them liable anyway to tax on the basis that the property was rented at a market rate.
It’s not clear but I’m guessing you are not paying rent. That means your parents face a tax bill on rent they have never received. And if they don’t declare it in an annual return, they face the prospect of Revenue interest accruing, and potentially even penalties and fines.
As I said, messy.
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
